Academic journal article The European Journal of Comparative Economics

Russia's Transition Process in the Light of a Rising Economy: Economic Trajectories in Russia's Industry and Agriculture

Academic journal article The European Journal of Comparative Economics

Russia's Transition Process in the Light of a Rising Economy: Economic Trajectories in Russia's Industry and Agriculture

Article excerpt

1. Introduction

Russia's economy is currently enjoying substantial growth. However, the determinants of this development are quite unclear. Possible explanations include the favorable development of world market prices for raw materials as well as a successful completion of the transition process and pursuit of trajectories that allows extracting the benefits of functioning markets. If the development occurred because of the latter, any indicators of transition progress are supposed to show significant changes. In fact, this should not only be visible at the macro-economic level but due to factor and product market integration, also in all economic sectors. Moreover, since transition affects economic regions according to their comparative advantages, regional differentiation and specialization can be expected too.

In this paper, we focus on two problems. First we investigate how some transition indicators have evolved over time, and, whether significant changes over the years are observable. In particular, we decompose output growth into a scale effect (SE) and the development of total factor productivity (TFP). Thus, the scale effect refers to the question to which extent the observed output changes are due to proportional changes of input quantities (cp.). In contrast, TFP-changes capture output growth corresponding to changes of the general (technological) ability of transforming inputs into outputs. Hence, TFP growth is one of the key indicators of economic dynamics as it provides information about the additional output that might be produced, given a certain set of inputs. In addition, developments in terms of the institutional framework as well as demand-side induced changes find their expression in TFP growth.

In the literature the development in TFP usually is further decomposed into changes of technical efficiency [TE] and technological change [TCH]. In this regard, TCH refers to any change in the production possibilities over time, be it positive or negative, and thus, indicates the effects of innovations as well as the devaluation of obsolete fixed assets and related capabilities (e.g.: accumulated knowledge and network links). Accordingly, significant positive TCH suggests achievement of a rather sustainable trajectory characterized by long-term economic growth. In contrast, changes in TE control for economic success in terms of achieving input-output combinations empirically benchmarked with respect to the (technologically) efficient boundary of the production possibility set; namely the technological frontier. Considered over time, the related trajectories may suggest whether a certain determinant of the production process, e.g. the institutional framework conditions, tends to reduce or increase any wastes of resources prevailing in the production processes. Accordingly, TE is an indicator of assessment whether the coordination of economic activities have improved over time and thus may serve as an approximation for developments capturing the successes and failures of the transition processes. Hence, TE is expected to be significantly rising in the course of transformation of Russia's economy from central planning towards de-central market coordination, given the obvious inefficiencies in the coordination system of a central planned economy.

The second central question this paper is trying to tackle concerns divergences in sector and/or regional developments. In fact, although on the whole Russia seems to be flourishing, it is rather unclear whether this picture also emerges if certain sectors and/or regions are considered separately. Accordingly, we investigate, on a regionally aggregated base, whether agriculture was also able to benefit from overall economic changes or whether there are even after more than 15 years of transition still only limited signs of sectoral economic integration. Empirically we consider the above mentioned measures (TFP, TCH, TE) separately for agriculture and industry in order to point out relevant differences and check whether sectoral co-integration has improved

We will elaborate on the above raised central questions by estimating production functions for Russia's industry and agriculture using regionally and temporally disaggregated data. …

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