Economics 372
Fall 1998
Professor Barry W. Ickes

Office:         618 Kern Graduate Bldg.         Office Hours:        Tuesday 4-5, Wednesday 10:30-11:30

Classroom:    73 Willard                              Class Hours:          Tuesday, Thursday 9:30-10:45
 

Introduction

With the demise of communism in Central and Eastern Europe, former socialist economies are in the process of transition from centrally-planned to market economies. Transition is a comprehensive change, involving all aspects of the economy, including labor markets, capital markets, and the organization of industry, especially privatization. The focus of this course is on the experience of economies in transition and the problems encountered. Special emphasis will be given to the experience of Russia and the other countries of the former Soviet Union. In addition to Central Europe and the former Soviet Union, we will also examine the experience of China.

I have ordered the following texts, which are valuable works on this subject. I do not list them as required; it is left up to you to decide what to read:

Gros, Daniel, and Alfred Steinherr, Winds of Change: Economic Transition in Central and Eastern Europe. New York, Longman, 1995. (Gross & Steinherr)

The World Bank, From Plan to Market: World Development Report 1996. New York, Oxford University Press, 1996. (WDR)

Important articles are listed below, and copies will be kept on reserve in Pattee Library. Some additional materials will be available (these are marked with the notation WEB) on the web at the site for this course: http://www.personal.psu.edu/i04/econ372home.htm. Materials will be added to the web list periodically, so you should check it for new items.

Course Requirements

There will be two midterms and a final exam. The weight for each midterm will be about 30%. The final will be worth approximately 40%. The dates of the midterms will be Thursday, October 8, 1998 and Thursday, November 19, 1998. The exams will not be multiple choice, and bluebooks will be required for the midterms and final. Review questions will be given out prior to the exam.

Prerequisites: Econ 2 or Econ 4 or Econ 14.

Course Outline

1.     Introduction: The Meaning of Transition

WDR, pp. 1-6.
Gros & Steinherr, chapter 4.

A.    The Mechanism and Logic of Central Planning
B.    The Economic Structure of Soviet-type Economies

Ericson, Richard, "The Classical Soviet-Type Economy: Nature of the System and Implications for Reform," Journal of Economic Perspectives, Fall, 1991.
Ickes, Barry W., "Dimensions of Transition in Russia" in The Russian Economy in the 1990's, B. Granville and P. Oppenheimer, eds., Oxford University Press, forthcoming. (WEB)
Gros & Steinherr, chapters 2-3.
Ofer, Gur, "Soviet Economic Growth: 1928-1985," Journal of Economic Literature, December 1987.

A.    Decentralization and The New Economic System
B.    Labor Management as an Alternative
C.    Perestroika and the Collapse of the Soviet System
 
Gros & Steinherr, chapter 1.

A.    Gradual versus Comprehensive Reform
 
Gros & Steinherr, chapter 4.
WDR, chapter 1.

B.    The Debate over "Shock Therapy" versus Gradualism
 
Brada, Josef, ''The Transformation from Communism to Capitalism: How Far? How Fast?''Post-Soviet Affairs, vol 9, 2, 1993: 87-110.
Murrell, Peter, ''What is Shock Therapy? What Did it Do in Poland and Russia?'' Post-Soviet Affairs, vol 9, 2, 1993: 111-140.
 
C.    Liberalization: Internal and External

Gros & Steinherr, chapters 5-6.

5.    Macroeconomic Stabilization in Transition Economies

A.    The Legacy of macroeconomic imbalances
B.    The Record on Stabilization in Transition Economies
 
Gros & Steinherr, chapter 7.
WDR, chapter 2.
 
C.    Why Has Output Fallen in Transition
1.    How Much Has Output Really Fallen in Transition?
2.    A Look at Transition Statistics
3.    Stabilization and Recovery
 
Cochrane, J.H., and B.W. Ickes, "Macroeconomics in Russia," in E. Lazear, ed., Economic Transition in Eastern Europe and Russia: Realities of Reform. Hoover Institution Press, 1995.
Ickes, B.W., P. Murrell, and R. Ryterman, "End of the Tunnel? The Effects of Financial Stabilization in Russia," Post-Soviet Affairs (formerly Soviet Economy), vol. 13, 2, April-June, 1997.

D.    The Breakup of International Economic Relationships
E.    The Labor Market in Transition
 

A.    The Firm in Transition

B.    Alternative Plans of Privatization
1.    Spontaneous Privatization
2.    Mass Privatization
a.    Voucher Privatization in the Czech Republic and Russia
b.    Privatization via Liquidation in Poland

A.    Creating Markets for Corporate Control in Planned Economies
 
Gros & Steinherr, chapter 8.
WDR, chapter 3.
Ickes, B.W., and Randi Ryterman, "From Enterprise to Firm: Notes For a Theory of the Enterprise in Transition," in Robert W. Campbell ed., The Postcommunist Economic Transformation: Essays in Honor of Gregory Grossman, Westview Press, 1994: 83-104.
Rutland, Peter, "Privatization in Russia: One Step Forward: Two Steps Back?" Europe-Asia Studies (formerly Soviet Studies), 46, 7, 1994: 1109-1132.
Gros & Steinherr, chapter 11.
Brada, J.C., "Privatization Is Transition -- Or is it?" Journal of Economic Perspectives, 10, 2, Spring 1996: 67-86.
 
B.    Restructuring

Gaddy, Clifford and Barry W. Ickes, "To Restructure or Not to Restructure: Informal Activities and Enterprise Behavior in Transition." (WEB)
Gaddy, Clifford and Barry W. Ickes, "Russia's Virtual Economy," Foreign Affairs, Sept/Oct 1998. (WEB)

A.    The Role of Institutional Development in Transition
B.    The Rule of Law and Contract Enforcement
 
Greif, Avner, and Eugene Kandel, "Contract Enforcement Institutions: Historical Perspective and Current Status in Russia, in Edward Lazear, ed., Economic Transition in Eastern Europe and Russia, Hoover Institution Press, 1995.
Hendley, K.H., B.W. Ickes, P. Murrell, and R. Ryterman, "Observations on the Use of Law in Russian Enterprises," Post-Soviet Affairs (formerly Soviet Economy), vol. 13, 1, Jan-March, 1997.
 
C.    Financial Underdevelopment
 
Gros & Steinherr, chapter 9.
WDR, chapter 5.
 

A.    A Comparative Analysis of the Transition Record
B.    Poverty and Living Standards; Winners and Losers
 
Murrell, P., "How Far Has the Transition Progressed?" Journal of Economic Perspectives, 10, 2, Spring 1996: 25-44.
WDR, chapter 4.
 

Sachs, Jeffrey and Wing T. Woo, "Structural Factors in the Economic Reforms of China, Eastern Europe, and the Former Soviet Union," Economic Policy, 18, April 1994: 102-145.
 

A.    Institutional Development and Transition
B.    Economic Behavior and Economic Theory in Transition