The Savings Collapse During the Transition in Eastern Europe

14 Pages Posted: 20 Apr 2016

See all articles by Cevdet Denizer

Cevdet Denizer

Center for Economics and Econometrics; World Bank

Holger C. Wolf

Georgetown University - Edmund A. Walsh School of Foreign Service (SFS)

Date Written: August 2000


The transition economies of Eastern Europe almost uniformly experienced a precipitous plunge in savings rates - from levels above 30 percent of GDP to levels about half that - early in the transition, before rebounding slightly. Did savings collapse because involuntary savings were eliminated (when goods became available for purchase) or because of a change in equilibrium savings, reflecting the changed economic circumstances and long-term prospects?

Denizer and Wolf assess the presence and extent of involuntary savings by comparing the predicted savings rates of market economies with those of the pre-transition economies. On balance, predicted savings rates fell short of actual savings rates, especially for the former Soviet Union and the Baltics - providing some support for the notion of excessive pre-transition savings.

Comparing the savings behavior of market economies and transition economies, they found substantial similarities, except for a negative link between savings and GDP growth. As the fastest-growing transition economies are at the bottom of the adjustment J-curve, the finding is consistent with consumption smoothing.

Finally, they explored whether differences in the extent of economic liberalization affected savings rates in the cross-section of transition economies. They found that liberalization is associated with lower savings, with a one-year lag. To the extent that liberalization is perceived as an indicator of likely future growth, this behavior is consistent with smoothing in the face of a J-curve change in output.

This paper - a product of the Poverty Reduction and Economic Management Sector Unit, Europe and Central Asia Region - is part of a larger effort in the region to understand the determinants of savings during the transition to a market economy. Cevdet Denizer may be contacted at

Suggested Citation

Denizer, Cevdet and Wolf, Holger C., The Savings Collapse During the Transition in Eastern Europe (August 2000). World Bank Policy Research Working Paper No. 2419. Available at SSRN:

Cevdet Denizer (Contact Author)

Center for Economics and Econometrics ( email )

United States
+902123596505 (Phone)
+902122872453 (Fax)


World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Holger C. Wolf

Georgetown University - Edmund A. Walsh School of Foreign Service (SFS) ( email )

Washington, DC 20057
United States
202-687-8079 (Phone)
202-687-8359 (Fax)


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