One of the most remarkable economic events of the twentieth century has been the tremendous contraction of output experienced by the economies of Eastern Europe and the former Soviet Union as they underwent the transition from communist to postcommunist or market economies. As with the Great Depression, economists will be debating the blunders that created this contraction long after it has become an artifact of history. For economists it will be a rich mine of data for testing alternative theories of great contraction.

MAGNITUDE OF THE CONTRACTIONS

How great was the collapse during the transition? Between the end of 1989 and the end of 1992, real GDP in the Eastern European (EE) countries – for present purposes, Poland, Hungary, the Czech Republic, the Slovak Republic, Romania, and Bulgaria – fell cumulatively by 22.1%, an enormous decline. The contraction was 7.6% in 1990, 11.6% in 1991, and 4.8% in 1992. It was reversed in the following year with positive growth of 0.7% in 1993, increasing to 2.1% in 1994.

If the contraction was large for the EE countries, it was enormous for the new countries that emerged from the collapse of the Soviet Union. Still falling in early 1995, real output in the countries of the former Soviet Union (FSU) had fallen by 48.4% by the end of 1994. This collapse was made up of successive declines in real GDP of 3.7% in 1990, 11.3% in 1991, 18.3% in 1992, 12.9% in 1993, and 15.0% in 1994.