The Determinants of the Economic Crisis in Post-Socialist Europe

After enjoying a period of sustained economic growth that saw the region converge with EU per capita income levels, the global economic crisis caused post-socialist Europe to suffer a larger decline in output during 2008-2009 than any other region in the world. While there was considerable variation in individual countries' experience of the crisis, this article argues that the severity of the crisis can be explained by three key macro-financial variables. The analysis suggests that alternative explanations focusing on other macroeconomic vulnerabilities, institutional weaknesses or trade vulnerabilities are of little explanatory utility.