Transition and the Output Fall

Gérard Roland and Thierry Verdier

No 1636, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper presents a model that explains why in the transition economies of Central and Eastern Europe an important output fall has been associated with price liberalization. Its key ingredients are search frictions and Williamsonian relation-specific investment implying that new investments are made only after a new long-term partner has been found. When all firms search for new partners, output may fall because of three effects: a) disruption of previous production links; b) a fall in investment; and c) capital depreciation due to the absence of replacement investment. We show that forms of gradual liberalization like the Chinese ‘dual-track’ price liberalization may avoid or reduce the transitory output fall.

Keywords: Asset Specificity; Output Fall; Search; Transition (search for similar items in EconPapers)
JEL-codes: D21 D50 E30 E61 P41 P51 (search for similar items in EconPapers)
Date: 1997-05
References: Add references at CitEc
Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Transition and the output fall (1999)
Working Paper: Transition and the Output Fall (1997)
Working Paper: Transition and the Output Fall (1997)
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