Business Intelligence

Structural Change In Transition Economies: Does Foreign Aid Matter?

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Executive Summary

This paper addresses whether the initial declines in the manufacturing and real wages in transition economies were anything unexpected to justify policy reversal, and whether the "Often-recommended" foreign aid would have helped them curb these declines in any significant way. It answers these questions with the help of a two-sector three-factor small open economy model and simulation exercises. It concludes that, given the relative price distortions and the market disequilibria that transition economies inherited from their planning era, the initial declines in their manufacturing and real wages are to be mostly expected.

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