Supply Responses in the Economies of the Former Soviet Union

Output decline has been a feature of the transition economies in the initial post-communist period, including in those countries that belonged to the former Soviet Union. However, explanations for the decline and its persistence have not been easy to find, and mostly they have focussed upon domestic factors in each economy. The theory of disorganization introduced the idea that disrupted supply chains following the demise of central planning might have a role in the explanation of output decline. This paper extends that idea to distinguish between supply from domestic sources, and supply from abroad. Using data for Ukraine and Kazakhstan, the paper finds - contrary to expectation - that the disruption of supplies from hard currency markets was more significant in explaining output decline in these countries than disruption of supplies from CIS partners. This suggests that institutional weaknesses in the areas of international banking, trade insurance, and the like, have been very important factors.