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The Soviet Economic Decline: Historical and Republican Data

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  • William Easterly
  • Stanley Fischer

Abstract

Soviet growth over 1960-89 was the worst in the world after we control for investment and human capital; the relative performance worsens over time. The declining Soviet growth rate over 1950-87 is explained by the declining marginal product of capital; the rate of TFP growth is roughly constant over that period. While the Soviet slowdown has conventionally been attributed to extensive growth (rising capital to output ratios), extensive growth is also a feature of market-oriented economies like Japan and Korea. What led to the relative Soviet decline was a low elasticity of substitution between capital and labor, which caused diminishing returns to capital to be especially acute. Tentative evidence indicates that the burden of defense spending also contributed to the Soviet debacle. Differences in growth performance between the Soviet republics are explained well by some of the same factors that figure in the empirical cross-section growth literature: initial income, human capital, population growth, and the degree of sectoral distortions.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4735.

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Date of creation: May 1994
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Publication status: published as Easterly, William & Fischer, Stanley, 1995. "The Soviet Economic Decline," World Bank Economic Review, Oxford University Press, vol. 9(3), pages 341-71, September.
Handle: RePEc:nbr:nberwo:4735

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Cited by:
  1. Raiser, Martin & Schaffer, Mark & Schuchhardt, Johannes, 2004. "Benchmarking structural change in transition," Structural Change and Economic Dynamics, Elsevier, vol. 15(1), pages 47-81, March.
  2. Debdulal Mallick, 2012. "Education Briefing: The role of capital-labour substitution in economic growth," Indian Growth and Development Review, Emerald Group Publishing, vol. 5(1), pages 89-101, April.
  3. Laurent Weill, 2008. "On the inefficiency of European socialist economies," Journal of Productivity Analysis, Springer, vol. 29(2), pages 79-89, April.
  4. Fischer, Stanley & Sahay, Ratna & Vegh, Carlos, 1998. "How far is Eastern Europe from Brussels?," MPRA Paper 20059, University Library of Munich, Germany.
  5. Jeanet Sinding Bentzen & Nicolai Kaarsen & Asger Moll Wingender, 2013. "The Timing of Industrialization across Countries," Discussion Papers 13-17, University of Copenhagen. Department of Economics.
  6. Elizabeth Brainerd, 2006. "Reassessing the Standard of Living in the Soviet Union: An Analysis Using Archival and Anthropometric Data," William Davidson Institute Working Papers Series wp812, William Davidson Institute at the University of Michigan.
  7. Mallick, Debdulal, 2012. "The role of the elasticity of substitution in economic growth: A cross-country investigation," Labour Economics, Elsevier, vol. 19(5), pages 682-694.
  8. Brooks, Karen & Lerman, Zvi, 1995. "Restructuring of traditional farms and new land relations in Russia," Agricultural Economics, Blackwell, vol. 13(1), pages 11-25, October.
  9. Denizer, Cevdet & Wolf, Holger C., 2000. "The savings collapse during the transition in Eastern Europe," Policy Research Working Paper Series 2419, The World Bank.
  10. Noland, Marcus & Robinson, Sherman & Wang, Tao, 2000. "Rigorous Speculation: The Collapse and Revival of the North Korean Economy," World Development, Elsevier, vol. 28(10), pages 1767-1787, October.
  11. Treier, Volker, 2001. "Steuerwettbewerb in Mittel- und Osteuropa: Eine Einschätzung anhand der Messung effektiver Grenzsteuersätze," BERG Working Paper Series 36, Bamberg University, Bamberg Economic Research Group.
  12. Kim, Byung-Yeon & Kim, Suk Jin & Lee, Keun, 2007. "Assessing the economic performance of North Korea, 1954-1989: Estimates and growth accounting analysis," Journal of Comparative Economics, Elsevier, vol. 35(3), pages 564-582, September.
  13. Debdulal Mallick, 2007. "The Role of Elasticity of Substitution in Economic Growth: A Cross-Country Test of the La Grandville Hypothesis," Economics Series 2007_04, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  14. Fischer, Stanley & Sahay, Ratna & Vegh, Carlos, 1998. "From transition to market: Evidence and growth prospects," MPRA Paper 20615, University Library of Munich, Germany.
  15. Anatoliy G. Goncharuk, 2006. "Economic Efficiency in Transition: The Case of Ukraine," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 4(2), pages 129-143.

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