Resource Abundance and Economic Development

By R. M. Auty | Go to book overview
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16 Reforming Resource-Abundant Transition Economies: Kazakhstan and Uzbekistan



In the mid-1990s, comparative studies of the economies in transition strongly suggested that macro policy determined successful adjustment (de Melo et al. 1996 ; Fischer et al. 1996 ; Aslund et al. 1996). Table 16.1 shows why. It summarizes the performance of the five categories of reformers over the period 1989-94 and suggests that faster reform of macro policy is preferable to gradual reform because faster reformers experience less loss of output and government revenue than slower reformers, and that they resume economic growth sooner.

This approach to transition reform was championed by the international financial institutions and it is termed here the rapid reform model. It rests upon three central premises. First, rapid stabilization and tight inflation control are necessary prerequisites for sustained economic growth. Second, renewed growth also requires prompt realignment of internal and external prices as well as low fiscal deficits. Moreover, price reform calls for privatization and improved financial regulation. Third, and finally, the pace of economic recovery is linked to the comprehensiveness of reform rather than to a recovery in the level of investment.

However, more recent data cast doubt upon the ability of the rapid reform model to explain the differing transition outcomes. For example, the intermediate reformer Kazakhstan has not achieved the economic rebound predicted by the model whereas Uzbekistan, a very slow reformer, has not experienced the accelerating growth collapse that was expected. A key omission from the rapid reform model is the impact of the initial conditions on the transition, notably the natural resource endowment, social capital, and the central planning legacy of economic distortions, especially obsolete produced capital (de Melo et al. 1997 ; Havrylyshyn et al. 1998 ; Kenny 1999).

A principal components analysis (de Melo et al. 1997) of the initial conditions reveals two key parameters for transition performance, namely, the degree of policy distortion and the extent of over-industrialization. These two parameters identify four clusters of transition economies. The two sets of successful reforming countries exhibit


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