Abstract

Economies making a transition from centrally planned socialism to market capitalism can experience chaotic hysteresis. This can arise from elements of the previous system persisting even as institutions are transformed with the system possibly experiencing chaos during this conflict. A model of investment cycles accompanied by technological stagnation shows this phenomenon which can be viewed from a cusp catastrophe perspective. Empirical tests of Soviet investment and construction data provide incomplete support for the cusp structure with chaos. Nonlinear structures are found with bifurcation effects for all cases and possibly chaotic dynamics for five-year lagged construction data.