Political stability and consensus : Keys to sustainable transition

Abstract

After a decade of moving from plan to market economies, variations in the rate of economic reforms and performance are evident for transition countries.For many, stabilisation of economic fundamentals has given way toward the issues of creating deeper institutional and structural reforms.The evidence of successful transitions indicates a positive link between liberalisation and economic performance.However, the evidence does not fully capture the domestic country-specific choice of political regime and the degree of social consensus.This paper, part of a two-paper series, argues that these are important explanatory variables for the rate of transition chosen by a country and for sustained reforms for fast-reformers.Political stability and consensus correlate with a faster reform effort.Political instability and lack of consensus, corresponding to conflict zones, correlates with delayed reform. Evidence from transition countries shows that the countries in the latter group, e.g. countries in the Caucasus, shift to a fast-track reform process once political stability and consensus replace internal conflict.In contrast, countries with political stability but lack of consensus remain relatively stagnant in their rates of economic reforms and economic growth.