Strategies for Growth: Central and Eastern Europe

The collapse of the Soviet political and economic system, epitomized by the fall of the Berlin Wall in 1989, started the transition from central planning to a market economy. In a historical perspective, the transition economies have undergone an unprecedented transformation. The transformation has been difficult, but increasingly successful. In particular, these countries have converted their state-owned economies into vibrant, albeit often still imperfect, market economies based primarily on private ownership. There are two key features related to economic performance of these economies in terms of their GDP. First, as may be seen from Figure 1, which captures the evolution of GDP in selected countries since 1989, there was a large decline in economic activity in the first several years of the transition. The decline was unexpected, given that the transition economies were substituting a demonstrably inferior economic system with a superior one. Second, there has been a different pattern in GDP evolution between the Central European countries in the west and those in the former Soviet Union (the Baltic and CIS countries) further east. In particular, the more western transition economie