Systemic transformation and output decline

The massive output decline, which has occurred in transitional economies si nce the systemic transformation begun, has been explained in various ways. Besides statistical and methodological errors, the following factors have b een examined: (1) the initial institutional, economic and social conditions ; (2) the disruption of the CMEA and the FSU; (3) shocks of deregulation an d other factors connected with systemic transformation. The paper argues th at the output decline was deeper and longer, while recovery slower in a cou ntry or group of states where dichotomy between initial conditions and impl emented policies larger. It also attempts to shed a new light on the role o f financial intermedition in otput decline in transitional economies.