economic growth after socialism_2014

8/12/2019 Economic Growth After Socialism_2014

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Economic Growth after Socialism*

March 2014

Leszek BalcerowiczWarsaw School of Economics

*Im grateful to Magda Cikowicz, Aleksander aszek, Sonja Wap and Marek

Tataa for their assistance in preparing this presentation. 1


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Content:

1. The institutional systems, policies, and outcomes

2. Socialism as an institutional system

3. The economic costs of socialism

4. The institutional trajectories after socialism

5. The economic outcomes after socialism

6. The non-economic outcomes after socialism

7. Explaining the differences in economic growth

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1. The institutional systems, policies, and outcomes

3


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Domestic Institutional System

Propelling

institutions

Constraining

institutions

Economic Policy

Institutional

(reforms)

Fiscal, monetary policies.

Direct interventions

Other determinants of policies:

- personality factors

- political shocks, etc.

Long-run

economic growth

External shocks

(1)

(3)

(2)

(8)

(6)

(4)

(7)

(5)

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- Policiesactions of public rulers

- Non-institutional policies (institutions x personality

factors)

- Constraining institutions:

- primarythe political system (checks and balances)

- secondary (e.g. banking supervision, independent

central bank)

- Propelling institutions:

- type and the level of protection of property rights- the extent of market competition

- fiscal and regulatory burden

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2. Socialism as an institutional system

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3. The economic costs of socialism

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Per-capita GDP (in 1990 international dollars) in 1950 and 1990:

Poland vs. Spain Hungary vs. Austria.

12210

2447

5115

23972000

6000

10000

14000

1950 1990

Poland Spain

2480

6471

16881

3706

2000

6000

10000

14000

18000

1950 1990

Hungary Austria

Countries under socialism lost a lot of distance to Western European

economies.

(102%) (98%)

(42%)

(239%)

(67%)

(149%)

(38%)

(261%)

Source: Maddison Database. 99


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0%

5%

10%

15%

20%

25%

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

Source: Maddison Database.

Per-capita GDP (in 1990 international dollars) in 1950 and 2003:

North Korea vs. South Korea Cuba vs. Chile

854 1127

15732

854

0

4000

8000

12000

16000

1950 2003

North Korea South Korea

2046 2569

10950

3670

0

4000

8000

12000

1950 2003

Cuba Chile

Per-capita GDP (in 1990 international dollars) in China (Western Europe=100).

(100%) (100%)

(1396%)

(7%)

(56%)

(179%)

(23%)

(426%)

1983

1986

1989

1992

1995

1998

2001

1010


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4. The insitutional trajectories after socialism

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-10

-5

0

5

10

Political freedom 2012 (Polity IV)

-5> fully institutionalized autocracies-5< mixed, or incoherent, authority regimes


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0

10

20

30

40

50

60

70

80

90

Private sector share in GDP (%)1994

2010

Source: EBRD - Structural and institutional change indicators 13

180


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Merchandise trade as a share of GDP is the sum of merchandise exports and imports dividedby the value of GDP, all in current U.S. dollars. (WDI)

14

0

20

40

60

80

100

120

140

160

180% of

GDP

Trade openness (merchandise trade as % of GDP)

1994

2011

Source: World Bank, World Development Indicators

out of

scale

2010

Sing:

317%

H-K:

376%


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Observations

- Democracy was introduced and maintained in the

countries which introduced capitalism (CEE)

- Non-democratic political systems co-exist with:

- quasi-capitalist economies (e.g. Russia)

- quasi-socialist economies (e.g. Belarus, Central Asia)

- Important questions regarding the variation of the

economic systems after socialism include especially

the differences between the capitalist systems in CEE

and quasi-capitalist systems elsewhere

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5. The economic outcomes after socialism

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0

2000000

4000000

6000000

8000000

10000000

12000000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US$,constantprices,cons

tantPPPs,OECDbaseyear,

millions

GDP levels

China

Russia

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

GDP annual growth rates

China

Russia

Since 1990s GDP has been growing

more rapidly in China

Source: OECD


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-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

GDP per capita annual growth rate

China

Russia

1837

7402

China7844

14730

Russia

0

2000

4000

6000

8000

10000

12000

14000

16000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Perhead,US$,constantprices,constantPPPs,

OECDba

seyear

GDP per capita levels

Source: OECD


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-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Population growth rates

China Russia

1213 mln

China

1353 mln

148 mln

Russia

142 mln0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Population levels

Population levels and growth rates in China

are very high, especially in comparison to

those observed in Russia.

Source: OECD


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China

Russia

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

%

ofGDP

Fuels and mining products - export

value in relation to GDP

3.1%China

72.3%Russia

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Fuels and mining products export as percentage of total export

0

5

10

15

20

2530

35

40

45

50

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

%

ofGD

P

Exports of goods and services (% of GDP)

China

Russia

Source: World Trade Organisation and OECD


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Source: EBRD Transition Report 2008; WB WDI, IMF WEO 21

(GDP per capita growth in

2008 in relation to 1989 level)

25%


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22

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25% GDP per capita (constant US$) change

between 2007 and 2012 (in %)



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Source:The Conference Board Total Economy Database

, GDP per capita in 2013 US$ (converted to 2013 price levelwith updated 2005 EKS PPPs)


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6. The non-economic outcomes after socialism

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25Life expectancy at birth indicates the number of years a newborn infant would live ifprevailing patterns of mortality at the time of its birth were to stay the same throughout its life.

63 63

67

6869

6768

71

65

70 70

71

69

68

72

70 69

71

69

7171

73

66

63

71

74

7574

77

71

76

77 7777

65

6868

69 6970

71 71

7374 74

74 7475 75

76 7677

78

80

7374

77

79

80 81 8181

82 8282

83

60

65

70

75

80

85

Life expectancy at birth, total (years)

1990

2011


Mortality rate under 5 (per 1 000 live births)


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26

Under-five mortality rate is the probability per 1,000 that a newborn baby will die before reachingage five, if subject to current age-specific mortality rates. (WDI)

116

98

77

93

72

57

47

55

37 37

2227

21 2118 19 17 17 17

14

21

10

49

59

80

19

813 11 9 10

15

8

63

5349

45

3128

2118 16

13 12 12 10 8 8 6 6 6 6 4 4 3

16 16 15

95 4 4 4 4 3 3

0

20

40

60

80

100

120

Mortality rate, under-5 (per 1,000 live births)

1990

2011



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7. Explaining the differences in economic

growth

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Explaining the differences in economic outcomes

Two main determinants of long-term economic growth (seeslide 4):

1. The propelling institutions

2. The negative shocks, which mostly depend on domestic

policies which in turn are the product of personality factorsof the policy-makers and the constraining institutions.

The economic growth after socialism was the stronger:

1. The more progress has been achieved in strengthening thepropelling institutions (the extent of market reforms).

2. The less frequent were the strong negative shocks.

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Finding no 1 is strongly supported by substantial empirical

literature reviewing the experience of countries in transition.

Polanec, Sao(2004)

() we find that in later stages of transition, measures of economic reforms matter forproductivity growth, although with a lag, which is in our exercise equal to four years.This result confirms importance of reform efforts in enhancing the potential for growth.

Krueger, Anne O.(2004)

() it is worth noting that those transition countries that experienced the most rapidstructural reforms have, by and large, experienced more rapid growth. This is true, forexample, of the Baltic States. In recent years, Russia has also seen higher rates ofgrowth a result, in large measure, of reforms that were implemented in the 1990s.

Fischer, Stanley;Sahay, Ratna(2004)

The general conclusion was that the effect of initial conditions, while strong at thestart of transition, wears off over time (). Moreover, the importance of the fiscal policyvariable (the budget balance) increases with the longer period data set. The coefficientson the reform indices () are significant throughout the period, irrespective of the time

period considered.

Falcetti, Elisabetta;Lysenko, Tatiana;Sanfey, Peter(2006)

During transition, a positive correlation between progress in market-oriented reformsand cumulative growth is observed for most countries. This is reassuring to those whohave promoted the virtues of reforms; is also serves as a warning of the dangers thatarise when reformfatigueset in, as it appears to have done in parts of some region() We find that the importance of initial conditions as a determinant of growth hasdeclined over time, but that fiscal surpluses remain positively associated with highergrowth.

Aslund (2012) The Baltic States and Central Europe have accomplished the best results.They purusedall major reforms together in a comprehensive, early, and radical package. Therereforms were deregulation, macroeconomic stabilization, privatization, instututionalreform and democratization. Nothing suggests that it would be advantageous tointentionally hold back on any reform, whereas many reforms were technically complexand could not possibly be done very fast. ()The slower reforms were, the grater was the danger that rent-seeking interests wouldbecome entrenched and block democratization and the combat of corruption, of whichthey were the main beneficiaries.

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Why better economic results go hand in hand with better

non-economic indicators (health, environment, etc.)?

Some crucial factors conducive to long-term economic growth are

also conducive to environmental improvement and to favourable

health-related developments, e.g.

economic reforms

less waste

less environmental deterioration

and less damage to health

healthier foodstuffs become more

available and relatively cheaper

privatisation (separation

of companies from the state)

ecological regulations are

more strictly observed

stronger enforcement of

laws

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less frequent accidents

on the job

economic growth after socialism_2014

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