Transition in a Bubble Economy

Josef Brada and Trajko Slaveski ()

Emerging Markets Finance and Trade, 2012, vol. 48, issue S4, 7-13

Abstract: Although there is a large body of literature examining the negative effects of the global financial crisis on transition economies, the global financial bubble that preceded the crisis had a large positive impact on the productive capacity of these countries, both by increasing the pace of capital formation and by accelerating the growth of productivity. At the same time, through different channels, the global bubble also ensured that there was sufficient demand for the goods produced by the new capacity, thus creating a temporary high-output equilibrium. In the future, a new growth model, one based more on domestic resources, will be needed in transition economies, and policymakers should be cautious in judging the ability of their past policies to promote good economic performance.

Keywords: convergence; economic policy; financial bubbles; foreign direct investment; global financial crisis; productivity; transition (search for similar items in EconPapers)
Date: 2012
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