Summary: The study estimates educational production functions for seven eastern European transition countries, using student-level data for lower secondary education. The analysis several distinctive features. First, the countries can be divided into two groups, which share similar characteristics in their economic development, the properties of their schooling systems and the effects that the various factors have on student test scores. The first group of countries, which includes the Czech Republic, Hungary, Slovakia and Slovenia, commenced the political and economic reforms earlier than the second group and features a higher level of both political and economic development. In the second group, the Baltic States instead remained under tight Russian control until 1991 and suffered great economic damage from this strong link. Romania's political struggles delayed reforms. The findings of this paper carry implications for the potential future development of the transition countries' economies. The students tested have by now reached an age of about 21 and are about to enter the labour market. The measured schooling quality is thus to take effect on the countries' economies in the coming years. Besides the relatively advantageous economic and political situation, the first group of transition countries also presides over well functioning schooling systems. The high development of institutions is visible in the favourable incentive system in schools, where decentralisation has widely progressed and positively affects student scores. Coming entrants into the labour markets are well educated, which should make them competitive to the EU labour market. The quick transformation of the schooling system in the early years of transition despite the financial and political hurdles is a good foundation for economic growth in the coming years. However, the high spread of test scores and the differentiation of students according to their background may result in a higher inequality of income. A higher spread of income might be bene
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