Convergence in transition countries - Focus on investment: Central and Eastern Europe, 1970-1996

Our data on investment in Central and Eastern European economies reveal tha t, though investment rates were typically high in the 1970s, the marginal e fficiency of investment was low. Investment shares begun to decline in the 1980s, before the collapse of the communist system, but there was some reco very in most countries after transition. We use the Kalman filter framework to test for convergence in investment rates. We find some evidence of conv ergence in Central European countries - former Czechoslovakia, Poland and t he countries of the former Yugoslavia. For the remainder of the socialist b loc, however, we were unable to isolate convergence in investment shares.