Transition is a process of moving from
centrally planned economy to a market economy. Specifically, referring to the
post-Communist economies it is common to use expressions like “economy in
transition” or “transitional economy” which are very vague by their nature, as
it is not clear what kind of “transition” we are talking about. It must also be noted that according to
generally accepted definition “economies in transition” include just the
countries of East Europe, former Soviet republics, China and Mongolia, although
there are multiple countries across the globe (up to 30 of these in Africa
alone) that are at the stage of transition from central planning to free market
(Yarbrough and Yarbrough, 1997, p. 469).
two types of economic structure differ sharply from each other. Planned economy
is a type of economic system in the Union of Soviet Socialist Republics (USSR).
The main characteristic of the planned economy was dominance of government on
production and pricing of goods and services. On the contrary to planned
economy, the economy is based on the powers of supply and demand with little or
no government intervention. Since the fall of the Berlin Wall, the former
centrally planned economies of Eastern Europe, Russia and other former Soviet
Union countries have made major progress in moving toward market-based
economies. Moving toward market-based economies required some fundamental changes
in many areas of government in transition economies.
The fundamental changes made by transition
economies are basically consist of liberalization of trade and prices,
instutional reforms, privatization and competition policies. In this process,
tremendous amount of public property was privatized. Privatization is the one
of the most significant step in the transition process. There also exists some
literature survey about privatization. One of the literature survey by Djanov
and Murrel (2002) suggests that privatized enterprises did restructure more
quickly and perform better, but only when supporting and regulatory institution
were in place. Therefore, it is also necessary for government to build up some
institutions that support the transition process and put limitation on
government in terms of effecting the market. With the existence of new institution,
there will be new rules which support private property and markets will be more
competitive because the role of government into market is not as strong as
compared with the previous case.
Although there is a shift from centrally
planned economy to market economy, the process of movement was uneven. At the
beginning of the transition process, two school of thought on economic reforms
emerged and “Shock therapy” and “gradualism “were the two approaches into
transition process. Shock therapy was a faster movement into transition process
and gradualism was a step by step process.
of Transition and Utilized Indicators
The European Bank for Reconstruction and Development (EBRD) assesses
progress in transition through a set of transition indicators. These have been
used to track reform developments in all countries of operations since 1989.
Progress is measured against the standards of industrialized market economies,
while recognizing that there is neither a “pure” market economy nor a unique
end-point for transition. These indicators consist of six different indicators:
(1) small-scale privatization, (2) large-scale
privatization, (3) governance and enterprise restructuring, (4) price liberalization, (5) trade and foreign Exchange
system, (6) competition
policy. These six indicators or more than these six indicators can be
used in order to detect the transition level of country. In this paper, we only
use the six indicators in order to analyze the transition level of country.
In order to understand
how to interpret these indicators, we give some basic definitions about these
indicators which makes the graphs we use in this paper more precise. Privatization is the transfer of ownerships,
property or business from government to the private sector. Privatization
process is one of the most significant factor in transition process because it
directly reduces the effect of government in economy. To exemplify the indicator,
the more the small-scale or large- scale privatization is, the higher the level
of transition in related country is. Another significant point in measurement
of transition is the price liberalization because if the price flexibility
increases, allocation of resources will be done by market forces.