Transcript eastern europe: class 4

Eastern Europe & Former
Soviet Union: Class 4
Russian Federation
 Largest of former Soviet republics (150M)
 rich in natural resources
 no history of a market-based institutional
framework at beginning of transition
Early Transition Period
5
0
-5
-10
-15
-20
-25
-30
-35
-40
-45
GDP
Industrial Production
Investment
1992* 1993
1994
1995
1997
1998
 Accumulated drop in GDP 1989-95
equals -52%.
 Compare U.S. 1929-33 (-30.5%)
 And the Russian decline followed a
period of steady decline
 clearly the decline has slowed but
investment remains a major
problem
And unlike Poland
Sources of Russian investment 1993-95
60
50
40
State
30
Local
20
Mixed
Private
10
0
1993*
1994
1995(Jan-Jun)
Why has the Russian transition
been so unsuccessful?
Yeager, Tim. 1998. Institutions, Transition
Economies and Economic Development.
Chapter 8: Poland and Russia in transition.
Yeager’s perspective
 THESIS: A major key to their diverging
performance lies in differences in their
institutional frameworks.
 Poland has managed to create an
environment in which the rules of the
game are adequately spelled out.
 Russia’s economy is plagued by crime,
corruption and high transaction costs
 Far more “on-the-books”business
start-ups in Poland
evidence of faith in the system
 much more informal activity in
Russia
can only exist if government chooses
or is unable to stop its growth
 But such firms are small and invest
little
logical. Property rights are insecure
 Russian mafia controls 40% of the
total economy
 some 9,000 organized groups
employ about 100,000
 pay no taxes; force legitimate
businesses to pay protection
1994: 70-80% of private businesses
paying extortion money.
Hedlund and Sundstrom. 1996. The Russian
economy after systemic change, Europe-Asia
Studies 48(6): 887-914.
Russian Inflation Rates, 1992-95(%)
Annual average
End of year
1992
1354
2318
1993
896
841
1994
220
205
1995
190
131
Factors
 Monetary policy in perestroika years. More
money printed than in previous 30 years
combined
 created a massive RUBLE OVERHANG
 Russians unleashed price inflation to
eliminate the overhang which became
chronic.
 Need austere monetary policy to turn off.
Became impossible politically.
Consequences of chronic
inflation
 Shorten time horizons of economic
actors---> investment decline
 sharp reductions in real incomes of
those on fixed incomes.
 Increase in income inequality
 Increase in regional inequality
 PRIMITIVIZATION of Russian economy
Example 1 of primitivization:
Structural trends
 The higher the degree of processing the
greater the fall in output
 the relative importance of extractive
industries (natural gas, coal mining,
electricity generation etc.) has increased
 Has made Russia more dependent on
world commodity prices
Example 2: Reversion to
barter economy
PBS Lehrer Hour, October 27,
1998
Example 3: Russian
morbidity and mortality
trends
Morbidity
Disease/health indicator
Typhoid/paratyphoid
Salmonellosis
Bacterial dysentry
Tuberculosis (first diagnosis)
Diphtheria
Whooping cough
Measles
Syphilis (first diagnosis)
Gonorrhoea
Proportion pregnant women anemic
Proportion newly born ill
% change 1992
13
8
-31
5
109
-22
-9
86
32
31
20
% change 1993
66
-15
25
11
290
63
302
141
25
NA
NA
Mortality
Life expectancy at birth
75
70
65
60
55
50
Men
Women
1993
1991
1989
1987
1985-86
1983-84
1981-82
40
1979-80
45
Russian life expectancy in
international perspective, 1994
Brazil
Mexico
Thailand
South Korea
China
Japan
Portugal
Spain
Sweden
United Kingdom
France
Germany
United States
Russia
0
20
Male
40
Female
60
80
100
Difference
Hypotheses
 Glasnost in statistics
 inadequate financing for medical system
 food and drinking water contamination
 ecological problems (air pollution)
high rate of birth defects
 Increased homicides due to gang wars
and decline in public order
Problem with these
explanations???
 Why the large gender gap???
 One route to an explanation--focus on
trends in mortality causes
cardiovascular diseases
injuries including (homicide, suicide,
alcohol poisoning)
One model
IMPOVERISHMENT
INSTABILITY
(POLITICAL,
SOCIAL,
ECONOMIC)
BEHAVIORAL
CONSEQUENCES
INCREASED
MORTALITY
AND GENDER GAP