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How Tight is Too Tight? A Look at Welfare Implications of Distortionary Policies in Uzbekistan

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  • Edward R. Gemayel
  • David A. Grigorian

Abstract

Since independence in 1991, Uzbekistan has pursued a gradual approach to the transition from planned to market economy. This approach relied heavily on trade controls, directed credit, and large public investments. In addition, a number of financial sector measures were instituted that distorted resource allocation and increased transaction costs. As a result, while possibly preventing the contraction of output in the early 1990s, these policies led to disappointing economic outcomes and social conditions later on. The paper reviews the underlying distortions and presents survey-based evidence to support their existence and their detrimental impact on economic activity. Looking forward, the paper - using a representative agent framework to model existing financial sector distortions - offers some guidance regarding the likely implications of eliminating these distortions on key aggregate variables. It suggests that the elimination of these distortions will be welfare enhancing and will lead to higher levels of investment and capital stock.

Suggested Citation

  • Edward R. Gemayel & David A. Grigorian, 2006. "How Tight is Too Tight? A Look at Welfare Implications of Distortionary Policies in Uzbekistan," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 3(2), pages 239-261, December.
  • Handle: RePEc:liu:liucej:v:3:y:2006:i:2:p:239-261
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    References listed on IDEAS

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    1. International Monetary Fund, 2000. "Welfare Effects of Uzbekistan's Foreign Exchange Regime," IMF Working Papers 00/61, International Monetary Fund.
    2. Katrin Elborgh-Woytek & Julian Berengaut, 2005. "Who is Still Haunted by the Specter of Communism? Explaining Relative Output Contractions Under Transition," IMF Working Papers 05/68, International Monetary Fund.
    3. Stephen Tokarick, 2006. "Does Import Protection Discourage Exports?," IMF Working Papers 06/20, International Monetary Fund.
    4. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
    5. Feenstra, Robert C, 1985. "Anticipated Devaluations, Currency Flight, and Direct Trade Controls in a Monetary Economy," American Economic Review, American Economic Association, vol. 75(3), pages 386-401, June.
    6. Jeronimo Zettelmeyer & G√ľnther Taube, 1998. "Output Decline and Recovery in Uzbekistan; Past Performance and Future Prospects," IMF Working Papers 98/132, International Monetary Fund.
    7. Richard Pomfret, 2003. "Economic Performance in Central Asia Since 1991: Macro and Micro Evidence1," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 45(4), pages 442-465, December.
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    Cited by:

    1. Dildora Tadjibaeva & Iroda Komilova, 2009. "The influence of tax reforms on the prosperity of micro-firms and small businesses in Uzbekistan," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 16(2), pages 31-64, December.

    More about this item

    Keywords

    financial sector distortions; transition; Uzbekistan;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
    • P27 - Economic Systems - - Socialist Systems and Transition Economies - - - Performance and Prospects

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