ber042] Popov, V. -- Russia- austerity and deficit reduction in historical and comparative perspective.pdf

Cambridge Journal of Economics 2012, 36, 313–334doi:10.1093/cje/ber042

Russia: austerity and deficit reduction inhistorical and comparative perspective

Vladimir Popov*

This paper looks at Russian experience with austerity programmes since thebreakdown of the former Soviet Union in 1991. Downsizing of the state was oneof the major elements in a reform package designed to transform the centrallyplanned economy into a market one (together with deregulation, privatisation,macroeconomic stabilisation and the opening up of the closed economy). Thisdownsizing, however, proved to be the single most important reason for the collapseof state institutions, which in turn deepened the transformational recession,contributed to the dramatic rise of income inequalities, corruption and crime, andthe decline in life expectancy. The story of the successes and failures of transition isnot really the story of consistent shock therapy and inconsistent gradualism. Themajor plot of the postsocialist transformation ‘novel’ is the preservation of stronginstitutions in some countries (very different in other respects—from CentralEurope and Estonia to China, Uzbekistan and Belarus) and the collapse of theseinstitutions in other countries. At least 90% of this story is about government failure(the strength of state institutions) and not about market failure (liberalisation).

Key words: Downsizing the government, Institutional collapse, State capacity, RussiaJEL classifications: E02, H11, H50, P35

1. Introduction

The very notion of the state implies that public authorities hold monopolies on three

functions: (i) the legitimate use of violence; (ii) the provision of revenues by collecting

taxes; and (iii) the control of monetary emission. All three monopolies were undermined in

Russia during the 1990s to such an extent that the very existence of the state was put into

question. The government failure became pervasive and much more visible than the

market failure (Popov, 2004).

As compared with the period of the late 1980s, when the Soviet Union was still in place,

the volume of the provision of public goods in the 1990s shrank by at least half, the quality

of government services deteriorated dramatically and the effectiveness of the public

administration fell to its lowest level in decades. Pervasive government failure was apparent

Manuscript received 22 June 2011; final version received 15 November 2011.Address for correspondence: Vladimir Popov, DPAD, DESA, UN, 2 United Nations Plaza, DC 2-1444, New

York, NY 10017, USA; email: [email protected]

* The New Economic School, Russia.

� The Author 2012. Published by Oxford University Press on behalf of the Cambridge Political Economy Society.

All rights reserved.

at CSU

Fresno on October 26, 2012

http://cje.oxfordjournals.org/D

ownloaded from

http://cje.oxfordjournals.org/

Administrator

Highlight

Administrator

Highlight

Administrator

Highlight

Administrator

Highlight

Administrator

Highlight

Administrator

Highlight

Administrator

Highlight

Administrator

Highlight

Administrator

Highlight

Administrator

Highlight

Administrator

Highlight

Administrator

Highlight

Administrator

Highlight

in virtually all areas, from collecting custom duties to taking care of homeless children, to

fighting crime.

The importance of an efficient state for reasonable economic performance and social

stability is normally well recognised by researchers and politicians, but it is often assumed

that state efficiency cannot change rapidly—either for the better or for the worse. However,

in some postcommunist economies the decline in state capacity was most extraordinary—

by 50% and more in an extremely short period of time (a matter of several years). The rapid

loss of state capacity in such a short period of time became a natural experiment that

revealed what can happen in a modern economy if the provision of basic public goods is

suddenly dramatically reduced.

The total amount of public goods provided by the government is equal to the multiple of

two indicators: (1) total government spending and (2) output of public goods per US $1 (1

yuan) of spending. The latter indicator—output of public goods per one unit of

spending—is the measure of state efficiency, whereas the former indicator—total

government spending—is a measure of state size. The idea of Russian liberal (pro-market)

reformers was that the smaller size of the state would be compensated by the higher

efficiency of government spending, but in reality the efficiency of the provision of public

goods declined hand in hand with the reduction of government spending. As a result, the

provision of public goods fell exactly when there was a need to provide more. When crime,

income inequality, poverty and corruption were on the rise, the state needed to spend

more, not less, to bring these unfavourable developments to a halt.

2. Decline of the state: collapse of state institutional capacity during

transition

The institutional capacity of the state is defined, for the purposes of the current paper, as the

ability of the government to enforce rules and regulations, including property and contract

rights, and law and order in general. When state institutional capacity weakens, companies

and households bear additional costs associated with the need to compensate for the lack of

provision of public goods that the state previously provided. A reduction in other government

spending, such as on social programmes, health care, infrastructure, etc., even if it does not

lead to a decline in the ability of the state to enforce rules and regulations, has other negative

implications, such as a rise in income inequalities, mortality, etc.

The efficiency of state and non-state institutions is not easily measurable. In most former

Soviet Union (FSU) and Balkan countries the collapse of state institutions was observable in

the dramatic increase in the share of the shadow economy; in the decline of government

revenues as a proportion of GDP; in the inability of the state to deliver basic public goods and

appropriate regulatory framework; in the accumulation of tax, trade, wage and bank arrears;

in the demonetisation, ‘dollarisation’ and ‘barterisation’ of the economy, as measured by high

and growing money velocity, and in the decline of bank financing as a proportion of GDP; in

the poor enforcement of property rights, bankruptcies, contracts, and law and order in

general; and in increased crime rates, etc. Most of the mentioned phenomena may be defined

quantitatively, with the remarkable result that China and Vietnam are closer in this respect to

East European (EE) countries than to the Commonwealth of Independent States (CIS).

However, the construction of the aggregate index of the efficiency of institutions is

problematic, because the rationale for choosing weights is not clear.

One possible general measure is the trust of businesses and individuals in various

institutions—here, FSU states rank much lower than EE countries in all available surveys.

314 V. Popov

at CSU



ownloaded from


In a global survey of firms in 69 countries on the credibility of state institutions, the CIS

had the lowest credibility, below that of Sub-Saharan Africa (SSA) (World Bank, 1997, pp.

5, 35). Especially striking was the gap between EE and CIS countries: differences in the

credibility index between South and South-East Asia and EE were less pronounced than

differences between SSA and the CIS.

Another good proxy for measuring the institutional capacity of the state is the financial

strength of the government—the share of state revenues in GDP.1 Out of 30 transition

economies only several did not experience the sharp reduction of the share of government

revenues/spending in GDP during transformation—Estonia, Vietnam and Central

European countries (Czech Republic, Hungary, Poland, Slovak Republic, Slovenia)

(Figure 1); government expenditure/GDP ratios in Uzbekistan and Belarus fell less

dramatically than in other countries (Popov, 2000). It is easy to notice that these countries

are exactly the ones that exhibited the most favourable GDP dynamics: in Central Europe

the 2000 GDP surpassed the pre-recession level of 1989, whereas Uzbekistan, Belarus and

Estonia (in this order) came closer than other former Soviet republics to restoring the pre-

transition GDP level, and Vietnam did not experience any transformational recession at

all.

Though much has been said about ‘big government’ and too high taxes in former

socialist countries, by now it is rather obvious that the downsizing of the government that

occurred in most CIS states during transition went too far. This argument has nothing to

do with the long-term considerations of the optimal size of the government in transition

economies. It is true that in most of them government revenues and expenditure as a share

of GDP are still higher than in countries with comparable GDP per capita. But whatever

the long-term optimal level of government spending should be, the drastic reduction of

such spending (by 50% and more in real terms in the course of just several years (Figure 2))

cannot lead to anything else but institutional collapse. Simply put, if crime, income

10

15

20

25

30

35

40

45

50

55

1989 1990 1991 1992 1993 1994 1995 1996

Central Europe

Baltic states

Russia

Central Asia

Caucasian

states

Central Asia

China

%

Fig. 1. Consolidated government revenues as a percentage of GDP.Sources: EBRD Transition Report, various years; De Melo et al., 1996.

1 Government revenues is a better indicator for measuring state capacity than government spending,because the increase in spending may be achieved by expanding the deficit without the increase in revenues.In a sense, we are looking at government expenditure that is backed by revenues and not by deficit financing.

Russia’s austerity experience 315

at CSU



ownloaded from


inequality, poverty and corruption are on the rise, the state needs more money, not less, to

bring these unfavourable developments to a halt.

Before transition in former socialist states, not only were government regulations

pervasive, but also the financial power of the state was roughly the same as in European

countries (government revenues and expenditure amounted to about 50% of GDP).

This allowed the state to provide the bulk of public goods and extensive social transfers.

During transition, tax revenues as a proportion of GDP decreased markedly in most

countries. However, Central European countries and Estonia managed to arrest the

decline, while Russia (together with Lithuania, Latvia and several South-East European

and Central Asian states) experienced the greatest reduction. In Vietnam the share

of government revenues in GDP grew by 1.5 times in 1989–93. Chinese government

revenues as a percentage of GDP fell by more than two times after the late 1970s, but

this appears more like a conscious policy choice rather than a spontaneous process

(authoritarian regimes always have better powers to collect tax revenues, if they choose

to do so, as did all governments in the centrally planned economies (CPEs) before

transition).

In most CIS states the reduction in government expenditure occurred in the worst

possible way—it proceeded without any coherent plan and did not involve the reassess-

ment of government commitments. Instead of shutting down completely some gov-

ernment programmes and concentrating limited resources on the others with an aim to

raise their efficiency, the government kept all programmes half-alive, half-financed and

barely working.

This led to the slow decay of public education, health care, infrastructure, law and order

institutions, fundamental research and development, etc. Virtually all services provided by

the government—from collecting custom duties to regulating street traffic—became

a symbol of notorious economic inefficiency. There were numerous cases of government

failure, which further undermined the credibility of the state since many government

activities in providing public goods were slowly dying and were only partly replaced by

private and semi-private businesses.

The dynamics of the government expenditure during transition seems to have been far

more important than the speed of reforms in shaping economic performance. In the words

of G. Kolodko, one of the architects of Polish economic reforms in 1994–2003, ‘there can

be no doubt that during the early transition there was a causal relationship between the rapid

Fig. 2. Consolidated government revenues and expenditure in Russia as a percentage of GDP.Source: EBRD Transition Report, various years.

316 V. Popov

at CSU



ownloaded from


shrinkage in the size of government and the significant fall in output’ (Kolodko, 2000, p. 259).

Keeping the government big does not guarantee favourable dynamics of output, since

government spending has to be efficient as well. However, the sharp decline in government

spending, especially for the ‘ordinary government’ (see below), is a sure recipe to ensure

the collapse of institutions and the fall in output accompanied by the growing social

inequalities and populist policies.

When real government expenditure falls by 50% and more—as happened in most CIS

and South-East European states over a short period of time, just several years—there are

practically no chances to compensate the decrease in the volume of financing by the

increased efficiency of institutions. As a result, the ability of the state to enforce contracts

and property rights, to fight criminalisation, and to ensure law and order in general falls

dramatically (Popov, 2009A).

Thus, the story of the successes and failures of transition is not really the story of

consistent shock therapy and inconsistent gradualism. The major plot of the postsocialist

transformation ‘novel’ is the preservation of strong institutions in some countries (very

different in other respects—from Central Europe and Estonia to China, Uzbekistan and

Belarus2) and the collapse of these institutions in the other countries. At least 90% of this

story is about government failure (the strength of state institutions) and not about market

failure (liberalisation).

It is precisely this strong institutional framework that should be held responsible for both

the success of gradual reforms in China and shock therapy in Vietnam, where strong

authoritarian regimes were preserved and CPE institutions were not dismantled before

new market institutions were created, and for the relative success of radical reforms in EE

countries, especially in Central European countries, where strong democratic regimes and

new market institutions emerged quickly. And it is precisely the collapse of strong states

and institutions that started in the USSR in the late 1980s and continued in the successor

states in the 1990s that explains the extreme length, if not the extreme depth, of the FSU

transformational recession.

To put it differently, the Gorbachev reforms of 1985–91 failed not because they were

gradual, but due to the weakening of the state institutional capacity, which led to the

inability of the government to control the flow of events. Similarly, the Yeltsin reforms in

Russia, as well as the economic reforms in most other FSU states, were so costly not

because of the shock therapy, but due to the collapse of the institutions needed to enforce

law and order and carry out manageable transition.

Three major patterns of change in the share of government expenditure in GDP

generally coincide with the three major archetypes of institutional developments and, even

broader, with three most typical distinct ‘models’ of transition (Figure 3). The concept of

‘ordinary government’ (Naughton, 1997) makes a distinction between the state expendi-

ture directly contributing to the institutional capacity of the state (ordinary government)

and all other spending (transfers, subsidies, defence, debt service, etc.) that is not linked

directly to the institutional strength of the state. The intricacies of national statistics do not

2 Countries like Belarus and Uzbekistan fall into the same group as Central European countries andEstonia, with a small reduction in state expenditure as a % of GDP during transition, good quality ofgovernance, little bribery, small shadow economy and low state capture index (Hellman et al., 2000). In 2005Belarus and the Slovak Republic were the only two countries out of 25 surveyed in EE and FSU (BusinessEnvironment and Economic Performance Survey) where a significant improvement was registered in 2002–05 in all seven areas of economic governance (judiciary, fighting crime, combatting corruption, customs andtrade, business licensing and permits, labor regulations, tax administration) (EBRD, 2005).


at CSU



ownloaded from


always allow spending for the ordinary government to be separated from the other outlays,

but even the rough comparison is telling (Figure 3).

Under strong authoritarian regimes (China) cuts in government expenditure occurred

at the expense of defence, subsidies and budgetary financed investment, while expenditure

for ‘ordinary government’ as a percentage of GDP remained largely unchanged; under

strong democratic regimes (Poland) budgetary expenditure, including that for ‘ordinary

government’, declined only in the pre-transition period, but increased during transition

itself; lastly, under weak democratic regimes (Russia) the reduction of the general level of

government expenditure led not only to the decline in the financing of defence, investment

and subsidies, but also to the downsizing of ‘ordinary government’, which undermined and

in many instances even led to the collapse of the institutional capacities of the state.

While in China total budgetary expenditure and that for ‘ordinary government’ were

much lower than in Russia and Poland, they were sufficient to preserve the functioning

institutions since the financing of social security from the government budget was

traditionally low. In Russia, however, although expenditure for ordinary government

seemed to have been not that much lower than in Poland, the pace of its reduction during

transition exceeded that of GDP: to put it differently, given the various patterns of GDP

dynamics, while in Poland ‘ordinary government’ financing grew by about one-third in real

terms in 1989–95/6 (and while in China it nearly doubled), in Russia it fell by about two-

thirds! The Russian pattern of institutional decay proved to be extremely detrimental for

investment and for general economic performance.

If the indicator of change in the share of state expenditure in GDP is added into

regressions explaining the output change during transition, it remains statistically

significant even after factoring in the conventional variables, such as the initial conditions

(per capita GDP before transition, and distortions in the industrial structure and trade

patterns inherited from central planning), the impact of wars and macroeconomic stability

Fig. 3. Government expenditure as a percentage of GDP.Source: Popov, 2000.

318 V. Popov

at CSU



ownloaded from


(inflation rates) (see Popov, 2000, 2007). But it is apparent that the decline in the share of

government revenues in GDP was correlated with the decline in output during the

transformational recession (Figure 4).

Regressions tracing the impact of all mentioned factors are reported in Table 1 (Popov,

2000, 2007). After adding the decline in government revenues variable to the ones that

characterise the initial conditions (level of development and distortions) and the external

environment (war dummy variable), the explanatory power of the regression increases to

75%, with excellent T-statistics (28 observations). And it is quite remarkable that the

inclusion of liberalisation variables at this point does not improve the regression statistics.

Factoring in inflation allows the explanatory power to improve to 85%. The correlation

coefficient rises further, up to 90%, if other indicators of institutional capacities, such as

the share of the shadow economy, are added, though the number of observations in this

case is only 17 because of the lack of data (Popov, 2000).

To test the robustness of the results, another year for the end of the transformational

recession was chosen (1998), so the period considered was 1989–98 (by the end of 1998

the absolute trough was reached in 24 countries out of 26 that experienced the recession).

The adjusted R2 is slightly lower, but the statistical significance of the coefficients remains

high (with the exception of the initial GDP per capita). The best equation is shown below

(Popov, 2007):

LogðY98=89Þ5 5:82 0:006DIST 2 0:005Ycap872 0:39WAR2 0:01GOVREVdecline2 0:17logINFL 2 003DEM

(22.48) (20.09) (23.22) (22.94) (24.60) (21.74)

Where N 5 28 and the adjusted R2 5 82%. The T-statistics are shown in brackets and all

variables are presented in the same order as in Table 1. DEM is the average score of the

political rights index from Freedom house.

Once again, if the liberalisation variable is introduced into this equation, it turns out to

be insignificant.

In general, from all points of view, the dynamics of the government expenditure during

transition seems to have been by far the more important factor for successful trans-

formation than the speed of reforms. Keeping the government big does not guarantee

favourable dynamics of output, since government spending has to be efficient as well.

Fig. 4. Change in government revenues and GDP.Source: Popov, 2000.


at CSU



ownloaded from


However, the sharp decline in government spending, especially for the ‘ordinary

government’, is a sure recipe to ensure the collapse of institutions and the fall in output

accompanied by the growing social inequalities and populist policies.

China seems to be an exception to this rule, since there was no transformational

recession in China although the share of government spending in GDP fell from 35% in

1978 to 13% in the mid 1990s. However, firstly, the major decrease occurred in the second

half of the 1980s, whereas in the first stage of transition the government spending grew

pretty much in line with GDP. Secondly, the decrease in the share of state expenditure was

a controlled process, i.e. it occurred due to the initiative of the government itself, not

despite its efforts. Thirdly, the expenditure for the ‘ordinary government’ (excluding

subsidies, investment and defence spending) grew in line with GDP. Lastly, since 1995 the

share of state expenditure in GDP in China has increased (about 20% in 2010).

3. Consequences of downsizing

The collapse of the institutional capacity of the state was the prime reason for the

transformational recession that on average resulted in a loss of 20 years of economic

development for most post-Soviet states—ten years of the reduction of output and another

ten years of the subsequent recovery to the pre-recession level (Figure 5). Dramatic as they

were (larger than the Great Depression), these economic costs came together with a huge

social price to pay.

Table 1. Two stage least squares robust estimates: regression of change in GDP in 1989–96 on initialconditions, institutional capacity, liberalisation and rule of law and democracy indices (liberalisationindex instrumented with the democracy level variable)

Equations; number ofobservations/variables

1,N 5 28

2,N 5 28

3,N 5 17

4,N 5 17

Constant 6.4*** 6.3*** 6.0*** 6.0***Pre-transition distortions,

% of GDP20.01*** 20.02*** 20.004

1987 purchasing power parity GDP per capita,% of US level

20.007** 20.01**

War dummya 20.45*** 20.29b

Liberalisation index in 1995 20.18** 20.39* 20.19*** 20.19***Decline in government revenues

as a % of GDP from 1989–91 to 1993–9620.02*** 20.02***

Log (inflation, % a year, 1990–95,geometric average)

20.17*** 20.22*** 20.22*** 20.19***

Rule of law index, average for 1989–97, % 20.01c

Increase in the share of shadow economyin GDP in 1989–94, p.p.

20.02*** 20.015***

R2, % 86 77 88 90

Notes: Dependent variable 5 log (1996 GDP as a % of 1989 GDP). For China, all indicators are for theperiod 1979–86 or similar.*, **, ***Indicate significance at 1%, 5% and 10% level, respectively.aEquals 1 for Armenia, Azerbaijan, Croatia, Georgia, Macedonia and Tajikistan, and 0 for all other countries.bSignificant at 12% level.cSignificant at 16% level.

320 V. Popov

at CSU



ownloaded from


Education and health care were free in the Soviet Union, but now these services are

provided mostly for a fee and their quality is way below Soviet standards. Life expectancy

declined from 70 years in 1987 to 64 years in 1994 and then recovered only to 68 years in

2010 (against 73 years in China). Criminalisation of the country made a mockery out of the

idea of law and order. The shadow economy and corruption increased; income inequalities

grew.

In 1980–85 the Soviet Union was placed in the middle of a list of 54 countries rated

according to their level of corruption, with a bureaucracy cleaner than that of Italy, Greece,

Portugal, South Korea and practically all the developing countries. In 1996, after the

establishment of a market economy and the victory of democracy, Russia came in 48th in

the same 54-country list, between India and Venezuela (Internet Center for Corruption

Research, http://www.icgg.org/corruption.cpi_olderindices_overview.html, date last ac-

cessed 22 December 2011) (Figure 6).

The shadow economy, which the most generous estimates place at 10%–15% of the

GDP under Brezhnev, grew to 50% of the GDP by the mid 1990s (Kaufmann and

Kaliberda, 1996). Virtually everywhere in the transition world the reduction of govern-

ment spending was accompanied by an increase in the share of the shadow economy

(Figure 7). Normally in market economies there is a positive correlation between the level

of taxation, the share of government revenues in GDP and the size of the shadow economy:

if taxes are excessive, economic agents tend to avoid taxation through underground

Fig. 5. GDP change in FSU economics, 1989 5 100%.Source: EBRD Transition Report, various years.


at CSU



ownloaded from

http://www.icgg.org/corruption.cpi_olderindices_overview.html


activity, including non-reported barter operations (Gardner, 1988, p. 24). In transition

economies the opposite is true: the lower the state revenues, the larger is the shadow

economy (Figure 7). In fact, there was a nearly one-to-one crowding out effect: for every 1

p.p. of the reduction of the share of state revenues in GDP, the share of the shadow

economy increased by 1 p.p. To put it differently, the dynamics of the share of government

revenues in GDP in transition economies is a rather accurate measure of the ability of the

state to enforce rules and regulations.

Equally unpleasant was the accompanying increase in income inequalities. Only

countries with the lowest decline of the share of state spending in GDP (Central Europe,

Estonia, Uzbekistan and Belarus) managed to keep the increases in inequalities within

reasonable limits. In turn, the increase in income inequalities had a detrimental effect on

economic growth, because it contributed to social tensions and worsened the investment

2

2.5

3

3.5

4

4.5

5

5.5

1980-85 1995 2002 2003 2004 2005

China

Russia

Fig. 6. Corruption perception indices.Source: Transparency International.

-5

5

15

25

35

45

55

15 20 25 30 35 40 45 50 55

Government spending as a% of GDP in 1993-96.

Poland

Estonia

Belarus

Hungary

Azerbaijan

Uzbekistan

Czech Rep.

Latvia

Romania

Kazakhstan

Bulgaria

Moldova

Georgia

Russia

Ukraine

Lithuania

In

crease in

th

e sh

are o

f sh

ad

ow

eco

no

my

as a %

o

f G

DP

in

1989-94, p

.p

.

Fig. 7. Government expenditure and shadow economy as a percentage of GDP.Source: Johnson et al., 1997.

322 V. Popov

at CSU



ownloaded from


climate (Alesina and Perotti, 1996; Alesina and Rodrik, 1994), and because it created

lobbies that opposed structural reforms and macrostabilisation (Fernandez and Rodrik,

1991; Persson and Tabellini, 1994). Besides, social inequalities created grounds for

macroeconomic populism—the redistribution of funds from winners to losers, from

competitive to non-competitive sectors, from rich to poor (Kaufman and Stallings, 1991):

the greater were the income inequalities, the stronger was the lure to redistribute the

economic pie instead of increasing it.

Worst of all, the criminalisation of the Russian society grew dramatically in the 1990s.

Crime had risen gradually in the Soviet Union since the mid 1960s, but after the collapse of

the USSR there was an unprecedented surge—in just several years in the early 1990s crime

and murder rates doubled and reached one of the highest levels in the world.3 By the mid

1990s the murder rate stood at over 30 people per 100,000 inhabitants (Figure 8) against

one to two persons in Western and Eastern Europe, Canada, China, Japan, Mauritius, and

Israel. Only two countries in the world (not counting some war-torn, collapsed states in

developing countries) had higher murder rates—South Africa and Colombia—whereas in

countries like Brazil or Mexico this rate was two times lower. Even the US murder rate, the

highest in developed world—six to seven people per 100,000 inhabitants—pales in

comparison with the Russian one.

The Russian rate of deaths from external causes (accidents, murders and suicides) had,

by the beginning of the twenty-first century, skyrocketed to 245 per 100,000

900

1100

1300

1500

1700

1900

2100

2300

2500

2700

2900

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

0

5

10

15

20

25

30

35

40

45

Crime rate

Murder rate (crime statistics)

Murder rate (death statistics)

Suicide rate

August 1998 currency crisis

Fig. 8. Crime rate (left scale), murder rate and suicide rate (right scale) per 100,000 inhabitants.Source: Goskomstat.

3 Crime statistics are usually perceived to be incomparable for different countries because of largevariations in the percentage of registered crimes, but murders are registered quite accurately by bothcriminal and death demographic) statistics. The former are more restrictive than the latter, since theyregister only illegal murders, whereas demographic figures cover all murders, including ‘legal’ ones—capitalpunishment and ‘collateral damage’ during wars, and anti-terrorist and other police operations. Both ratesskyrocketed in Russia at the beginning of the 1990s and remain at extremely high levels. The gap betweenthese two indicators widened during the first and second Chechen wars (1994–96 and 1999–2002); seeFigure 8.


at CSU



ownloaded from


inhabitants. It was higher than in any of the 187 countries covered by World Health

Organization estimates in 2002—equivalent to 2.45 deaths per 1,000 a year, or 159 per

1,000 over 65 years, which was the average life expectancy in Russia in 2002. Put

differently, if these rates were to continue to hold, one out of six Russians born in 2002

would have an ‘unnatural’ death. Certainly, in the 1980s the murder, suicide and

accidental death rates were already quite high in Russia, Ukraine, Belarus, Latvia, Estonia,

Moldova and Kazakhstan—several times higher than in other former Soviet republics and

in East European countries. However, they were roughly comparable to those of other

countries with the same level of development. In the 1990s these rates rapidly increased, far

outstripping those in the rest of the world.

The mortality rate grew from ten per 1,000 in 1990 to 16 in 1994, and stayed at a level of

14–16 per 1,000 thereafter. This was a true mortality crisis—a unique case in history,

where mortality rates increased by 60% in just five years without any wars, epidemics or

eruptions of volcanoes (Popov, 2010). Never after the 1947 famine had Russia had, in the

postwar period, mortality rates as high as those in the 1990s.4 Even in 1950–53, during the

last years of Stalin’s regime, with the high death rates in the labour camps and the

consequences of the wartime malnutrition and wounds, the mortality rate was only nine to

ten per 1,000, as compared with 14–16 in 1994–2008 (Figure 9).

The Russian human development index (computed as the average of three indicators

calibrated from 0 to 100 : purchasing power parity GDP per capita, life expectancy and

educational level) did not increase for the whole period of the 1990s, and fell below the

level of Cuba and probably that of China (Figure 10).

Russia became a typical ‘petrostate’. Few specialists would call the USSR a resource-

based economy, but Russia’s industrial structure changed considerably after the transi-

tion to the market. For all intents and purpose, the 1990s were a period of rapid

6

8

10

12

14

16

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

Mo

ratlity rate, p

er 1,000 in

hab

itan

ts

63

64

65

66

67

68

69

70

Averag

elife

exp

ectan

cy,years

Mortality

(left scale)

Life expectancy (right scale)

Fig. 9. Source: Goskomstat.

4 The author is grateful to the anonymous referee who pointed out that in 1947 mortality was 17 per 1,000(as estimated in Andreev et al., 1998, p. 165).

324 V. Popov

at CSU



ownloaded from


deindustrialisation and ‘resourcialisation’ of the Russian economy, and the growth of world

fuel prices since 1999 seems to have reinforced this trend. The share of output of the major

resource industries (fuel, energy and metals) in total Russian industrial output increased

from about 25% in the late 1980s to over 50% by the mid 1990s and stayed at this high

level thereafter. This was partly the result of changing price ratios (greater price increases

in resource industries), but it was also due to the fact that the real growth rates of output

were lower in the non-resource sector. The share of mineral products, metals and

diamonds in Russian exports increased from 52% in 1990 (USSR) to 67% in 1995 and to

81% in 2007, whereas the share of machinery and equipment in exports fell from 18% in

1990 (USSR) to 10% in 1995 and then to below 6% in 2007.

The share of spending in research and development was 3.5% of GDP in the late 1980s

in the USSR. It had fallen to 1.1% in Russia by 2007 (compared with: China, 1.3%; the

USA, Korea and Japan, 2%–3%; Finland, 4%; and Israel, 5%). So today’s Russia really

looks like a ‘normal’ resource-abundant developing country (Figure 11).

Income inequalities increased greatly: the Gini coefficient increased from 26% in 1986

to 40% in 2000 and then to 42% in 2007–10 (Figure 12). The decile coefficient—the ratio

of incomes of the wealthiest 10% of the population to the incomes of the poorest

10%—increased from 8 in 1992 to 14 in 2000 and then to 17 in 2007–10.

But the inequalities at the very top increased much faster: in 1995 there was no person in

Russia worth over US $1 billion; in 2007, according to Forbes, Russia had 53 billionaires,

which propelled the country to second or third place in the world in this regard after the

USA (415) and Germany (55) (Figure 13). Indeed, Russia had two fewer billionaires than

Germany, but Russia’s billionaires were worth a total of US $282 billion (US $37 billion

more than Germany’s richest). In 2008, the number of billionaires in Russia increased to

86, with a total worth of over US $500 billion—a full one-third of the national GDP. The

Soviet Union was abnormal in that it had no billionaires at all and there were hardly even

dollar millionaires (perhaps only a dozen—in the shadow economy). In March 2011, when

Russian GDP had not yet recovered to the pre-recession 2008 level, the number of

billionaires exceeded 100. Whereas China surpassed Russia in the billionaire headcount

0.63

0.68

0.73

0.78

0.83

1990 1992 1994 1996 1998 2000 2002 2004 2006

Cuba

Belarus

Russia

Ukraine

China

Fig. 10. Human development index for Belarus, China, Cuba, Russia and Ukraine.Source: Human Development Report.


at CSU



ownloaded from


(116), it was still behind Russia in terms of total wealth of billionaires (Forbes web site,

http://www.forbes.com/wealth/billionaires).

4. State capacity at the recovery stage (1998–2008)

At the recovery stage (1998–2008) the state capacity strengthened, but not much (Popov,

2004). The lack of state capacity continued to be the major constraint for better economic and

social performance. Cross-country comparisons show that indicators that determine in-

stitutional capacity—such as the rule of law index (positively) and the decline in the ratio of

government revenues in GDP (negatively)—continued to affect performance during the

recovery in the same way they affected performance during the transformational recession

(Popov, 2007).

The paradox of the first decade of the twenty-first century in Russia was that the country

was getting huge windfall revenues from oil and gas exports at exceptionally high prices,

but these revenues bypassed the state coffers (because the government decided to cut tax

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Israel

Finland

Japan

Korea, Rep.

United States

Germany

United Kingdom

China

Russian Federation

India

Fig. 11. Research and development in selected countries as a percentage of GDP.Source: World Development Indicators database, World Bank.

Fig. 12. Gini coefficient of income distribution in China and Russia, 1978–2006.Source: Goskomstat; Chen et al., 2008.

326 V. Popov

at CSU



ownloaded from

http://www.forbes.com/wealth/billionaires


rates) and precipitated to households and companies (real personal incomes nearly

doubled in 1999–2005), even though the weakest link and the bottleneck of the economic

and social situation was the lack of state institutional capacity. Why was the government

missing such a favourable chance to restore its institutional capacity?

The explanation of the liberal economists and some officials was that the governments

at all levels (regional and national) were corrupt and could not spend additional money

without embezzling it. Instead of increasing government spending, they suggested raising

the efficiency of the government spending, in particular through the reform of public

administration. It sounded like a good idea, but for over a decade before that there was no

improvement in government efficiency, only deterioration. And of course the increase in

efficiency did not come this time. On the contrary, public administration reform required

increased spending—higher salaries for bureaucrats and judges to make them ‘corrup-

tion proof’, and higher spending on control and accounting bodies, and on the

investigation and prosecution of fraud and abuse activities.

The argument that Russia was not rich enough to fix its education, health care, public

administration, law and order missed the point. There were many countries no richer than

Russia, from Cuba to Belarus, where life expectancy was longer, crime rates were lower

and bureaucracy was cleaner.

In short, the increase in government spending could lead to both a more efficient

government administration and greater volumes of public goods, but the government

failed to channel the stream of petrodollars into repairing the ‘weakest link’ of the national

economy—the provision of public goods and investment into non-resource industries.

Investment and government consumption amounted to about 50% of GDP in the early

1990s, fell to below 30% of GDP in 1999 (right after the 1998 currency crisis) and

recovered only partially afterwards, to about 40% of GDP in 2007.

Fig. 13. Number of billionaires in 2007 and purchasing power parity GDP in 2005 (billion US$) bycountry. Source: Forbes website and World Development Indicators.


at CSU



ownloaded from


Instead of using windfall petrodollars to repair the weakest link—state capacity to

provide public goods—the government, on the one hand, decreased tax rates, allowing

petrodollars to leak into personal incomes, and, on the other, maintained a budget surplus

that expanded to nearly 10% of GDP (Figure 2) and was used to finance the accumulation

of foreign exchange reserves in the central bank and the stabilisation fund.

5. 2008–09 recession

The world economic recession hit Russia harder than other countries due to the fall in oil

prices in 2008–09, the outflow of capital caused by world recession and the poor policies to

cope with the double (trade and financial) shock. The reduction of GDP in 2009 totalled

7.9%, as compared with 2.5% in the USA, 4.1% in the European Union and 5.2% in

Japan. Most developing countries, however, did much better than developed countries.

China grew at 8.7%, India by 5.7%, the Middle East by 2.4% and Sub-Saharan Africa by

2.1%. Only economies of Latin America, Eastern Europe and the former Soviet Union

contracted by 1.8%, 3.7% and 6.6%, respectively.

Luckily, the Russian government had a surplus budget (due to high oil prices) for the most

part of the first decade of the new century, so when revenues fell (due to a fall in oil prices)

there was some room to increase expenditure and the deficit. Total government spending

increased in 2009 in real terms and grew from 34% of GDP to over 40% (Figure 14), which

helped stabilise the economy.

It is worrisome, though, that the increase in government spending was short lived and

came to an end once the recession was over in 2009. It was planned to reduce government

spending to 36% of GDP by 2013 (Table 2).

The reason why the Russian 2008–09 recession was so deep despite the steep increase in

government spending was associated with the restrictionary monetary policy: when the

Russian central bank faced the adverse trade shock and the outflow of capital in 2008–09, it

reacted not so much by allowing the ruble to devalue, but by allowing foreign exchange

reserves to drop (from nearly US $600 in August 2008 to US $376 billion in March 2009),

which led to a decline in money supply (Figure 15) and to an increase in interest rates

(Figure 16)—unfortunate developments that aggravated the recession.

A similar development—excessive monetary austerity—was observed in 1997–98, right

before the currency crisis of August 1998. Then, the reduction in output started in late

10

15

20

25

30

35

40

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Consolidated budget

Federal budget

Revenues

Expenditure

Expenditure

Revenues

Fig. 14. Government budget revenues and expenditure as a percentage of GDP, Minfin data.Source: Department of Finance of RF.

328 V. Popov

at CSU



ownloaded from


1997 and continued until the devaluation of August 1998 (Figure 17). It is a textbook case

of a recession that was manufactured by wrong macroeconomic policy: tight monetary

policy designed to stop the outflow of capital and to prevent the devaluation of the

overvalued exchange rate (Montes and Popov, 1999; Popov, 2009B).

The transition economies—the newcomers to the capitalist world—were hit especially

hard by the boom and bust cycle—the increase in capital inflow in 2002–07 and the

outflow of capital in 2008–09. In most cases they abolished controls over cross-border

capital flows in the 1990s and did not restore them after the Asian financial crisis of 1997.

There is evidence that this policy of monetary austerity aggravated the recession in

quite a number of countries (Popov, 2011). The Baltic states (Estonia, Latvia and

Lithuania), for instance, experienced the greatest reduction in output in 2007–09 (from

12% to 22%) not because of trade and capital account shocks—which were not that

large (2% of GDP)—but mostly due to the policy to maintain the exchange rates of their

currencies (Estonia and Lithuania run formal currency boards and Latvia has a de facto

currency board). The outflow of capital of about 4% of GDP (partially counterweighted by

the improvement of the trade balance of about 2% of GDP) led to the reduction of

Table 2. The government’s medium-term fiscal framework (percentage of GDP)

Budgetary items 2009 2010 2011 2012 2013

Revenues (consolidated) 34.3 35.3 34.8 34.0 33.2Of which federal budget 18.8 18.7 17.6 17.0 16.8Expenditures (consolidated) 40.5 38.9 38.9 37.6 36.3Of which federal budget 24.6 22.7 21.1 20.1 19.7Federal budget non-oil deficit 213.5 212.7 211.6 210.5 29.8Federal budget balance 25.9 24.1 23.5 23.1 22.9Consolidated budget balance 26.2 23.6 24.2 23.6 23.1

Source: Ministry of Finance.

Fig. 15. Money supply in Russia before and during the 2008–09 recession, billion rubles.Source: Central Bank of Russia.


at CSU



ownloaded from


foreign exchange reserves, which under the regime of a currency board automatically

translated into a decline in the money supply (Figure 18)—very much like the outflow of

capital from Argentina in 2000–02 (which also had a currency board at the time) caused

a recession (Popov, 2011).

On the other hand, the expansionary effect of devaluation is limited, of course. If the

negative trade and capital account shocks are too large, devaluation cannot mitigate

these shocks completely, but only triggers inflation. Some countries (Russia and

Bulgaria, for instance) experienced a combined trade and capital account shock of the

magnitude of 7% of GDP (deterioration of the trade and capital account balance in

Fig. 16. Interest rates in Russia in 2008–09, %. Source: Central Bank of Russia.

83

88

93

98

103

19

96

.1

19

96

.4

19

96

.7

19

96

.10

19

97

.1

19

97

.4

19

97

.7

19

97

.10

19

98

. 1

19

98

. 4

19

98

.7

19

98

.10

19

99

.1

19

99

.4

19

99

.7

19

99

. 10

Devaluation

Fig. 17. Monthly index of industrial production with seasonal corrections, 1995 5 100%.Source: Goskomstat.

330 V. Popov

at CSU



ownloaded from


Q3–4 2008 and Q1 2009 (average of 3 quarters) as compared to Q2 2008. Even though

these countries did not finance these shocks completely by running down their reserves

(they fell only by about 3% of GDP per quarter), but also devalued their national

currencies, they were not able to avoid the reduction in output that became one of the

largest in the world.

The regression equation that best explains the decline in output in 2007–09 (or in 2009

alone) is as follows (T-statistics in brackets):5

Yincr07209 5 1:8 2 1:3CAPinflQ2 2 2:1TRbalINCRQ2 1 1:9FORincrQ3

(2.38) (23.36) (24.55) (3.93)

Number of observations 5 92, R2 5 0.1788, robust standard errors,

where: Yincr07_09 is the GDP change in 2007–09; CAPinflQ2 is the increase in capital

inflow from Q2 2008 to the average for Q3–4 2008 and Q1 2009 (% of 2008 GDP);

TRbalINCRQ2 is the increase in the trade balance from Q2 2008 to the average for Q3–4

2008 and Q1 2009 (% of 2008 GDP); and FORincrQ3 is the average quarterly increase in

foreign exchange reserves in Q3–4 2008 and Q1 2009 (% of 2008 GDP).6

It implies that negative shocks to the capital account (as well as to the trade account) do

not lead to a decline in GDP growth rates if foreign exchange reserves do not decline

proportionately, i.e. if the shock is absorbed by devaluation and not by running down the

reserves.

Fig. 18. Growth rates of money supply (M2 ) in the Baltic states, %.Source: World Development Indicators.

5 This and other equations work if changes in GDP are measured by the 2009 growth rate alone (not2007–09), and also if changes in capital and trade shocks are measured as the difference between averagevalues for Q2–3 2008 and Q4 2008–Q1 2009, whereas changes in reserves are computed as the averagequarterly change for the period Q4 2008–Q1 2009 (see Popov, 2011 for details).

6 Note that the sum of CAPinflQ2 and TRbalINCRQ2 is not equal to the increase in the foreign exchangereserves in any particular quarter. Changes in trade balance and capital flows are measured as seconddifferences (increase from Q2 2008 to the average quarterly level of Q3–4 2008 and Q1 2009), whereas theincrease in reserves over the same period is measured as the first difference (average increase from thebeginning of the quarter to an end of the quarter).


at CSU



ownloaded from


6. Conclusions

Wassily Leontief (1974) once noted that an economy using the profit motive but without

planning is like a ship with a sail but no rudder. It may move rapidly, but cannot be steered

and might crash into the next rock. A purely planned economy that has eliminated the

profit motive is like a ship with a rudder but no sail. It could be steered exactly where one

wants it to go, if only it moved. To move forward while avoiding dangerous pitfalls, an

economy needs both some reliance on the profit motive and some planning, i.e. a sail and

a rudder.

Similarly, Holmes (1997) claims that the major lesson to be learned by Western

democracies from recent Russian developments is exactly the one about the crucial

importance of state institutions: whereas the Soviet Union proved that a non-market

economic system with the strongest state cannot be efficient, Russia today is proving that

a market without a strong state degrades to the exchange of unaccountable power for

untaxable wealth, which leads to economic decline.

It was argued in earlier papers that the collapse of output during transition was caused

primarily by several groups of factors (Popov, 2000, 2007). First, by greater distortions in

the industrial structure and external trade patterns on the eve of the transition. Second, by

the collapse of state and non-state institutions, which occurred in the late 1980s to early

1990s and which resulted in chaotic transformation through crisis management instead of

organised and manageable transition. Third, by poor economic policies that basically

consisted of bad macroeconomic policy and import substitution industrial policy. Lastly,

the speed of the reforms (economic liberalisation) affected the performance negatively at

the stage of the reduction in output, because enterprises were forced to restructure faster

that they possibly could (due to limited investment potential), but positively at the recovery

stage.

This second reason—the institutional collapse—is largely responsible for the extreme

depth of the transformational recession; here differences between the EE countries and the

FSU are striking. The adverse supply shock in this case came from the inability of the state

to perform its traditional functions—to collect taxes and to constrain the shadow economy,

to ensure property and contract rights, and law and order in general. Naturally, poor ability

to enforce rules and regulations did not create a business climate conducive to growth and

resulted in increased costs for companies.

The trick of transition, as is evident post factum, was not to carry out economic

liberalisation, but to carry it out in such a way as not to throw away the baby with the

bathwater, i.e. not to squander the precious achievements of the previous communist

period in the form of strong institutions. China generally did not squander this heritage,

even though government spending fell, income inequalities rose and crime rates increased,

whereas Russia and most other CIS states did.

The reforms that are needed to achieve success are different for countries with different

backgrounds. Manufacturing growth is like cooking a good dish—all the required

ingredients should be in the correct proportion; if only one is under- or over-represented,

the ‘chemistry of growth’ would not happen. Fast economic growth can materialise, in

practice, only if several necessary conditions are met simultaneously. Rapid growth is

a complicated process that requires a number of crucial inputs—infrastructure, human

capital, even land distribution in agrarian countries, strong state institutions and economic

stimuli, among other things. Once one of these crucial necessary ingredients is missing, the

growth just does not take off. Rodrik et al. (2005) discuss ‘binding constraints’ that hold

332 V. Popov

at CSU



ownloaded from


back economic growth; finding these constraints is the task of ‘growth diagnostics’. In some

cases these constraints are associated with a lack of market liberalisation, in others they are

associated with a lack of state capacity, human capital or infrastructure.

Why did economic liberalisation work in Central Europe but not in SSA and Latin

America (LA)? The answer, according to the outlined approach, would be that in Central

Europe the missing ingredient was economic liberalisation, whereas in SSA and LA there

was a lack of state capacity, not a lack of market liberalisation. Further, why did

liberalisation work in China and Central Europe but not in CIS? The answer is that in

the CIS it was carried out in such a way as to undermine the state capacity—the precious

heritage of its socialist past—whereas in Central Europe and even more so in China the

state capacity did not decline substantially during transition (Lu, 1999). The reduction of

government expenditure as a share of GDP did not significantly undermine the

institutional capacity of the state in China, but in Russia and other CIS states it turned

out to be ruinous.

Bibliography

Alesina, A. and Perotti, R. 1996. Income distribution, political instability, and investment,European Economic Review, vol. 40, 1203–28

Alesina, A. and Rodrik, D. 1994. Distributive politics and economic growth, Quarterly Journal ofEconomics, vol. 109, no. 2, 465–90

Andreev, E., Darskii, L. and Kharkova, T. 1998. Demograficheskaya Istoriya Rossii: 1927–1959,Moscow, Informatyka

Central Bank of Russia. www.cbr.ru [date last accessed 22 December 2011]Chen, J. D., Hou, W. X. and Jin, S. W. 2008. The Effects of Population on IncomeDisparity in a Dual Society: Evidence from China. 2008. Chinese (UK) Economic Association

annual conference at Cambridge, UK and the 2008 Hong Kong Economic Association FifthBiennial Conference at Chengdu, China

De Melo, M., Denizer, C. and Gelb, A. 1996. Patterns of transition from plan to market, WorldBank Economic Review, vol. 3, 397–424

EBRD. Transition Report, various years London, EBRDFernandez, R. and Rodrik, D. 1991. Resistance to reform: status quo bias in the presence of

individual specific uncertainty, American Economic Review, vol. 81, no. 5, 1146–55Gardner, S. 1988. Comparative Economic Systems, New York, Dryden PressGoskomstat (Russian Statistical Committee, www.gks.ru)Hellman, J., Jones, G. and Kaufmann, D. 2000. How profitable is buying the state officials in

transition economies? Transition: The Newsletter About Reforming Economies, April, 8–11Holmes, S. 1997. What Russia teaches us now, The American Prospect, July–August, 30–9Human Development Report. UNDP, various years. http://hdr.undp.org/en/ [date last accessed

22 December 2011]Internet Center for Corruption Research. http://www.icgg.org/corruption.cpi_olderindices_

overview.html [date last accessed 22 December 2011]Johnson, S., Kaufmann, D. and Shleifer, A. 1997. ‘The Unofficial Economy in Transition’,

Brookings Papers on Economic Activity no. 2, 159–239.Kaufmann, D. and Kaliberda, A. 1996. ‘Integrating the Unofficial Economy into the Dynamics

of Post-Socialist Economies’, Policy Research Working Paper no. 1691, The World BankKaufman, R. and Stallings, B. 1991. The political economy of Latin American populism, in

Dornbush, R. and Edwards, S. (eds), Macroeconomics of Populism in Latin America, Chicagoand London, Chicago University Press, 231–64.

Kolodko, G. W. 2000. From Shock to Therapy: Political Economy of Postsocialist Transformation,Oxford, New York, Oxford University Press

Leontief, W. 1974. Sails and rudders, ship of state, pp. 101–4 in Silk, L. (ed.), Capitalism, theMoving Target, New York, Quadrangle Books


at CSU



ownloaded from

www.cbr.ru

www.gks.ru

www.icgg.org/corruption.cpi_olderindices_overview.html

www.icgg.org/corruption.cpi_olderindices_overview.html


Lu, A. 1999. China and the Global Economy since 1840, New York, St Martin’s PressMinistry of Finance of Russia database. www.minfin.ru [date last accessed 22 December 2011]Montes, M. and Popov, V. 1999. The Asian Crisis Turns Global, Singapore, Institute of Southeast

Asian StudiesNaughton, B. 1997. Economic reform in China. Macroeconomic and overall performance, pp.

158–183 in Lee, D. (ed.), The System Transformation of the Transition Economies: Europe, Asiaand North Korea, Seoul, Yonsei University Press

Nayyar, D. 2006. India’s unfinished journey: transforming growth into development, ModernAsian Studies, vol. 40, no. 3

Persson, T. and Tabellini, G. Is inequality harmful for growth? American Economic Review, vol.84, no. 3, 600–21

Popov, V. 2000. Shock therapy versus gradualism: the end of the debate (explaining themagnitude of the transformational recession, Comparative Economic Studies, vol. 42, no. 1,1–57

Popov, V. 2004. ‘The State in the New Russia (1992–2004): From Collapse to Gradual Revival?’,PONARS Policy Memo no. 342

Popov, V. 2007. Shock therapy versus gradualism reconsidered: lessons from transitioneconomies after 15 years of reforms, Comparative Economic Studies, vol. 49, no. 1, 1–31

Popov, V. 2009A. ‘Lessons from the Transition Economies. Putting the Success Stories ofthe Postcommunist World into a Broader Perspective’, UNU/WIDER Research Paper no.2009/15

Popov, V. 2009B. Memories about the future: the second edition of the 1998 crisis, RussianAnalytical Digest, no. 54

Popov, V. 2010. ‘Mortality Crisis in Russia Revisited: Evidence from Cross-RegionalComparison’, MPRA Paper no. 21311

Popov, V. 2011. ‘To Devaluate or not to Devalue? How East European Countries Responded tothe Outflow of Capital in 1997–99 and in 2008–09’, CEFIR and NES Working Paper no. 154

Rodrik, D., Hausmann, R. and Velasco, A. 2005. Growth Diagnostics, 2005, http://www.hks.harvard.edu/fs/rhausma/new/growthdiag.pdf [date last accessed 22 December 2011]

Transparency International Database. http://www.transparency.org/ [date last accessed 22December 2011]

World Bank. 1997. The State in a Changing World, World Development Report, New York, OxfordUniversity Press

World Development Indicators Database. http://data.worldbank.org/indicator [date lastaccessed 22 December 2011]

334 V. Popov

at CSU



ownloaded from

www.minfin.ru

http://www.hks.harvard.edu/fs/rhausma/new/growthdiag.pdf

http://www.hks.harvard.edu/fs/rhausma/new/growthdiag.pdf

http://www.transparency.org/

http://data.worldbank.org/indicator


Documents

ber042] Popov, V. -- Russia- austerity and deficit reduction in historical and comparative perspective.pdf