Synthetic ‘real socialism’: a counterfactual analysis of political and economic liberalizations

Abstract

We evaluate the effect of the 1989 shock over economic development in four Eastern European countries. We apply a counterfactual approach and define the shock alternatively as the trigger for economic openness, political competition, or both. The main result is an effect of economic freedom larger than the one of democratization. In Poland and Bulgaria we find a positive impact of economic freedom, whilst in Bulgaria there is also a smaller effect of democratization. In Albania, after an initial recession, economic freedom helps recovery. Finally Romania does not show any robust effect.