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Rational Citizens Against Reform

Poverty and Economic Reform in Transition Economies

Washington University, St. Louis

The debate on the political obstacles to economic reform in postcommunist countries has centered around two interrelated theories. Adam Przeworski argues that short-term negative distributional consequences can stall economic reform. Joel Hellman contends that industry insiders and political elites have incentives to stall economic reform. Although both sets of theories contend that the distributional aspects of economic transition affect reform, important differences remain in their interpretation of the relationship between the rising levels of poverty and income inequality in transition economies. This article empirically examines the relationship between the pretransition levels of poverty and income inequality in 17 postcommunist transition economies using cross-sectional regressions. The central finding in this article is that countries with large spans of the population hovering above poverty are less likely to achieve high levels of economic reform, lending support to theory that adverse socioeconomic conditions prior to transition can impede economic reform.

Key Words: economic reform • income inequality • poverty • transition economies • J curve

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