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Atl Econ J (2014) 42:317–332
DOI 10.1007/s11293-014-9418-2

The Effect of the Global Financial Crisis on Transition Economies
Anna Shostya

Published online: 1 June 2014
# International Atlantic Economic Society 2014

Abstract This research offers new insights into the effect of the Global Financial Crisis of 2007–2009 on the countries that used to be part of the Soviet bloc by focusing on a cross-regional comparison. Twenty-eight countries are grouped according to different criteria and the corresponding vulnerability of each group is compared. The research links the variability in the groups’ responses to the dependence on trade with the
European Union, the degree of the transition and economic freedom, and the sectoral composition of GDP. The research finds that what is considered to be an advantage for a transition economy during “normal” times – high degree of economic freedom and trade liberalization, financial system sophistication, and a well-developed service sector
– became a disadvantage during the crisis.
Keywords Transition economies . Global financial crisis . Financial liberalization .
Cross-regional comparison
JEL F30 . G20 . O57 . F39

Introduction
This paper presents the results of an analysis of 28 transition economies during the Global Financial Crisis of 2007–2009. It sheds new light on the effect of the crisis on the countries of the former Soviet bloc. Liberalization of financial systems at the end of the 1980s to the beginning of the 1990s and their subsequent integration into global markets had opened up these economies to foreign capital flows and thus stimulated their financial development and economic growth. At the same time, however, financial liberalization and integration promoted greater dependency on exports and financial capital inflows making these economies more vulnerable to external shocks. Subsequently, the Washington
A. Shostya (*)
Pace University, 252-B Titus Ave, Staten Island, New York, NY 10306, USA
e-mail:

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