A note on initial conditions and liberalization during transition

Literature explaining variations in economic performance among transition e conomies places a high level of importance on the role of policy. Policy di fferences are measured via a liberalization index used to explain differenc es in performance. We find that this index may be endogenous to one perform ance measure, e.g., output decline, and may, therefore, overstate the role of policy. This paper performs an instrumental variables INJ estimate of th e relationship between liberalization and performance that also allows us t o generate a relative index of reform progress. The relative index challeng es some commonly held preconceptions about which transition economies are r apid reformers and which are slow reformers. (C) 1998 Academic Press.