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A macroeconomic model of Russian transition

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  • Serguey Braguinsky
  • Roger Myerson

Abstract

We present a model in which capital assets can only be owned by members of a relatively small politically connected elite ('the oligarchs'), each member of which faces a given risk of being expropriated, and we investigate the implications of such an imperfection of property rights for the transition to a market economy. At the start of the transition, the oligarchs are long on local capital assets but short on safe deposits abroad. This causes a depression phase characterized by acute liquidity constraints and large capital outflows at the same time. As the oligarchs acquire enough safe deposits, the economy enters a recovery phase, still accompanied by capital outflows. The model can parsimoniously explain both the steep decline suffered by the Russian economy in the first stage of its transition to a market economy and the subsequent turnaround. The decline could be avoided by allowing foreigners to own some domestic capital assets, but home-country oligarchs may not be able credibly to collectively commit to such a reform. Copyright (c) 2007 The Authors Journal compilation (c) 2007 The European Bank for Reconstruction and Development.

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Bibliographic Info

Article provided by The European Bank for Reconstruction and Development in its journal Economics of Transition.

Volume (Year): 15 (2007)
Issue (Month): 1 (03)
Pages: 77-107

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Handle: RePEc:bla:etrans:v:15:y:2007:i:1:p:77-107

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References

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  1. Gérard Roland, 2004. "Transition and Economics: Politics, Markets, and Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 026268148x, December.
  2. Jan Svejnar, 2002. "Transition Economies: Performance and Challenges," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 3-28, Winter.
  3. Varese, Federico, 2001. "The Russian Mafia: Private Protection in a New Market Economy," OUP Catalogue, Oxford University Press, number 9780198297369.
  4. Terry Sicular, 1998. "Capital Flight and Foreign Investment: Two Tales From China and Russia," The World Economy, Wiley Blackwell, vol. 21(5), pages 589-602, 07.
  5. Serguey Braguinsky & Roger Myerson, 2007. "Capital and growth with oligarchic property rights," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(4), pages 676-704, October.
  6. Andrei Shleifer & Daniel Treisman, 2005. "A Normal Country: Russia After Communism," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 151-174, Winter.
  7. Konstantin Sonin, 2003. "Why the Rich May Favor Poor Protection of Property Rights," Working Papers w0022, Center for Economic and Financial Research (CEFIR).
  8. Gérard Roland & Thierry Verdier, 1999. "Transition and the output fall," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 1-28, March.
  9. Leonid Polishchuk & Alexei Savvateev, 2004. "Spontaneous (non)emergence of property rights," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(1), pages 103-127, 03.
  10. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  11. Ronald Wintrobe, 1998. "Privatisation, the Market for Corporate Control, and Capital Flight from Russia," The World Economy, Wiley Blackwell, vol. 21(5), pages 603-611, 07.
  12. Catherine Hafer, 2006. "On the Origins of Property Rights: Conflict and Productionin the State of Nature," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 119-143.
  13. Karim Abadir & Gabriel Talmain, . "Depreciation Rates and Capital Stocks," Discussion Papers 98/3, Department of Economics, University of York.
  14. Maxim Boycko & Andrei Shleifer & Robert W. Vishny, 1993. "Privatizing Russia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 139-192.
  15. Sergei Guriev & Andrei Rachinsky, 2005. "The Role of Oligarchs in Russian Capitalism," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 131-150, Winter.
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Citations

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Cited by:
  1. Suparna Chakraborty & Keisuke Otsu, 2012. "Deconstructing Growth - A Business Cycle Accounting Approach with application to BRICs," Studies in Economics 1212, Department of Economics, University of Kent.
  2. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," William Davidson Institute Working Papers Series 38, William Davidson Institute at the University of Michigan.
  3. Francesca Spigarelli, 2011. "Outward Foreign Direct Investments of the Russian Federation," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 1, March.
  4. Guriev, Sergei & Sonin, Konstantin, 2009. "Dictators and oligarchs: A dynamic theory of contested property rights," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 1-13, February.
  5. Yuriy Gorodnichenko & Yegor Grygorenko, 2005. "Are Oligarchs Productive? Theory and Evidence," Development and Comp Systems 0512013, EconWPA.
  6. Serguey Braguinsky & Roger Myerson, 2007. "Capital and growth with oligarchic property rights," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(4), pages 676-704, October.
  7. Hoff, Karla & Stiglitz, Joseph E., 2008. "Exiting a lawless state," Policy Research Working Paper Series 4520, The World Bank.
  8. Serguey Braguinsky, 2009. "Postcommunist Oligarchs in Russia: Quantitative Analysis," Journal of Law and Economics, University of Chicago Press, vol. 52(2), pages 307-349, 05.
  9. Paul Hare, 2007. "The Political Economy of Growth and Governance," CASE Network Studies and Analyses 0337, CASE-Center for Social and Economic Research.
  10. Benjamin Maury & Eva Liljeblom, 2009. "Oligarchs, political regime changes, and firm valuation," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(3), pages 411-438, 07.
  11. Yong Wang & Xuewen Liu & Xi Li, 2013. "A Model of China's State Capitalism," 2013 Meeting Papers 853, Society for Economic Dynamics.

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