J-Curved Growth Path

Abstract

Abstract After the collapse of socialism, there was not a single country in Central and Eastern Europe (CEE) and the former Soviet Union (FSU) that did not experience a serious economic crisis. Furthermore, the process of economic recovery from the crisis varied greatly among these countries. This economic phenomenon, known as the J-curve growth path, has caused a great deal of controversy among economists over its determinants. This chapter traces one of the most important debates in the transition economics, and elucidates the mechanism of the J-curve growth path through a meta-analysis of previous studies. The results of the meta-analysis, which employs 3,279 estimates drawn from 123 previous studies, reveal that while the growth-enhancing effects of structural change and transformation policy were small yet significant, inflation and regional conflict had a highly significant and strongly negative effect on output. In addition, the legacy of socialism might exacerbate the decline in production in the early stages of transition. Although these five factors have been repeatedly argued in the extant literature as main causes of the economic crisis and recovery in CEE and FSU countries, the meta-analysis is the first to compare their effect sizes, finally providing a complete picture of the mechanism of J-curve phenomenon.