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Moldova’s Economy Essay

1993 words - 8 pages

I. Introduction: As one of the former republics of the Soviet Union, Moldova is among a group of countries in central Europe that is in the process of transitioning economy from a planned to a market economy. Over the years, Moldova has adopted free market policies that are believed to lead the country on a path of economic growth and freedom. Transition economists agree to a number of things involved in the transition process, that countries in this category must embark on, to ensure full transition to a market economy. This process calls forth a drastic restructuring of institutions. As such, Ukraine has adopted policies aimed at this goal. Despite such progressive efforts, the rate of growth has been disappointing compared to that of neighboring countries embarking on a similar path of economic transition. This paper reviews the factors affecting Moldova’s economic growth over the years; particularly addressing how the transition process has been negatively affected by ineffective reform implementation. I will attempt to show the roles of aid dependency and corruption in preventing the country’s full transition from planned to a market economy. New Growth theories suggest that savings is necessary for economic growth. Therefore, II. Economic Theory: Reasons for longer business cycle expansions include, Globalization: This has enabled businesses to maintain their margins of profit without having to raise selling prices when the costs of production of goods and services rise within the country. It allows firms to source products worldwide. As we know, globalization has occurred because of falling transportation costs, increase in information and communications technology. However, when the described situation occurs, resulting inflation may occur at the expansion phase of the business cycle. Increase in the size of the service sector: The service sector as opposed to the manufacturing sector of old now accounts for larger size. This creates a positive impact from the fact that there is minimal inventory and is therefore less subject to shocks. Reasons for shorter business cycle recessions include: Inventory management technology: This also resulted from the improved information and communications technology. Businesses are now no longer saddled with too much inventory because they regulate it due to real-time information.Production now does not need to be cut back drastically so as to eliminate inventory overhaul. Use of more sophisticated financial derivative instruments: This essentially applies to financial institutions in developed countries where they leverage balance sheets. This allows them to continue lending money to businesses even during the recession. Globalization is now causing the emergence of a world business cycle as more and more business cycles become synchronized. A good example is the United States and Canada. They are so interlinked that they have to coordinate economic policy making so as not to adversely impact one...

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