Transition to Market Economies in Central and Eastern Europe

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

Introductory micro- and macroeconomics


The process of economic change in post soviet societies will be explained. The transition process will be viewed from a new institutional economics perspective, a research program that attempts to extend economics by focusing on the social norms and legal rules that underlie economic activity. The course will focus first on the theoretical tools to understand the foundations of economic systems and will emphasize the role of institutions. The broader theoretical perspective will enable us to locate the soviet experiment in a wider theoretical context, which will help us in better understanding the difficulties posed to emerging market economies. The cultural theory of economics and the emergence of economic institutions will be helpful in explaining the different paths of transition. During the second part of the class these theoretical tools will be applied to selected countries in transition. Therefore, each student has to write a term paper analyzing one country in transition. The results have to be presented in class.

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:

  • In-depth understanding of basic theoretical concepts.
  • Substantial knowledge about economic situation and economic policies of Central and EasternEuropean Countries.
  • Perspective on the role of the EU in the reconstruction, transformation and economic modernization of the region.
  • Awareness of links between culture, history, and institutions and economic transition in the region.
  • In-depth understanding of the process, the complexity and intensity of European Union enlargement.
  • 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, outline, two exams, term-paper & PowerPoint presentation of the term-paper, final exam. PowerPoint presentation and term-paper have to be uploaded to Moodle.

Seminar discussions are based upon the compulsory readings and teaching introductions to the subject given at each session. Students are 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. The tests consist of multiple choices and of essay questions. The term paper (15 pages double-spaced) will be evaluated not only on the basis of content but also on correct structure and formatting. An outline of these requirements will be available to students as a guide. Shortcomings in any of these aspects will be reflected in the grade. To receive an ‘A’ on a term paper, students cannot neglect any of the given standards.

Assignment                                              % of Grade
Outline, with bibliographical essay                         5 %
Presentation term-paper                                       10 %
Participation                                                          15 %
Test 1                                                                    15 %
Test 2                                                                    15 %
Term-paper                                                           20 %
Final exam                                                             20 %





Session 1



Introduction: East Germany as a first case study

Reagan's Berlin Wall Speech, June 12, 1987

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)

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 – Relevant: Sessions 1-7


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


Deadline term paper


Session 13



The political economy of transition: Managing institutional change

  Required Readings: Roland (2002)

Session 14



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


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.

Balcerowicz, Leszek (2001): Post-Communist Transition: Some Lessons, London, The Institute of
Economic Affairs.
CIA (2007): World Factbook, Washington, D.C.
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.
Gros, Daniel & Alfred Steinherr (2004): Economic Transition in Central and Eastern Europe. Planting the
Seeds, Cambridge, Cambridge University Press.
Hayek, F. A. (1945a): "The Use of Knowledge in Society". The American Economic Review 35 (4), 519-
——— (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),
——— (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 (2006): "The Uneven Results of Institutional Changes in Central and Eastern Europe.
The Role of Culture". Social Philosophy and Policy (23), 231–254.
——— 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.
Suhrcke, Marc (2001): Economic Growth in the Transition Economies of Central and Eastern Europe,
Baden-Baden: Nomos Verlagsgesellschaft.
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.

Other Resources: 

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

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
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

European Bank for Reconstruction and Development:
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