A transition economy or transitional economy is an economy which is changing from a centrally planned economy to a free market. Transition economies undergo economic liberalization, where market forces set prices rather than a central planning organization. In addition to this trade barriers are removed, there is a push to privatize state-owned businesses and resources, and a financial sector is created to facilitate macroeconomic stabilization and the movement of private capital. The process has been applied in China, the former Soviet Union and Communist bloc countries of Europe, and many third world countries and detailed work has been undertaken on its economic and social effects.
The transition process is usually characterized by the changing and creating of institutions, particularly private enterprises; changes in the role of the state, thereby, the creation of fundamentally different governmental institutions and the promotion of private-owned enterprises, markets and independent financial institutions. In essence, one transition mode is the functional restructuring of state institutions from being a provider of growth to an enabler, with the private sector its engine. Another transition mode is change the way that economy grows and practice mode. The relationships between these two transition modes are micro and macro, partial and whole. The truly transition economics should include both the micro transition and macro transition.[citation needed] Due to the different initial conditions during the emerging process of the transition from planned economics to market economics, countries uses different transition model. Countries like P.R.China and Vietnam adopted a gradual transition mode, however Russia and some other East-European countries, such as the former Socialist Republic of Yugoslavia, used a more aggressive and quicker paced model of transition.[citation needed]
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