The Empirics of Economic Growth in Previously Centrally Planned Economies

We develop a novel Bayesian pooling technique to estimate aggregate production functions for the previously centrally planned economies (PCPEs) of Eastern Europe and for Western economies, as well as for a group of developing countries. This technique adjusts for the low quality of the PCPE data and also possible differences between PCPE and Western and developing-country technologies. We then apply our estimates to study various privatization scenarios concerning the adoption of Western technology. If the transferability of assets to the new technology is low and Western capital is unavailable, it can be better not to privatize at all, than to have full (big-bang) privatization. Large-scale privatization is also less desirable if Western capital is available for new projects. Thus, it may in some instances be desirable to use Western support to slow the rate of privatization, rather than hasten it.