Labor and Product Markets in Czechoslovakia and the ex-GDR: A Twin Study

Pre-reform similarities between the ex-German Democratic Republic and Czechoslovakia serve as a basis for comparing two different approaches to marketizing centrally planned economies. The GDR freed trade in goods and fixed the exchange rate first, then liberalized domestic price setting, and took up privatization and budgetary consequences last; the CSFR is striving to implement the same reforms in reverse order. While the exchange rate matters decisively in the short run, institutional aspects of the two countries such as financing constraints, collective bargaining, and unemployment benefits will prove most important for long-run development of the two regions.