Central planning casts long shadows: new evidence on misallocation and growth

We analyze the link between resource misallocation resulting from central planning and subsequent long-term economic growth under a market-based system. We construct two novel data sets for Poland. We show that misalignment of resources under central planning coincides with lower subsequent economic growth, despite the fact that market mechanisms are reinstated. This result is robust even three decades after the collapse of central planning. We provide several explanations for these patterns.