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(Un)Happiness in Transition

(Un)Happiness in Transition - Journal of Economic...

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(Un)Happiness in Transition Sergei Guriev and Ekaterina Zhuravskaya T he transition from plan to market in postcommunist countries is an economic transformation of remarkable scale. Starting around 1990, countries of the former Soviet Union and of central and eastern Europe removed central planning; liberalized prices and foreign trade; and introduced modern institutions of taxation, banking, customs, and independent central bank- ing. Since that time, the typical transition country has privatized the majority of its industrial enterprises, overcome the initial output fall at the start of the transition, and embarked on a path of strong and sustained growth. Considering the challenge of large-scale institutional transformation, the sustained economic growth since the mid or late 1990s in these countries suggests that economic transition has largely been a success. Figure 1 shows the results. In Russia and other countries formerly members of the Soviet Union, GDP has been growing since 1999 at 7 percent per year. The economies in central and eastern Europe have been growing at 4 percent per year since the late 1990s; on average, per capita GDP in these countries exceeds pretransition levels by 40 percent. The economic benefits of transition can also be measured in other ways. Table 1 shows per capita household consumption expenditures and other consumption indicators for selected years from 1985 to 2004 in transition countries and, for comparison, in both the United States and in the “middle-income countries” as classified by the World Bank, which on average lag behind transition countries in y Sergei Guriev is Morgan Stanley Professor of Economics, Rector, and President of the Center for Economic and Financial Research, at the New Economic School, Moscow, Russian Federation. Ekaterina Zhuravskaya is Hans Rausing Professor of Economics, and Academic Director, Center for Economic and Financial Research, at the New Economic School, Moscow, Russian Federation. Their e-mail addresses are [email protected] and [email protected] , respectively. Journal of Economic Perspectives—Volume 23, Number 2—Spring 2009—Pages 143–168
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terms of GDP per capita. 1 Household consumption per capita fell for transition economies more than 10 percent between 1990 and 1995 and then started to grow in the mid 1990s, reaching pretransition levels by 2000. By 2004, per capita consumption in transition economies was 34 percent above pretransition levels. Despite the initial fall, the overall increase in consumption in 15 years of transition is not vastly different from the average consumption growth in middle-income countries that did not experience a transition shock and started from a lower level. Per capita household consumption in middle-income countries grew by 44 percent from 1990 to 2004.
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