What are the advantages & disadvantages of economies in transition?

Written by sarah mcleod
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What are the advantages & disadvantages of economies in transition?
Open-market economies provide for the global exchange of imports and exports. (Michael Blann/Photodisc/Getty Images)

Economies in transition involve the lowering and raising of trade barriers, redefining the role of governments and releasing demand to keep up with supply. The transition process can be bewildering to state officials and inflict extreme inflation-related hardships on average citizens. Foreign investments and open-door immigration policies, however, create greater capitalist opportunities for people who once depended upon allocations from the state.

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World Trade

Economies transitioning from a centralised or socialist economic system like that of Cuba to an open-market system of capitalism like that in the United States have the advantage of international trade agreements. Foreign capital investments at steady interest rates finance imports while land resources and skilled human labour serve as exports. Gradual market relinquishment by the government has provided pricing stability of Chinese goods, according to the Asian Development Bank. Further competitive marketing helps countries pay for technology, capital-generating equipment and improvements in public roads and general infrastructure.

Inflation

A disadvantage that accompanies opening an economic market to world trade is inflation. Inflation results because to become competitive in free markets, the price of common goods have to be raised. The economy of the former Soviet Union provided an excellent example of dramatic price inflation. According to the International Monetary Fund, Russia experienced more than a 1,000 per cent inflation increase immediately following its economic transition to a world trade economy. Dramatic inflation caused many of the country's citizens to become impoverished.

Destabilised Governments

Economies in transition change the roles of government agencies and officials. Capitalist economies generally adhere to a laissez faire economic policy in which government leaves business to make and follow its own rules. Market shares are not controlled, leaving room for price competition and consumers can enjoy lower costs over time. Governments accustomed to allocating resources must transition to making regulations that support a new economic framework. This change can be a disadvantage to many governments who have controlled a country for many decades. Government officials who both think and act from the mindset of an old guard may be subject to public demands for defecting.

Immigration Policies

Economies that transition to a world market economy provide an additional benefit to its citizens. They are allowed to travel and practice professionally in a different country. Professionals from a country like China, who are particularly skilled in medicine, scientific research, information technology or engineering, may be well received by another country like the United States that lacks these human resources. Alternately, when countries like Jamaica gain political and economic independence from stronger economic powers like Great Britain, open immigration policies close.

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