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Service as a major source of growth in Russia and other former Soviet states


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  • Easterly, William
  • de Melo, Martha
  • Ofer, Gur
  • DEC


Private services could contribute greatly to economic growth in Russia and the other former Soviet states. The authors use econometric analysis to identify the gap between expected and actual levels of service activities in these countries and simulate the effect on GDP and employment of closing the gap. The gap is particularly wide for business and consumer services. Transport and publicly provided services are comparable to, or higher than, those in other countries. Traditionally, the Marxist doctrine of socialist economies has labeled services"nonproductive."And there is continuing evidence that national policies in these countries favor producers of goods over producers of services. In Russia, for example, there was until recently a 25 percent ceiling on trade margins for some products, and the enterprise profits tax is higher for producers of services than for producers of goods. Also, coefficients for real estate lease payments are sometimes higher for service firms. It will be important for Russia and the other former Soviet states to identify a policy agenda to facilitate the rapid expansion of services. The policy agenda should entail legal, economic, and institutional changes to eliminate the current bias against services, so that service firms can operate on a level playing field. It should also include proactive programs to stimulate a rapid increase in the level of service activity. Appropriate measures may include: (a) changes in the tax law, the regulatory framework, and other economic incentives; (b) government programs to accelerate private sector development and the privatization of government distribution and service activities; (c) training for enterprise employees to facilitate their transfer from production to service activities; (d) action to support the orderly development of input and output markets; (e) creation of a modern banking system that will use appropriate criteria to provide credit to service enterprises; and (f) consideration of service activities as priorities for international technical assistance and direct foreign investment.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1292.

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Date of creation: 30 Apr 1994
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Handle: RePEc:wbk:wbrwps:1292

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Keywords: Governance Indicators; Banks&Banking Reform; Economic Theory&Research; ICT Policy and Strategies; Municipal Financial Management;


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  1. Easterly, William & King, Robert & Levine, Ross & Rebelo, Sergio, 1991. "How do national policies affect long-run growth? : a research agenda," Policy Research Working Paper Series 794, The World Bank.
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Cited by:
  1. Ali AbdelGadir Ali, . "Internal Substainability and Economic Growth in The Arab States," API-Working Paper Series 0102, Arab Planning Institute - Kuwait, Information Center.
  2. Martha de Melo & Gur Ofer & Plamen Yossifov, 2003. "Transition in Regional Capitals along the Volga," Public Economics, EconWPA 0302010, EconWPA.
  3. Diao, Xinshen & Fekadu, Belay & Haggblade, Steven & Seyoum Taffesse, Alemayehu & Wamisho, Kassu & Yu, Bingxin, 2007. "Agricultural growth linkages in Ethiopia: Estimates using fixed and flexible price models," IFPRI discussion papers 695, International Food Policy Research Institute (IFPRI).
  4. de Melo, Martha & Denizer, Cevdet & Gelb, Alan & Tenev, Stoyan, 1997. "Circumstance and choice : the role of initial conditions and policies in transition economies," Policy Research Working Paper Series 1866, The World Bank.
  5. Ickes, Barry W. & Ofer, Gur, 2006. "The political economy of structural change in Russia," European Journal of Political Economy, Elsevier, vol. 22(2), pages 409-434, June.
  6. Denizer, Cevdet, 1997. "Stabilization, adjustment, and growth prospects in transition economies," Policy Research Working Paper Series 1855, The World Bank.


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