This paper explores sources of the output collapse in Russia during transition. A modified growth accounting framework is developed that takes into account changes in factor utilization typical of the transition process. The results indicate that declines in factor inputs and productivity were both important determinants of the output fall. The contribution of the productivity drop was critical, but smaller than previously reported. Possible causes of the reduction in productivity are assessed using data on sub-national regions within Russia. Privatization and entry of private firms are found to have generated productivity gains, while lack of exit of unviable enterprises constituted a drag on efficiency.
The divergence between production and consumption indicators in Russia suggests that the magnitude of the output collapse in the course of the transition is overstated by the official statistics. Alternative estimates for real GDP are derived, which reconcile the official production and consumption data. Based on cautious assumptions, real GDP appears to have declined cumulatively by no more than one third rather than by one half. The drop in household welfare is much smaller still, as the output mix shifts and deadweight losses are sharply reduced.
This paper explores sources of the output collapse in Russia during transition. A modified growth accounting framework is developed that takes into account changes in factor utilization typical of the transition process. The results indicate that declines in factor inputs and productivity were both important determinants of the output fall. The contribution of the productivity drop was critical, but smaller than previously reported. Possible causes of the reduction in productivity are assessed using data on sub-national regions within Russia. Privatization and entry of private firms are found to have generated productivity gains, while lack of exit of unviable enterprises constituted a drag on efficiency.
The health of the Russian economy still depends heavily on natural resource revenues. The history of the economic collapse and recovery in 1970–2004 provides new evidence on the sources of Russian economic growth, while a survey of the economic literature suggests that the Russian economy could be viewed as a weighted combination of virtual and normal forces. If the Russian economy is considered to be dominated by normal market economy forces, higher energy export receipts provide an opportunity for structural reforms while compensating for social costs, making the economy less vulnerable to decline in world energy prices. However, the domination of virtual forces—value transfers from the energy sector to strategic enterprises—suggests that high world energy prices are masking an inefficient manufacturing sector, and that the Russian economy is highly vulnerable to energy price declines.
The divergence between production and consumption indicators in Russia suggests that the magnitude of the output collapse in the course of the transition is overstated by the official statistics. Alternative estimates for real GDP are derived, which reconcile the official production and consumption data. Based on cautious assumptions, real GDP appears to have declined cumulatively by no more than one third rather than by one half. The drop in household welfare is much smaller still, as the output mix shifts and deadweight losses are sharply reduced.
Coverage of Russia in western newspapers leaves an overriding impression that the place is corrupt and doomed. Economists and pundits have focused on corruption, and the lack of the rule of law as the main causes of last year's crash. These structural problems definitely exist and they are indeed serious. But they also existed and were serious when the stock market was booming in 1996-1997 on the perceived success of Russian reforms. In fact, focus on these two problems neither explains the crash nor the real news of recent months - that production in Russia is steadily growing for the first time in a decade. The reason for this turnaround is the collapse of the rouble, which freed industry from the uncompetitiveness of the former exchange rate. The August 17 debacle is turning out to be salvation of Russian industry. The depression of Russia's heartland in 1995-1998 was largely caused by the very success of stabilisation. To bring down rampant inflation the exchange rate was pegged. As a result inflation was swiftly reduced in 1996 and consumption and financial booms in 1997 triggered a small growth blip, but industry sank further into its depressive mire. While stock markets went from high to high the real economy was suffering from Russia's version of the Dutch Disease. The commodity-based export sector prospered, largely freed from the subsidisation role of Soviet times, but Russian manufacturing went from bad to worse. Companies made more losses and in order to survive they failed to pay tax, wage and supplier bills, and turned to barter. While corruption, tax avoidance and plain stealing by management were - and are - pervasive, they alone do not suffice to explain the growth of these virtual phenomena during the stabilisation period. Post-crash, things are different. Federal tax revenues are up which has allowed the government to start paying off some of its outstanding arrears. In the private sector profits, cash-flow, and order book levels are up, while barter and wage arrears are down. With a competitive exchange rate the Russian economy is reviving for the first time in decades. Russia's transformation into a market economy, however flawed, is bearing some fruit. Provided there is no fast real appreciation and no major political upheaval, there is nothing to suggest that the Russian economy will not keep on growing. But although denouncing corruption might help to foster positive change, blaming it for the crash (and for the West's loss of Russia) provides precious little insight. Straight exchange rate economics goes much further in explaining why Russia continued to decline after stabilising in 1995, and why it is growing now.
This title was first published in 2001: Based on extensive research, this trilogy provides new insights into Post-Soviet transformations without taking refuge in the traditional assumption that Russia is unique. Using powerful analytical tools, this trilogy marks the re-integration of the Former Soviet Union (FSU) into the main current of political science. An invaluable resource for all those interested in Russia and the Post-Soviet states. This first volume focuses on state, sectoral, and transnational actors from a predominantly rational choice perspective. The book includes an extensive introduction by the editor which uses additional material gathered by the project team on two polls, 1999 and 2000, which, in addition to the individual studies, provide sufficient data to obtain unprecedented insights into the basic preferences and the logic of action of the main players in Russia. The outcomes of this research will be particularly relevant for students, researchers, journalists and decision-makers interested in Russia and the Post-Soviet states’ politics, international relations, economics, social policy and sociology.
