This work applies tools of endogenous growth theory to the case of Eastern Europe.

Chapter (1) reviews recent growth literature. Chapter (2) introduces the historical context of the growth issue in former Soviet-type economies (STEs). Chapter (3) describes the Grossman and Helpman (1991) growth model which is then applied in further analysis.

Chapter (4) points to the lack of innovation by state-owned enterprises (SOEs) as a possible source both of economic decline in the former STEs and of failure of reforms that consisted in transferring power from centre to the SEOs.

In chapter (5) attention is given to the effects which the exogenous technology shock in the R and D sector in former STEs may have on the behaviour of the relevant economic variables in a short and a long-term perspective.

A separate section discusses welfare properties of the transition path and of the policy implications stemming from this analysis.