Transcript Nov 30th - Presentation 3

Macroeconomic Disorder
By Andrei Belousov and Lance Taylor
with Elena Abramova, Dongyi Liu, Alexander Vorobyov,
and Stanislav Zhukov
Matthew David Hauer
Yia Yang
China





High level of transfers between firms and government
(31% to gov., 24% to firms) (All numbers expressed in
percentages of GDP)
High level of trade (16.8%)
High savings from firms and households (37.5% and
10.4%)
High investment and capital accumulation
With large deposits by firms and households
hyperinflation seemed imminent

Curbed by increase in output and monetization of rural
economic activity
Russia in 1989



More closed than China (8.7%) in foreign trade
Slightly lower savings rates (7.6% for
households and 26.8% for firms)
Still run by command economy
Russia in Early Transition
1992-1993





Large increase in foreign trade (50.4% in 1992)
Huge price jumps with removal of controls (3.5
to 7.7 times)
Drop in household income (60.8% in 1989 to
46.7% in 1992)
Firms savings spike in 1992 (74.5%)
Firms couldn’t pay high prices for intermediate
goods, ran mutual arrears, 39 billion Rubles in
Jan. 1992, 3,900 billion Rubles in July 1992
Russia in 1993 to 1995






Household income and firm income had moderate
recovery (54.4% for households and 54.8% for firms in
1995)
Larger shares of household income for social payments
and distributed profits
Savings peak in 1994 but drop in 1995 because of
investment scams
Falling inflation
Declining tax shares (40.2% in 1990 to 25.5% in 1995)
Ruble appreciated leading to increase in foreign assets
held by Russians and a drop in manufacturing exports
Differences between Russia and
China




China’s high savings absorbed by domestic
investment, in Russian savings went to foreign
assets
Russia’s financial system incapable of promoting
domestic investment
China’s growth fueled by exports
Russia’s export are mostly raw materials, low
domestic demand, due to low consumptions and
investment, cannot fuel growth either
“The development and Sustainability
of the Russina GDP”
by Simo Leppänen




Depreciation of Ruble in late 1990’s fueled
industrial output
Russia is highly vulnerable to changes in energy
prices and real exchange rates
Financial system still struggling to close gap
between saving and investment
Services increasing in GDP share
McKinnon, Ronald I, Aslund, Anders, & Rostowski, Jacek. (1993). Gradual versus rapid
liberalization in socialist economies: The problem of macroeconomic control. The World Bank
Research Observer: Annual Conference on Development Economics,63. Retrieved November 29,
2009, from ABI/INFORM Global.


China took the gradualist approach
Russia took the rapid liberalization approach
Wanting an unrestricted foreign trade with other
industrialized countries
 Sharp decrease of output

A weak communist party
 Collapse of Council for Mutual Economic Assistance
(CMEA)
