Abstracts Political Science

Three Essays on Transition of Post-communist Soverigns

by Vepa Rejepov

The Berlin Wall and the Iron Curtain crumbled, resulting in the end of the Warsaw Pact (8 members) and the collapse of the Soviet Union. Hence, the European Bank for Reconstruction and Development (EBRD) was founded to assist these (newly) sovereigns to become pluralistic democracies with a functioning market economy. Capital was scarce in these post-communist nations, and funding was needed to implement costly reforms. The EBRD played a catalytic role by guiding, providing funds, advising governments to transition faster while attracting further investment to member nations. These involvements with member nations provide an opportunity to the EBRD to reduce information asymmetry about sovereigns for foreign investors. The first paper analyses the role of the EBRD in attracting foreign direct investment to savings-deprived post-communist sovereigns. This paper utilizes traditional political risk scores and the EBRD transition scores and their effect on the attraction of investment from abroad. Evidence suggests that if member nations can secure funds from the EBRD, investment risk decreases. Moreover, transition indicators of the EBRD are significant in attracting foreign investment to host nations. The second paper sheds light on the EBRD's role in developing the financial sector and bringing financial greenfield FDI to member nations. As a lender in record or with guarantees to investors, the Bank has a significant role in introducing new markets to international financial institutions with alleviated risk. These investments had a positive and significant effect on the growth of those economies and credits provided to the private sector. The last paper focuses on the transition experience of three energy-rich nations in Central Asia. The international significance of these counties is lower than other post-communist states and have no aspirations to join the EU due to geographical distance. Without public push, executives of these nations played a significant if not sole role in deciding the pace of transition to market-oriented economy. Kazakhstan fared better in economic change compared to its neighbors because President Nazarbayev cooperated with international institutions and implemented policies to transition the economy despite lagging in the democratization of country or institutions. Turkmenistan and Uzbekistan executives adopted gradual transition, and those economies still show features of a controlled economy rather than a free market one after more than a quarter century.