Economic Growth and Structural Features of Transition: Theoretical Framework and General Overview

Abstract The ‘Great Transformation’ that occurred in Eastern Europe after 1989 involved many spheres: institutional, political, social and economic. Even considering only the economic sphere – in addition to the overall transition to market economies – this transformation involved several structural changes, affecting economic growth and performance in many markets (withmanifest effects in the labourmarket), as well as international relations with other regions of the world. Especially if formalized, a simple theoretical model is unable to capture the complexities of this transformation. The relations between variables are numerous, are also unstable over time and exhibit significant feedback from economic and structural changes to institutional change itself. Thus, a heuristic model is probably more adequate to illustrate complex, multi-faceted phenomena and links between variables. In this chapter, we propose a theoretical framework aiding understanding of the main features of the complex dynamics and relations characterizing transition processes, with special reference to Central and Eastern European Countries (CEECs). The heuristic model is integrated and supported by a partial review of the most important literature, both theoretical and empirical, concerning the specific aspects discussed. Its aim is also – in a unified framework of analysis – to show the links, interdependences and complementarities between the specific studies included in the chapters of the volume and to illustrate the rationale behind the sequence of the individual studies. In addition, in order to better understand the importance of the various topics, we present some key data concerning the process of institutional, economic and structural change over a 20-year period, especially in those CEECs which became members of the EU in the 2004 and 2007 enlargements (NMS). This general information (provided in the Appendix) offers an introductory overview of the main characteristics of transition, to be complemented by the more specific empirical evidence provided in subsequent chapters. The structure of this chapter is as follows: The heuristic model is presented with the aid of a graph summarizing the intricate links between the main variables (Section 2). Then we develop the five main areas of the theoretical framework. The starting point is the process of institutional change, of which the main features and effects on the economic systems are examined (Section 3). One prominent economic consequence of transition concerns economic growth and development (Section 4). Institutional change and economic growth also interact with specific aspects of structural change (Section 5), concerning the sectoral specialization of economic systems and the spatial distribution of economic activities. The impact of transition, growth and structural change is particularly significant in labour markets (analysed in Section 6), in terms of their quantitative (unemployment and employment dynamics) and qualitative (quality of jobs, youth performance) effects; also the dynamics in income inequality are investigated in this section. The transition process also entailed new foreign relations (Section 7), these countries now gravitate mostly towards Western Europe (increased trade integration is only one of the several aspects) and are much more ‘vulnerable’ to shocks upsetting the global economy; in this section, the consequences of the 2008–2009 financial and economic crisis are briefly sketched. Lastly, the conclusions (Section 8) also stress the appropriateness of following a ‘comparative’ approach in the investigation of transition countries.