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The Leaders and Laggers in the Slavic Triangle:
Comparative Economic Performance
of
Belarus, Russia and Ukraine
Vladimir Popov
([email protected])
Russia was leading in economic
liberalization, while Belarus was lagging
Private sector share in GDP, %
80
Russian Federation
70
Ukraine
60
Belarus
50
40
30
20
10
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
But economic performance was more impressive in
Belarus, although Russia has oil and gas
Fig. 2. GDP change in FSU econom ies, 1989 = 100%
Central Europe
Uzbekistan
Belarus
115
Kazakhstan
105
Estonia
95
Turkm enistan
Azerbaijan
85
Latvia
75
Lithuania
Tajikistan
65
Russia
55
Kyrgyzstan
Arm enia
45
Ukraine
35
Georgia
25
Moldova
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
By 2004 Belarus was among 5 FSU economies that
exceeded the pre-recession 1989 level of output
GDP in 2004 as a % of 1989
Moldova
Georgia
Ukraine
Tajikistan
Azerbaijan
Kyrgyzstan
Russia
Lithuania
Bulgaria
Latvia
Croatia
Armenia
Romania
Kazakhstan
Belarus
Estonia
Turkmenistan
Czech Republic
Uzbekistan
Hungary
Slovakia
Slovenia
Poland
40
60
80
100
120
140
160
180
In 1989-2005, growth rates in Belarus were higher
than in Russia and Ukraine for 10 years out of 16
GDP growth rates, %
15
10
5
0
-5
-10
Belarus
Russian Federation
Ukraine
-15
-20
-25
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
In 1990 PPP GDP per capita in Belarus was half of that in
Russia and 60% of the level of Ukraine.
In 2004 it was higher than in Ukraine and reached 70% of
the Russian level
PPP GDP per capita, current international dollars
11000
10000
9000
Russian Federation
Belarus
Ukraine
8000
7000
6000
5000
4000
3000
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Life expectancy in Belarus was generally
higher than in Ukraine and Russia
Life expectancy at birth, years (1995-2002 - WDI, 2003 - HDR)
72
Belarus
71
Ukraine
70
Russian Federation
69
68
67
66
65
64
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Human Development Index (GDP per capita, life expectancy,
education) was lower in Belarus than in Russia and Ukraine
in 1990, but now is higher than in Ukraine and is nearly as
high as in Russia
Hum an Developm ent Index for China, Belarus, Russia and Ukraine
0,81
0,79
0,77
Russia
0,75
Belarus
0,73
Ukraine
0,71
China
0,69
Cuba
0,67
0,65
1990
1992
1994
1996
1998
2000
2002
2004
There is only one former Soviet republic
with which Russia has today a negative
migration balance (more people leave for B
republic than come from B republic to
Russia)
• Yes, it is B e la r u s
It was argued that Belorussian economy is not
restructuring, but investment is higher in Belarus
than in Russia and Ukraine
Investment as a % of GDP
Belarus
Ukraine
39
Russian Federation
34
29
24
19
14
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
It was argued that investment are supported by government
subsidies and are used to finance inefficient projects, but energy
intensity of GDP fell faster than in Russia and Ukraine
Energy use per PPP GDP (kg of oil equivalent per constant 2000 PPP $)
Ukraine
0,85
Russian Federation
0,8
Belarus
0,75
0,7
0,65
0,6
0,55
0,5
0,45
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Belarus is biting the bullet - electric energy
tariffs grow fast
Electricity tariffs, US cents per 1 kWh
3,8
3,3
2,8
2,3
1,8
1,3
Belarus
Russian Federation
0,8
Ukraine
0,3
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
ODA to Belarus was high, but now is low
Aid per capita (current US$)
30
Ukraine
25
Russian Federation
Belarus
20
15
10
5
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
However, investment climate is good - FDI
inflows are higher than in Ukraine and Russia
Cumulative FDI inflow s in 1989-2004 per capita, US$
250
200
150
100
50
0
Belarus
Ukraine
Russian Federation
Why differences in performance?
Answers are available from [email protected] on request
 Shock Therapy versus Gradualism Reconsidered:
Lessons from Transition Economies after 15 Years of
Reforms. TIGER Working paper No. 82, 2005
 Shock Therapy versus Gradualism: The End of the
Debate (Explaining the Magnitude of the
Transformational
Recession).
–
Comparative
Economic Studies, Vol. 42, Spring, 2000, No. 1, pp. 157.
 Reform Strategies and Economic Performance of
Russia’s Regions. – World Development, Vol. 29, No 5,
2001, pp. 865-86.
 Democracy and Growth Reconsidered: Why
Economic Performance of New Democracies Is Not
Encouraging, co-authored with V. Polterovich)
Impact of initial conditions, institutions,
liberalization:1989-96
Table 1. Regression of change in GDP in 1989-96 on initial conditions, policy factors, and rule of law
and democracy indices, robust estimates
Dependent variable = log (1996 GDP as a % of 1989 GDP)
For China - all indicators are for the period of 1979-86 or similar
Equations, Number of
1,
2,
3,
4,
5,
6,
Observations / Variables
N=28
N=28
N=28
N=28
N=28
N=28
Constant
5.3***
5.4***
5.2***
5.4***
5.4***
5.5***
-.005**
-.005**
-.003
-.006**
-.007***
-.007***
Distortions, % of GDPa
1987 PPP GDP per capita, % of the
US level
War dummyb
Decline in government revenues as
a % of GDP from 1989-91 to 199396
Liberalization index
Log (Inflation, % a year, 1990-95,
geometric average)
Rule of law index, average for
1989-97, %
Democracy index, average for
1990-98, %
Ratio of the rule of law to
democracy index
Adjusted R2, %
-.009**
-.006*
-.007**
-.007**
-.009***
-.19c
-.36***
-.011***
-.16***
-.20***
.05
-.18***
-.17***
-.13***
-.008
***
-.37***
-.008***
-.011
***
-.011
***
-.02
-.13***
.03
-.14***
.008
***
-.005
***
82
7,
N=28
5.7***
-.007***
-.45***
-.003**
.07***
.07***
.06***
.05***
.05***
83
83
85
91
91
*, **, *** - Significant at 1, 5 and 10% level respectively.
aCumulative measure of distortions as a % of GDP equal to the sum of defense expenditure (minus 3%
regarded as the 'normal' level), deviations in industrial structure and trade openness from the 'normal' level,
the share of heavily distorted trade (among the FSU republics) and lightly distorted trade (with socialist
countries) taken with a 33% weight – see (Popov, 2000) for details.
bEquals 1 for Armenia, Azerbaijan, Croatia, Georgia, Macedonia, and Tajikistan and 0 for all other
countries.
c
Significant at 13% level.
90
Best performance: low distortions, strong institutions
Worst performance: high distortions, weak institutions
INITIAL CONDITIONS (DISTORTIONS) AND INSTITUTIONS –
CLASSIFICATION OF COUNTRIES
DISTORTIONS
INSTITUTIONAL
CAPACITY
HIGH
LOW
LOW
HIGH
CHINA,
EASTERN
VIETNAM EUROPE
ALBANIA, FSU
MONGOLIA
Belarus had very distorted economy before
transition, but managed to avoid the collapse of
the institutional capacity of the state
INITIAL CONDITIONS (DISTORTIONS) AND INSTITUTIONS –
CLASSIFICATION OF COUNTRIES
DISTORTIONS
INSTITUTIONAL
CAPACITY
HIGH
LOW
LOW
HIGH
CHINA,
VIETNAM
RUSSIA
BELARUS
UKRAINE
Government revenues and expenditure
declined in virtually all transition economies
Expenditure for “ordinary government” did
not decline in Central Europe and in China...
Fig. 3. Government expenditure, % of GDP
60
POLAND
USSR/ RUSSIA
CHINA
50
40
Debt service
30
Defence
20
Subsidies
10
Investment
"Ordinary government"
0
1985
1989
1995
1978
1985
1994
1989
1996
...And in Belarus
General (consolidated) government revenues (% of GDP)
Belarus
70
Russian Federation
65
Ukraine
60
55
50
45
40
35
30
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Government purchases of goods and services
(i.e. government expenditure minus transfers)
were relatively high in Belarus
General government final consumption expenditure without defense
expenditure (% of GDP)
25
20
15
Belarus
10
Ukraine
Russian Federation
5
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
For instance, government expenditure on education
Public spending on education, total (% of GDP)
7
6
5
4
Belarus
3
Ukraine
2
Russian Federation
1
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Conclusions
• The impact of the speed of liberalization at
the initial stage of transition, i.e. during the
transformational recession, appears to be
negative, if any.
• The reason for the negative impact is most
probably associated with limited ability of the
economy to adjust to new price ratios
Conclusions
• Differences in performance during
transition depend strongly on the initial
conditions:
• The higher the distortions (militarization, overindustrialization, "under-openness" of the
economy and the share of perverted trade flows),
the worse is the performance
• The higher was GDP per capita before transition,
the greater were distortions embodied in fixed
capital stock, the more difficult it was to
overcome these distortions to achieve growth
Conclusions
Fig. 5. Hypothetical trajectories of output (Year "0" = 100%) assum ing gradual and
instant liberalization
Reduction of
output in a
NC sector at
10% annually
Output, Year "0" = 100%
125%
120%
115%
110%
Reduction of
output in a
NC sector at
30% annually
105%
100%
95%
90%
85%
80%
0
1
2
3
4
5
6
7
8
9
10
Years
Assum ptions: size of non-com petitive sector (NC) in the initial
year = 20% of total output; net investm ent (s) = 10% of total output;
m arginal capital productivity, output increase per unit of net investm ent (a) = 1/3.
Reduction of
output in a
NC sector at
100%
annually
Conclusions
• At the recovery stage liberalization starts to affect
growth positively, whereas the impact of pretransition distortions disappears. Institutional
capacity and macroeconomic policy continue to be
important prerequisites for successful performance.
• Liberalization at the recovery stage influences
performance positively because it creates market
stimuli without causing rapid collapse of output of
inefficient
industries,
which
cannot
be
compensated fully by the rise of efficient industries
due to investment constraints.
Thank you
• Details are available from:
[email protected]