Comments

Abstract

Rostowski makes a significant contribution to the still inconclusive debate about the ultimate causes of the observed large falls of output in the initial phase of transition. He provides new and quite strong support for the theory that these causes have been largely structural, i.e. the wrong composition of output at the starting point, which the change of the economic system has evidenced, rather than the stabilization policy. This theory suggests that the direction of causality has been from microeconomic supply and demand shocks to falls of output, and only then to lower investment. In contrast, during the Great Depression of the 1930s, the causality was in the opposite direction: from macroeconomic policy shocks to exceptionally large falls of investment, and then to falls of outputs. The contributions method of analysis is based on the assumption that this difference in the direction of causality has different implications for the evolution of the investment/GDP ratios. Evidence based on these ratios can provide indirect indications of the actual direction of causality during transition.