Journal Article

The Saving Collapse during the Transition in Eastern Europe

Cevdet Denizer and Holger C. Wolf

in The World Bank Economic Review

Published on behalf of World Bank

Volume 14, issue 3, pages 445-455
Published in print September 2000 | ISSN: 0258-6770
Published online September 2000 | e-ISSN: 1564-698X | DOI: http://dx.doi.org/10.1093/wber/14.3.445
The Saving Collapse during the Transition in Eastern Europe

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Almost all of the transition economies in Eastern Europe and the former Soviet Union experienced a severe decline in their national saving rates. The saving collapse could be explained by the elimination of involuntary saving, a feature of central planning, or by a change in equilibrium saving reflecting the new economic-circumstances following the end of socialism. The predicted saving rates of market economies with the same fundamentals as the transition economies before the transition are computed to test for the presence of involuntary saving. The results provide some support for the hypothesis of consumption smoothing. Also considered is whether differences in the extent of liberalization affected saving rates in the cross section of transition economies. This is found to be the case: greater liberalization is association with lower saving with a one-year lag. To the extent that liberalization is associated with future growth, this finding is consistent with smoothing in the face of output evolving along J-curve.

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Subjects: Development Planning and Policy

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