DP1601 Enterprises in Transition: Macroeconomic Influences on Enterprise Decision-making and Performance

Author(s): Willem H. Buiter, Ricardo Lago, Hélène Rey
Publication Date: April 1997
Keyword(s): Enterprise Performance, Macroeconomic Stability, Transition Economies
JEL(s): D23, E22, E63, G11, G20, O11, O12, O57, P52
Programme Areas: Transition Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1601

The paper analyses the theoretical arguments and empirical evidence linking enterprise performance in transition economies to the macroeconomic environment. Macroeconomic instability is traced to the unsustainability of the fiscal-financial and monetary programmes of the state and to regulatory and other failures leading to problems with the solvency of financial institutions. The importance of macroeconomic stability for enterprise performance is documented with a simulation study and by reviewing relevant microeconomic and aggregate empirical evidence from across the world as well as from the transition economies themselves. Conclusions are reached about the speed of transition, about the synergy between macroeconomic stabilization and market development and about the creation of institutions for achieving and maintaining macroeconomic stability.