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Transition from plan to market - a PIE analysis

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This paper gives an overview over how far transition has proceeded and what is still lacking inthe process. First the analytical framework – the PIE model for Politics, Institutions, Economy –is introduces. The model is first used to point to the main reasons for the fall of the commandeconomy. Then it is used to identify the barriers for transition of the institutional system and therestructuring of the economy. This includes an analysis of the different factors behind the steepfall in production in the first years of transition. It is shown that countries implementing a toughstabilization and a comprehensive and consequent liberalization have been most successful in theprocess. A fast and comprehensive privatization, on the other hand, has not been sufficient for thenecessary restructuring of enterprises. Decisive for success in transition has been transformationof the state as a crucial part of the development of new political and economic institutionsimplementing well functioning, clear and stable rules of the game for private enterprises. Theinstitutional development has been important for the attractiveness of foreign investments -important for restructuring enterprises as part of a positive circle for the transition process.

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Niels Mygind

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