Post-Reform East and West: Capital Accumulation and the Labor Mobility Constraint

Abstract

The reform process in several Eastern European countries is clearly directed at the freeing of domestic markets, along with the opening to trade in goods and capital. Out from the cold mantle of centralized planning will emerge a continent of more than a hundred million people. This cannot fail from affecting the world as the whole, first and foremost Western Europe. While attention is focused on the steps which must be taken to implement such a program, this paper looks beyond the reform process itself. Assuming that reform has been successfully enacted, I ask what happens next and attempt to map out some of the key features of the ensuing process, the economics of post-reform.

I have benefited from useful comments from Michael Burda. Financial support from the Commissariat General du Plan and INSEAD R&D budget is acknowledged with thanks. This research is part of CEPR’s program on Economic Transformation in Eastern Europe. None of these institutions is responsible for the views expressed in this paper.