vladimir popov why economic performance of post ...vladimir popov why economic performance of post...
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Big Changes in Transition Countries: Lessons for Development Economics
September 18, 2015WIDER Anniversary conference
Vladimir Popov
LESSON 1: What happens in the middle income country when the state capacity collapses
• Unique natural experiment staged by history
• State capacity – the ability of the government to enforce rules and regulations
• Decline in institutional capacity => increase in crime, lawlessness, poor enforcement of property and contract rights => adverse supply shock (increase in costs) => recession
• Other phenomena resulting from the collapse of state institutions
• Demonetization,
• Barter transaction,
• Trade arrears
• Monetary substitutes
GDP change in Asian transition economies, 1989=100%
Fig. 1b. GDP change in Asian transition economies, 1989 = 100%
40
60
80
100
120
140
160
180
200
1989 1991 1993 1995 1997 1999 2001 2003
China
Vietnam
Central Europe
Uzbekistan
Mongolia
Turkmenistan
Kazakhstan
Russia
Kyrgyzstan
Tajikistan
Source: EBRD, World Bank.
Source: EBRD Transition Reports for various years.
Central Europe is the unweighted average for Czech
Republic, Hungary, Poland, Slovakia, and Slovenia.
25
45
65
85
105
125
145
165
185
205
225
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 (
fore
cast)
Turkmenistan
Uzbekistan
Azerbaijan
Kazakhstan
Belarus
Central Europe
Tajikistan
Estonia
Armenia
Lithuania
Latvia
Russia
Kyrgyzstan
Georgia
Ukraine
Moldova
Fig. 1. GDPchange in FSUeconomies, 1989= 100%
The share of private sector in GDP in some former Soviet republics, 1989-
2009, %
0
10
20
30
40
50
60
70
80
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
EST
AZ
GEORG
ARM
LITH
Kyrg
LAT
MOLD
RUS
Kaz
UKR
TADJ
UZB
Bel
TURKM
PAPERS EXPLAINING DIFFEREING PERFORMANCE OF TRANSITION ECONOMIES
• Shock Therapy versus Gradualism Reconsidered: Lessons from Transition Economies after 15 Years of Reforms. Comparative Economic Studies, 2007,. Vol. 49, Issue 1,
March 2007, pp. 1-31.
• Reform Strategies and Economic Performance of Russia’s Regions. – World Development, Vol. 29, No 5, 2001, pp. 865-86.
• Shock Therapy versus Gradualism: The End of the Debate (Explaining the Magnitude of the Transformational Recession). – Comparative Economic Studies, Vol. 42, Spring, 2000, No. 1, pp. 1-57.
Best performance: low distortions, strong institutionsWorst performance: high distortions, weak institutions
INITIAL CONDITIONS (DISTORTIONS) AND INSTITUTIONS –
CLASSIFICATION OF COUNTRIES
DISTORTIONS
INSTITUTIONAL
CAPACITY
LOW HIGH
HIGH CHINA,
VIETNAM
EASTERN
EUROPE
LOW ALBANIA,
MONGOLIA
FSU
Size of government: post-communist economies
Fig. 8. Consolidated government revenues as a % of GDP
10
15
20
25
30
35
40
45
50
55
1989 1990 1991 1992 1993 1994 1995 1996
%
Central
European
countries
South East
Europe
countries
Baltic states
RUSSIA
Central Asian
countries
Caucasian
states
-China
Source: (Popov, 2000).
Size of government: post-communist economies: the expenditure for the “ordinary government” did not
fall in China and in Poland
Fig. 9. Government expenditure, % of GDP
0
10
20
30
40
50
60
1985 1989 1995 1978 1985 1994 1989 1996
Debt service
Defence
Subsidies
Investment
"Ordinary government"
CHINAUSSR/ RUSSIA
Source: (Popov, 2000).
Government spending collapsed in Russia in 1992-99 and did not recover even when economic growth started
20
30
40
50
60
70
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Consolidated government revenues and expenditure, % of GDP (source: EBRD Transition Report)
Revenues
Expenditure
Deficit
Surplus
Size of government: post-communist economies
Fig. 11. Change in government revenues and GDP
20
50
80
110
140
170
200
-10 -5 0 5 10 15 20 25 30 35
Decrease in the share of government revenues in GDP from 1989-91 to 1993-96,
p.p.
1996 G
DP
as a
% o
f 1989 G
DP
China (1979-86)
Vietnam
Armenia
Source: (Popov, 2000).
Murders per 100,000 inhabitants in 1987 and in 2002 (WHO statistics)
y = 1,2507e0,4158x
R2 = 0,6517
0
5
10
15
20
25
30
35
0 1 2 3 4 5 6 7 8
Murders per 100,000 inhabitants in 1987
Mu
rders
per
100,0
00 in
hab
itan
ts in
2002
45 degrees line
Russia
Belarus
Ukraine Estonia
Kazakhstan
Latvia Moldova
AlbaniaTajikistan
Lithuania
AzerbaijanGeorgia
Kyrgyzstan
Turkmenistan
Slovenia
Table. Number of deaths from external causes per 100,000 inhabitants in 2002 – countries with highest rates
Including deaths from Country/Indicator Deaths from
external causes,
total Accidents Suicides
Murders Other*
Russia 245 158 41 33 11
Sierra-Leone 215 148 10 50 7
Burundi 213 64 7 18 124
Angola 191 131 8 40 13
Belarus 172 120 38 13 0
Estonia 168 124 29 15 0
Kazakhstan 157 100 37 20 0
Ukraine 151 100 36 15 0
Cote D’Ivoire 148 86 11 27 24
Colombia 134 36 6 72 19
Niger 133 113 6 14 0
*Deaths due to unidentified external causes, wars, police operations, executions.
Totals may differ slightly from the sum of components due to rounding.
Source: WHO (http://www.who.int/entity/healthinfo/statistics/bodgbddeathdalyestimates.xls)
Fig. 12. Death rate from external causes (per 100,000 of inhabitants) - Russian Empire, RSFSR, RF, 1870-2000 (log scale)Source: Demoscope, № 31-32. August 27- Sept. 9, 2001 http://demoscope.ru/weekly/031/img/nomer31.jpg).
1- all external causes, 2 - accidents, 3- suicides, 4- murders,
5-unknown, 6 – work related accidents.
LESSON 2: What happens with life expectancy and mortality under stress
• WIDER Project: Cornia, Paniccia, Eds., 2000. Mortality Crisis in Transition Economies.
• Mortality increased due to stress, rise in:
• unemployment,
• labor turnover,
• Migration,
• divorces,
• Inequalities
• Third big mortality crisis in human history
• Transition from Paleolithic to Neolithic Age
• Enclosure policy in Britain (pre- industrialization)
• Transition to market and democracy
Source: Wringley, E. A. and R.S. Schofield (1981). The Population History of England, 1541 – 1871. A Reconstruction. – London, Edward Arnold, 1981.
20
25
30
35
40
45
156
6
158
6
160
6
162
6
164
6
166
6
168
6
170
6
172
6
174
6
176
6
178
6
180
6
182
6
184
6
186
6
Life Expectancy and Mortality Rates, England, 1566 - 1871
Life expectancy, years Crude death rate per 1000 inhabitants
Mortality and life expectancy in Russia
LESSON 3: Fast/slow recovery of institutions
• Optimistic view – extremely fast recovery of the institutions
• Murder and crime rates are down to pre-transition levels
• Life expectancy in transition economies in 2000 was 5 years higher than per capita GDP suggested
• LE2000 = -8.5 + 19.8logYcap + 5.1TRANS
(-2.8) (25.3) (4.9)
• (N=147, R2 = 0.72, robust estimates, T-statistics in brackets)
• LE – life expectancy in 2000, years
• Ycap- PPP GDP per capita in 1999,
• TRANS – dummy, equal to 1 if a country was communist in the past,
Life expectancy at birth in Russia and in the US in 1966-2013, total (years)
Optimistic view – extremely fast recovery of the institutions
Socialist heritage of strong state institutions cannot be ruined that easily
1
1.5
2
2.5
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Murder rate in China per 100,0000 inhabitants
• Pessimistic view: institutional capacity depends on long term institutional trajectory
• Westernization of China (mid 19-th century Opium wars – 1949 Liberation) –deviation from trend; PRC –return to the trend
• 1991 transition to capitalism – return to the Westernization that was temporarily interrupted in 1917-91
Table. Billionaires in former USSR, Eastern Europe China, and Vietnam
Number of
billionaires
Total
wealth
PPP
GDP,
2012
Number
per 1
trillion
PPP
GDP
Wealth of
billionaires
to PPP
GDP, %
China 122 260.9 12471 9.8 2.1
Russia 110 403.8 3380 32.5 11.9
Ukraine 10 31.3 338.2 29.6 9.3
Kazakhstan 5 9.2 233 21.5 3.9
Czech Republic 4 14.0 277.9 14.4 5.0
Poland 4 9.8 844.2 4.7 1.2
Georgia 1 5.3 26.6 37.6 19.9
Vietnam 1 1.5 322.7 3.1 0.5
Romania 1 1.1 352.3 2.8 0.3
Uzbekistan 0 0 107 0.0 0.0
Source: Forbes billionaires list
(http://www.forbes.com/billionaires/#page:1_sort:0_direction:asc_search:_filter:All%2
0industries_filter:All%20countries_filter:All%20states); WDI.
Number of billionaires in 2007 and PPP GDP in 2005 (billion $) by country
R2 = 0,6811
-50
0
50
100
150
200
250
300
350
400
450
0 2 000 4 000 6 000 8 000 10 000 12 000
US
ChinaJapan
India
GermanyRussia
UK
Given the size of the country, inequalities in China are low
• Three Chinese provinces (Guangdong, Shandong, Henan) have population over 95 million, another 7 – over 50 million, i.e. bigger that most state, so China should be compared with multistate regions, like European Union or ASEAN, rather than with particular states.
• In EU 27, for instance the coefficient of income inequality around 2005 was about 40% with 23 p.p. coming from between the countries inequalities. In China (29 provinces) it was over 40% with 24 p.p. coming from between the provinces disparities.
• In the US, the inequality coefficient was similar (over 40%), but only 6 p.p. came from disparities in income between the states (Milanovic, 2012).
• If China will manage to reduce the income gap between its provinces (and EU – between countries) to the level close to disparities between US states, it general inequality between citizens will fall to quite a low level.
Big Changes in Transition Countries: Lessons for Development Economics
• LESSON 1: What happens in the middle income country when the state capacity collapses
• LESSON 2: What happens with life expectancy and mortality under stress
• LESSON 3: Fast/slow recovery of institutions