Transition and the Output Fall

Gérard Roland and Thierry Verdier

No 1636, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1636 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Transition and the output fall (1999)
Working Paper: Transition and the Output Fall (1997)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1636

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1636

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().