Transitional Economy Definition

A transitional economy is one that is in a state of transition from one economic system to another. For example, a country may be transitioning from a planned economy to a market economy. Or, a region may be transitioning from an agricultural-based economy to a manufacturing-based economy.

In general, a transitional economy is characterized by instability and uncertainty. For example, there may be high inflation or currency devaluation. Industries may be closing down or relocating. And, the government may be enacting new policies or regulations that are unfamiliar to businesses and consumers.

This uncertainty can make it difficult for businesses to operate and for consumers to make spending decisions. As a result, transitional economies often experience slower economic growth and higher unemployment rates than developed economies.