Transition to Market Economies in Central and Eastern Europe

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Course Information
Terms offered: 
Fall, Spring
Language of instruction: 

Introductory micro- and macroeconomics

The process of economic change in eastern European societies since the late 1980s will be discussed and explained. The development of these economies will be viewed from diverse perspectives: using a macroeconomic approach, as well as standard political economics, and also the tools of constitutional political economics – a research program that draws its sources from classical political economy, but is also inspired by the work of F.A. von Hayek and the Freiburg School of economics. The course will focus first on the theoretical tools to understand the foundations of economic system and will emphasize the role of institutions. The broad theoretical perspective should enable students to analyze the soviet experiment and the transition of former command and control economies to market economies in a context of cultural and institutional influences. During the second unit of the class these theoretical tools will be applied to selected transition economies.
Attendance policy: 
All IES courses require attendance and participation. Attendance is mandatory per IES policy. Any unexcused absence will incur a penalty of 3% on your final grade. Any student who has more than three (3) unexcused absences will receive an “F” as the final grade in the course. Absences due to sickness, religious observances, and family emergencies may be excusable at the discretion of the Center Director. In the case of an excused absence, it is the student’s responsibility to inform the Academic Dean of the absence with an Official Excused Absence Form, as well as any other relevant documentation (e.g. a doctor’s note), and to keep a record thereof. This form must be turned in as soon as possible before the class, in the case of a planned absence, or immediately after the class, in the case of an unplanned absence, in order for the absence to be considered excused. It is also the student’s responsibility to inform the professor of the missed class. Students can collect and submit the Official Excused Absence Form from the office of the Academic Dean.   TESTS MISSED DURING UNEXCUSED ABSENCES CANNOT BE MADE UP!
Learning outcomes: 

Students will be introduced to different theories of transition in the context of the Eastern Europe. They should develop an understanding of the role and importance of institutions, history, and culture for the process of economic transition and be able to explain the different paths of transition in Central and Eastern Europe. In additions, the impact of the European Union for the transition process will be explained. Moreover, through case studies students can experience the transition processes in Eastern Europe in detail and will gain deep insight into various Eastern European countries.

Learning Goals:

  • ƒ In-depth understanding of basic theoretical concepts.
  • ƒ Substantial knowledge about economic situation and economic policies of Central and Eastern European Countries.
  • ƒ Perspective on the role of the EU in the reconstruction, transformation and economic modernization of the region.
  • ƒ Awareness of links between culture, history, and institutions and economic transition in the region.
  • ƒ In-depth understanding of the process, the complexity and intensity of European Union enlargement.
  • ƒ Field Study and area research experience.
Method of presentation: 
  • Lectures
  • Student presentations
  • Seminar discussions
  • Case studies
Required work and form of assessment: 
Reading, presentation and active participation in seminar discussions, mid-term exam, term paper, final exam.   Seminar discussions are based upon the compulsory readings and teaching introductions to the subject given at each session. Students may be assigned to present a short summary of the compulsory readings/research  assignments in the beginning of a session and to come up with several conclusions of their own for the discussion. The participants are expected to join the debate with (prepared) questions and points related to the readings. Both exams consist of 8-10 questions covering all relevant topics and requiring answers in the form of brief statements. The term paper (10-12 pages double-spaced) must meet academic standards that will be explained in the class, and should be approached as a case study.

Grade Evaluation:

  • General participation throughout the term - 20%
  • Midterm Exam - 20%
  • Term Paper - 30%
  • Final Exam - 30%




1. Introduction: East Germany as a first case study

Session 1

East Germany as a first case study


2. Market and state: Theoretical foundations

Session 2

Two kinds of order

Required Readings:

  • Hayek (1963)

Recommended Readings:

  • Hayek (1973: Ch. 2)

Session 3

Economics and knowledge

Required Readings:

  • Hayek (1945a)

Recommended Readings:

  • Gray (1994)

Session 4

Impersonal exchange and the role of the state

Required Readings:

  • Olson (2000: Ch. 10)

Recommended Readings:

  • North (2005: Ch. 12)

Session 5

Market and state from the perspective of Constitutional Political Economics

Required Readings:

  • Vanberg (2005)

Recommended Readings:

  • Vanberg (2004)

3. Socialism, its failure and the theory of transition

Session 6

Ideology, power, and property in socialism

Required Readings:

  • Kornai (1992a, 1992b, 1993c: Ch. 3-5)

Recommended Readings:

  • Hayek (1945b)

Session 7

Macroeconomic problems in transition economies

Required Readings:

  • Myant & Drahokoupil (2011: Ch. 4)

Session 8

Businesses and banks in transition economies

Required Readings:

  • Myant & Drahokoupil (2011: Ch. 11 and 14)

Session 9

Midterm Exam


Session 10

Cultural economics and transition processes

Required Readings:

  • Goldschmidt & Zweynert (2006)
  • Pejovich (2003)

Recommended Readings:

  • Zweynert (2004)

Session 11

Privatization: methods and results

Required Readings:

  • Bennett, Estrin & Urga (2007)

Session 12

Corruption, bribery and how to fight them

Required Readings:

  • Gray, Hellman & Ryterman (2004)

Recommended Readings:

  • Transparency International (2012)

Session 13

The political economy of transition: Managing institutional change

Required Readings:

  • Roland (2002)

4. Economic Situation and Success of Transition in CEEC

Session 14

Case Study “Central Eastern Europe”: Poland, Hungary, Czech Republic, Slovakia

Term Paper Due


Session 15

Case Study “The Baltic States”: Estonia, Latvia, Lithuania


Session 16

Case Study “The Balkans”: Croatia, Albania, Bosnia & Herzegovina


Session 17

Case Study “Eastern Europe” and “The New EU Members”: Ukraine, Belarus, Russia,

Bulgaria and Romania


Session 18

Outlook: Where are the transition economies now and where are they going?

Required Readings:

  • Myant & Drahokoupil (2011: Ch. 16)

Session 19

Final Exam



Required readings: 

Students can get all required and recommended readings at the homepage of IES Abroad.

  • Bennett, John; Saul Estrin & Giovanni Urga (2007): “Methods of Privatization and Economic Growth in Transition Economies”. Economics of Transition 15(4), 661-683.
  • Goldschmidt, Nils & Joachim Zweynert (2006): "The Two Transitions in Central and Eastern Europe as Processes of Institutional Transplantation". Journal of Economic Issues 40 (4), 895 - 918.
  • Gray, Cheryl; Joel Hellman & Randi Ryterman (2004): Anticorruption in Transition 2. Corruption in Enterprise - State Interactions in Europe and Central Asia 1999-2002, Washington, D.C., The World Bank/The International Bank for Reconstruction and Development.
  • Gray, John (1994): "Hayek, Spontaneous Order and the Post-Communist Societies in Transition". In Christoph Frei & Robert Nef (Hrsg.): Contending with Hayek. On Liberalism, Spontaneous Order and the Post-Communist Societies in Transition, Bern; Berlin; Frankfurt am Main; New York; Paris; Wien: Peter Lang, 29-48.
  • Hayek, F. A. (1945a): "The Use of Knowledge in Society". The American Economic Review 35 (4), 519-530.
    • ——— (1945b): The Road to Serfdom (condensed version), in: Reader's Digest, April 1945.
    • ——— (1963): "Kinds of Order in Society". New Individualist Review 3 (2), 457-466.
    • ——— (1973): "Cosmos and Taxis". In: Law, Legislation and Liberty, Bd. I: Rules and Order, Chapter II, Chicago, London and Henley, 35-54.
  • Jovanovic, Miroslav N. (2005): "Eastern Enlargement". In: The Economics of European Integration: Limits and Prospects, Cheltenham, UK: Elgar, 822-850.
  • Kornai, János (1992): The Socialist System: The Political Economy of Communism, Oxford: Clarendon. North, Douglass (1994): "Economic Performance through Time". The American Economic Review 84 (3), 359-368.
  • Myant, Martin & Jan Drahokoupil (2011): Transition Economies. Political Economy in Russia, Eastern Europe and Central Asia, New York: John Wiley and Sons.
  • North, Douglass (1994): "Economic Performance through Time". The American Economic Review 84 (3), 359-368.
    • ——— (2005): "Improving Economic Performance". In: Understanding the Process of Economic Change, Chapter 12, Princeton, Princeton University Press, 155-165.
  • Olson, Mancur (2000): "The Kinds of Markets Needed for Prosperity". In: Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships, Chapter 10, New York, 173-199.
  • Pejovich, Svetozar (2003): Why is Culture Important?
    • ——— Svetozar (2005): "On the Privatization of "Stolen Goods" in Central and Eastern Europe". The Independent Review. A Journal of Political Economy, 10 (2), 209-231.
  • Roland, Gerald (2002): "The Political Economy of Transition". The Journal of Economic Perspectives 16 (1), 29-50.
  • Transparency International (2005): Global Corruption Report 2005. Corruption in Construction and Post- Conflict Reconstruction, Berlin, Transparency International.
  • Vanberg, Viktor (2004): "The Freiburg School: Walter Eucken and Ordoliberalism". In: Freiburger Diskussionspapiere zur Ordnungsökonomik.
    • ——— (2005): "Market and State: The Perspective of Constitutional Political Economy". In: Journal of Institutional Economics (1), 23-49.
  • Zweynert, Joachim (2004): "Shared Mental Models, Catch-up Development and Economic Policy-Making. The Case of Germany after World War II and Its Significance for Contemporary Russia". HWWA Discussion Papers 288.
Other Resources: 
Academic Journals
  • Beyond Transition, The World Bank, Washington, D.C.
  • Transition Report, European Bank for Reconstruction and Development, London
  • Journal of Comparative Economics
  • The Economics of Transition
  • Problems of Economic Transition
  • Transition Economics
  • Post-Communist Economies
  • Transition Newsletter at World Bank
  • Post-Soviet Affairs
  • Russian Economy: Trends and Perspectives
  • Eastern European Economics
  • The Economist, Foreign Affairs
  Research Centers/Institutions
  • Central European Regional Research Organization (CERRO) Centre for Economic Performance, London School of Economics Centre for Economic Policy Research
  • Center for Economic Reform and Transformation (CERT)
  • Centre for Economic Research and Graduate Education (CERGE) Center for European & Russian Studies at MSU
  • Center for New Institutional Social Sciences Economic Education and Research Consortium-Russia
  • (EERC-Russia)
  • Economic Education and Research Consortium
  • European Bank for Reconstruction and Development
  • European Centre for Advanced Research in Economics (ECARE) International Monetary Fund
  • International Society for New Institutional Economics
  • Russian and Eastern European Network Information Center (REENIC) at UT Austin Stockholm Institute of
  • Transition Economics (SITE)
  • Centre for the Study of Transition and Development (CESTRAD) Vienna Institute for Comparative Economic Studies (WIIW)
  • William Davidson Institute at U. of Michigan
  • World Bank