Economics of Transition  Davidson College 

Economics 232     Aug-Dec 2003

Syllabus

 

Instructor:    Mark C. Foley

Office:             Chambers 3140

Class hours: 230-345 p.m. MW

Office hours: MW 10-11, TTh 230-330

                        and by appointment

Location:       Chambers 337

Phone:           894-2248 (home = 878-6137)

Email:            mafoley@davidson.edu

 

Web:               www.davidson.edu/academic/economics/foley/transition/index.html

 

Course Description

 

The field of "transition economics" studies issues faced by countries making the transformation from central planning as the primary force for allocating resources to market-driven resource allocation.  Many of the issues, of course, have a much larger relevance insofar as questions arise about the appropriate roles of the state and private sectors, about the analysis of the many institutions governing economic life, and about the nature of structural change.  In addition, the revolution of economic systems currently underway in Russia, central and eastern Europe, and central Asia is a unique event in human history and thus of intrinsic interest. Although every subfield of economics can find interesting applications in transition economies, the transformation raises completely new and fascinating problems, due to the magnitude and speed of the change attempted.

 

In order to provide a background for our in-depth study of the economics of transition, we will first examine the legacy of the Soviet economic system, which these countries inherited.  We then explore the demise of central planning and the debates about the best practices in transforming socialist economies.  Next, we review the progress of transition in various countries, asking why and how countries pursued vastly different strategies concerning macroeconomic stabilization, market liberalization, firm privatization, institutional development, and the establishment of a social safety net.  Finally, with the upcoming EU accession of several transition countries in May 2004, we discuss whether the transition is over in these countries and how we might define, in general, when transition is complete.

 

 

Course Requirements and Policies

 

There are two lectures each week.  There will be regular exercises, two reviews, a country presentation, and a group project.  The exams will be given on September 22 and November 19.  If a student is unable to take an examination or turn in a scheduled assignment, it is the student’s responsibility to contact the instructor prior to the scheduled completion date; students who miss an exam and fail to make alternative prior arrangements will receive a grade of zero for the assignment.  Late work is penalized 10% per day.  Reading is required for most classes.  Readings should be done in advance of class meetings to facilitate discussion.  Short quizzes on assigned readings might be administered at any time. 

 

Country Presentation

Each student will give a 10 – 12 minute presentation on a different transition country.  These will be spread out over several class periods, probably doing 2-3 per class after the first review.  You should address the following issues: (a) Why and when the country became socialist, (b) any noteworthy events during the socialist era, (c) how the economy was transformed during the socialist era, (d) how and when it broke with its socialist past, (e) significant political events and economic developments since the beginning of its transition, identifying current issues facing the government and what projects they are pursuing in conjunction with the international development agencies (World Bank, EBRD, IMF, etc.). 

 

Group Project

The Group Project consists of (a) written research proposal, (b) a 12 – 15 minute workshop presentation plus questions, and (c) a 15-page final research paper.  Groups of 2-3 students will develop applied "transition economics" topics related to the lecture and reading material.  Different people in the same group can receive different grades.  I will hand out anonymous evaluation questionnaires at the end of the semester. 

 

Each group will hand in a written research proposal to me (specific guidelines to be discussed) and give a brief “workshop presentation” to the class on their proposed research topic for the final paper.  Your workshop must include an introduction to and motivation of the topic, a brief literature review, and a statement of the specific research question.  In addition, each student must submit at least one question or comment for all other projects, the quality of the questions and comments you provide to be counted toward your individual group project grade.  The research paper should not exceed 15 pages, excluding graphs, tables, and other supporting material.  It is a joint effort, and you are responsible for all work which bears your name.  More detailed guidelines and grade breakdowns for the group project will be discussed in class.  Students will be assigned to groups once everyone has given me a rough idea of their intended topic and country areas.

 

The following weights will be applied in determining your final grade:

Assignment                               Weight

Exercises and quizzes                30%

Country Presentation                       5%

Review #1                                   20%

Review #2                                   20%

Group Project                             25%

 

The Honor Code is a valuable and venerable tradition at Davidson and applies to all work.  For this class, group study is encouraged, particularly on the class exercises and clearly on the group project, and shall not be an honor code violation.  You may discuss the exercises with your classmates, but each student should write up and turn in their own work, citing any persons you consulted.  Moreover, on the group research project, note again that you are fully responsible for all work which bears your name, so work closely with your partners in order to avoid problems.  The quizzes, exercise solutions, and reviews are to be your own work.  See me if you have any questions. 

 

Prerequisites

 

A good understanding of microeconomic and macroeconomic principles via Economics 101.  Basic algebra and statistics will also be used throughout the course.

 

Course Outline and Reading List

 

The readings for each class will be announced in the previous class and posted on the “class calendar” web page.  Both academic research and real world events are developing rapidly in the area of transition economics.  It is quite likely that we will discover additional valuable readings during the course of the semester.  I will also make articles on specific issues in many countries available to interested students or as material for the group project. The following book will provide a useful basis for the course and is a good source of statistical data on transition nations.  It is the only required text and is available at the bookstore.

 

Transition Report 2002: Agriculture and Rural Transition, European Bank for Reconstruction and Development, London, 2002.

 

 

Introduction

 

The World Bank, World Development Report 1996: From Plan to Market, “Introduction.”

          On reserve in Little.  

 

Lavigne, Marie (1995), The Economics of Transition, Chapter 1 “The Bases of the Socialist System”           and Chapter 2 “History.”  On reserve in Little.

 

Kornai, Janos (1992), The Socialist System: The Political Economy of Communism, Chapters 1 – 4.

          On reserve in Little.

 

Fischer, Stanley and Ratna Sahay (2000), “The Transition Economies After Ten Years,” IMF           Working Paper No. WP0030.        [available at www.imf.org/external/pubind.htm ]

 

 

History and Economics of the Soviet Planned Economy

 

Ericson, Richard (1991), “The Classical Soviet-Type Economy: The Nature of the System and           Implications for Reform,” Journal of Economic Perspectives, vol. 5, no. 4, pp. 11-27.           [available at www.jstor.org]

         

Smith, Hedrick (1976), The Russians.  On reserve in Little.

          Chapter 2, "Consumers," pp. 68-105

          Chapter 3, "Corruption: Living Na Levo," pp. 106-134

 

Berliner, Joseph, "Informal Organization of the Soviet Firm," Quarterly Journal of Economics,           Volume 66 (1952), No. 3, pp. 342-365. [available at www.jstor.org]

 

Gregory, Paul R. and Robert C. Stuart (1990), Chapters 1, 7, 8, 9, 10, 11 in Soviet Economic          Structure and Performance, 4th edition.  On reserve in Little.

 

Hewett, Ed (1988), Reforming the Soviet Economy: Equality versus Efficiency, Chapter 3, "The     Soviet System As It Is Designed to Operate," pp. 94-152, Washington, D.C.: Brookings             Institution. 

 

Hewett, Ed (1988), Reforming the Soviet Economy: Equality versus Efficiency, Chapter 4, "The     Soviet System As It Actually Operates," pp. 153-220, Washington, D.C.: Brookings             Institution. 

 

The Economics of Socialism and Soviet Economic Performance

 

Kornai, Janos, The Socialist System: The Political Economy of Communism. Princeton University Press, 1992. Chapters 1-8. On reserve in Little.

 

Ofer, Gur (1987), “Soviet Economic Growth: 1928-1985,” Journal of Economic Literature, vol. 25, no. 4, pp. 1767-1833.   [available at www.jstor.org]

 

 

How to Organize Transition?

 

Fischer, Stanley and Alan Gelb, “The Process of Socialist Economic Transformation,” Journal of Economic Perspectives, 1991:4, pp. 91-106. [available at www.jstor.org]

 

Svejnar, Jan, “Microeconomic Issues in the Transition to a Market Economy,” Journal of Economic Perspectives, 1991:4, pp. 123-138. [available at www.jstor.org]

 

Murrell, Peter (1993), “What is Shock Therapy? What Did It Do in Poland and Russia?” Post-Soviet Affairs, vol. 9, no. 2, pp. 111-140. 

 

Murphy, K., A. Shleifer, and R. Vishny (1992), “The Transition to a Market Economy: Pitfalls of Partial Reform,” Quarterly Journal of Economics, August. [available at www.jstor.org]

 

Chen, Kang et al. (1992), “Lessons from China’s Economic Reform,” Journal of Comparative Economics, vol. 16, pp. 201-225. 

 

Kornai, (1992), Chapters 16 and 21.

 

Overview of Transition and Macroeconomic Stabilization

 

European Bank for Reconstruction and Development (EBRD), Transition Report 2000: Employment, Skills, and Transition, Chapters 2-3.

 

Blanchard, Olivier (1997), The Economics of Post-Communist Transition, Chapter 1 “The Basic Facts” and Chapter 2 “The Basic Mechanisms”.  On reserve at Little.

 

Fischer, Stanley et al. (1996), “Stabilization and Growth in Transition Economies: The Early Experience,” Journal of Economic Perspectives, vol. 10, pp. 45-66.  [available at www.jstor.org]

 

de Melo, Martha et al. (1996), “Patterns of Transition from Plan to Market,” World Bank Economic Review, vol. 10, pp. 397-424.

 

Woo, Wing T. and Jeffrey Sachs (1994), “Structural Factors in the Economic Reform of China, Eastern Europe and the Former Soviet Union,” Economic Policy, vol. 9, pp. 101-145. 

 

Lau, Lawrence, Yingyi Qian, and Gerard Roland (2000), “Reform without Losers: An             Interpretation of China's Dual Track Approach to Transition,” Journal of Political             Economy, February 2000.

 

The Political Economy of Reform

 

Shleifer and Treisman (2000), Without a Map, Chapter 1, “The Politics of Economic Reform in Russia.”

 

European Bank for Reconstruction and Development (EBRD), Transition Report 1999: Ten Years of Transition, Chapter 5.  On reserve at Little.

 

Roland, Gerard, 1994, “On the Speed and Sequencing of Privatization and Restructuring”, The Economic Journal, September, pp. 1158-68.

 

Meltzer, Alan, 1998, “What’s Wrong with the IMF?  What would be Better?”  On reserve at Little.

 

Privatization and Industrial Restructuring

 

Shleifer and Treisman (2000), Without a Map, Chapter 2, “Creating Private Property.” 

 

Boycko, Maxim, Andrei Shleifer, and Robert Vishny, Privatizing Russia, Chapters 1-3. 

          On reserve at Little.

 

Gustafson, Thane (1999), Capitalism Russian-Style, Chapter 1 “The new Russian Revolution:      false start or dead end?” and Chapter 2 “Creating owners: insider privatization and its consequences.”  On reserve at Little. 

 

European Bank for Reconstruction and Development (EBRD), Transition Report 1999: Ten Years of Transition, Chapters 7, 8, and 9.

 

Gaddy, Clifford and Barry Ickes (1998), “Russia’s Virtual Economy,” Foreign Affairs, September/October. 

 

Blanchard, Olivier (1997), The Economics of Post-Communist Transition, Chapter 3 “Looking at the Pieces”.  On reserve at Little.

 

Brada, Joseph, ”Privatization Is Transition - Or Is It?” Journal of Economic Perspectives, Spring, Vol. 10, No. 2, 1996.  [available at www.jstor.org]

 

Shleifer, Andrei, “State versus Private Ownership,” Journal of Economic Perspectives, Fall, Vol. 12, No. 4, 1998, pp. 133-150.

 

Labor Markets and Social Consequences of Transition

 

European Bank for Reconstruction and Development (EBRD), Transition Report 2000: Employment, Skills and Transition, Chapters 5-6. 

 

Milanovic, Branko (1998), Income Inequality and Poverty during the Transition from Planned to Market Economy, The World Bank.  On reserve at Little.

 

Boeri, Tito, Michael C. Burda, and János Köllö (1998), Mediating the Transition: Labour Markets in Central and Eastern Europe, CEPR: London, Chapters 1-3.  On reserve at Little.

 

The World Bank, World Development Report 1996: From Plan to Market, Chapters 4 and 8.

 

Commander, Simon, Andrei Tolstopiatenko, and Ruslan Yemtsov (1992), “Channels of Redistribution: Inequality and Poverty in the Russian Transition”, Economics of Transition, vol. 7, no. 2, pp. 411-448.

 

Government and Legal Reform

 

European Bank for Reconstruction and Development (EBRD), Transition Report 1999: Ten Years of Transition, Chapter  6.  On reserve in Little. 

 

Shleifer, Andrei, “Government in Transition,” European Economic Review, vol. 41, pp. 385-410.

 

Shleifer, Andrei and Robert Vishny (1993), “Corruption,” Quarterly Journal of Economics, vol. 108, pp. 599-617. 

 

Frye, Timothy and Andrei Shleifer (1997), “The Invisible and the Grabbing Hand,” American Economic Review, vol. 87, no. 2, pp. 354-358.

 

The World Bank, World Development Report 1996: From Plan to Market, Chapter 5 “Legal Institutions and the Rule of  Law.”

 

Financial Sector Reform

 

The World Bank, World Development Report 1996: From Plan to Market, Chapter 6 “Building a Financial System.”

 

European Bank for Reconstruction and Development (EBRD), Transition Report 1998: Financial Sector in Transition, Chapters 5 - 8.

 
The Russian Case – Institutions and Unintended Consequences

 

Shleifer and Treisman (2000), Without a Map, Chapters 3 - 5.

 

Aslund, Anders, “Russia's Collapse,” Foreign Affairs, Sept./Oct. 1999, pp. 64-77.

 

Desai, Padma (2000), “Why Did the Ruble Collapse in August 1998?” American Economic             Review, vol. 90, no. 2, pp. 48-52.

 

Evaluating Transition

 

Shleifer and Treisman (2000), Without a Map,Chapter 9, “Reforming without a Map.”

 

Stiglitz, Joesph (1999), “Whither Reform?”  On reserve at Little.

 

Wallich, Christine (1995), “What’s Right and Wrong with World Bank Involvement in Eastern             Europe,” Journal of Comparative Economics, vol. 20.

 

International Monetary Fund (2000), World Economic Outlook: Focus on Transition Economies,             October, Chapter 3 “Transition: Experience and Policy Issues”.

            [available at www.imf.org/external/pubind.htm ]