Investment, Growth and Industrial Renewal in the Transition Economies

Following the initial shocks associated with the collapse of communism, and the probolems of implementing a broad range of market-oriented reforms, achieving sustained growth requires an economic environment favouring high rates of savings and investment, encouraging for foreign investors, and conducive to profitable, highly productive investment. This is especially hard in the transition economies since they embarked on the transition with institutional systems, production structures and technologies that were adapted to the requirements and circumstances of central planning. At sectoral and enterprise levels, the legacy of the planned economy is an economic situation immensely more difficult than that which is perfectly normal in any market-type economy undergoing the more or less routine and regular processes of adjustment and structural change along a growth path. This paper explains why the two levels just mentioned are so problematic in transition economies, and then discusses the relations between savings rates, investment and growth in a more general way. This prepares the ground for a detailed analysis of growth in the transition economies. The paper concludes by drawing attention to some remaining questions that must be examined further in future work. In particular, what are the factors that are already leading the performance of even the most advanced countries in transition to diverge so markedly? And how can savings rates be raised?