Varieties of capitalisms and varieties of performances: accounting for inequality in post-Soviet Union transition economies

We partition post-Soviet Union Transition Economies into two groups: European Union New Member States and countries belonging to the Commonwealth of Independent States or the South Eastern Europe area. Both groups started the 1980s with low levels of inequality, but in the early 2000s the latter group reached a level of inequality seven percentage points higher. We review various factors of inequality and examine whether these had differential effects in the two groups. Foreign Direct Investments and trade flows with the EU had a bigger inequality-enhancing effect in New Member States. We interpret this as evidence of technological catching-up and productivity improvements taking place in this region. Other specific reforms, such as privatisation and price liberalisation, had similarly strong effects in the two groups. We also find some evidence of an inequality-decreasing effect of an indicator of Voice and Accountability in countries outside the EU, and that countries with higher government effectiveness experienced lower levels of inequality. This supports the relevance of institutional capacity in tackling inequality. Finally, we speculate over the effects of the current global crisis on future economic performance.