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Structural Change in Transition Economies: Does Foreign Aid Matter?

Mohsen Fardmanesh () and Li Tan
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Mohsen Fardmanesh: Temple University
Li Tan: American International Group

Working Papers from Economic Growth Center, Yale University

Abstract: This paper addresses whether the initial declines in the manufacturing and real wages in transition economies were anything unexpected to justify policy reversal, and whether the “often-recommended” foreign aid would have helped them curb these declines in any significant way. It answers these questions with the help of a two-sector three-factor small open economy model and simulation exercises. It concludes that, given the relative price distortions and the market disequilibria that transition economies inherited from their planning era, the initial declines in their manufacturing and real wages are to be mostly expected. Foreign aid, whose impact is noticeable only when it is in excess of 5% of GDP, does not curb the decline in their real wages in any measurable way and exacerbates the decline in their manufacturing by a few percent.

Keywords: liberalization; structural adjustment; transition economies; East European economies; Soviet Republics; foreign aid (search for similar items in EconPapers)
JEL-codes: P2 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2009-09
New Economics Papers: this item is included in nep-cis and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:egc:wpaper:982

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