Economic Performance of Former USSR States - Essay Example

Evaluation of economic performance of former USSR s since gaining independence and the economic relations between the countries in terms of trade, investments and debts. - A Literature Review LITERATURE REVIEW: This discussion focuses on the economic performance of the former USSR states after independence and the economic relations between these countries as well as their trade, population, GDP growth, investments and debts. The essay highlights the GDP growth and economic performance of the countries like Belarus, Ukraine, Moldova, Latvia, Turkmenistan, Russia and other nations which have recently gained independence and separated from the former Soviet Union. Despite having been a part of one of the greatest superpowers, these countries except Russia are no longer prominent on the world map. Since gaining independence these former Soviet states are becoming increasingly strong in terms of economic growth and performance with relations between the states growing even better. Yet there remain several issues that suggest that these countries will have to recreate and restructure their economic strategies to emerge as economically powerful as the more advanced economies. In this review, a comparative analysis is provided showing economic growth and performance of the former Soviet states, their internal and external relations with neighboring countries and other former Soviet states as well as their comparative GDP and population growth, trade patterns, debts and deficits as also investments. The objectives of the review would be: 1. to identify the key players in post USSR countries 2.to discover the economic relations between the CIS countries and the level of their interdependency, and 3. to rank the major former Soviet states' performance using country growth criteria The state of transition economies and their strengths and weaknesses are studied especially in the co next of trade, GDP growth, FDIs, immigration, inflation and population growth. Kuznetsov and Kuznetsova (2003) suggest that all post-socialist institutional settings are at the moment still in transition1. Former Soviet Union and its disintegration have left transient institutions and societies and according to the authors, these transient nation states are suboptimal in economic performance when compared with advanced market economies. Considering the transient aspect of the former Soviet states' economy, Kalantaridis (2007) highlighted the role of entrepreneurs in shaping the nature of evolving institutions. The former Soviet nation states could still be considered as transient and evolving, although the permanence of such institutions is key to stability and economic growth. The post Soviet restructuring and reconstruction of political, social and economic systems have had considerable and differential impact on the economy. The more advanced economies of the post Soviet nation states that have now joined the European Union are economically stronger although countries which are further East have seen a decline in growth of gross domestic product followed by recession although with some gains to a wealthy minority (Edwards, 2006). The reason for the fall of GDP may be due to the significant necessity for restructuring, rise in costs, and privatization. Edwards (2006) distinguished between four groups of Soviet economies2. The central and Eastern European accession states to the EU have open economies with better growth, more private sector involvement and foreign direct investments. The Balkan states of the South east European regions are marked by transitional recessions and worsened income inequality whereas Russia has implemented partial economic reforms. The remaining nation states have seen declining economic growth mainly due to fall of income. As Desai and Olopsgard have suggested, "popular support for market-oriented reform in transition economies rises and falls with unemployment and job creation" 3. Thus the implementation of market oriented reforms that would be imperative for economic growth could depend a lot on the economy itself and this is a rather challenging situation. Desai and Olopsgard (2006) suggested that the major features of economic reform are that costs are concentrated upfront although the benefits of the reforms could be subsequently revealed over a period of a few years. The authors also suggested that although a group of wealthy has the ability to take advantage of the reform process, this could in turn generate uncertainty among the general public and the long term benefits of reform remain debatable. It is generally suggested that apart from implementation of reforms, diverse factors such as geographical position and climate, democratization of society, industrial development, and entrepreneurship policies affect institutional growth and what is required and expected is a stronger state that can act as a driver of change for the entire region4. Kalantaridis (2007) discusses whether post socialist institutions are sub-optimal and transient and whether they are economically weak and vulnerable and whether the state could affect changes irrespective of the socioeconomic condition. This brings up several questions on how far transient nation states or states that have to go through considerable restructuring affect political or social reforms and how these reforms are implemented. The role of the socioeconomic condition of nation states in implementation of these reforms could be established. In this context Kalantaridis also discusses the transience of nation states and questions as to what could be considered as transient when understanding economies of post socialist nations5. Existing policies of nations are geared towards greater support of big businesses and enterprises and although this could attract investments, in some cases, this could mean a wider gap in income inequalities. Entrepreneurs impact development and economic growth through the process of reform as well as technological advancement. Considering the description of reform as central to post social reconstruction, Kalantaridis provides an example of reform in Russia as involving "the legalization of private property, the de-statisation of rural land and issuing land shares to individuals working on large farms, the creation of independent private farmers, and the reformation of large state enterprises6". The disintegration of the Soviet Union and the creation of the Commonwealth of Independent States [CIS] is a major political event and have led to political, social and economic changes in region. Most of these changes have been related to the re-constructionist phases of the post socialist nations and one of the major directions of reconstruction has been to emphasize on economic cooperation and integration7. The economic cooperation between nation states of the former Soviet Union has become a major focus for regeneration and change in the region. Since the collapse of the Soviet Union, there have been attempts to create unions with the goal of multinational economic cooperation and future economic integration (Zhukov and Reznikova, 2007) and these integration strategies have led to the formation of several entities such as the Eurasian Economic Community (EurAsEC), United Economic Space (UES-Belarus, Kazakhstan, Russia, and Ukraine), the Commonwealth of Independent States (CIS), GUAM (Georgia, Ukraine, Azerbaijan, and Moldova), the union state of Belarus and Russia8. Economic cooperation is a significant aspect of growth and the former Soviet states have increasingly tried to amend their trade and legal regulations to help attain economic growth through interdependence. Economic interrelations among the independent states are shaped by market forces and driven by globalization there are new possibilities of economic cooperation between the states. However this remains challenging as there are no proper international trade routes and this increases transaction costs in trading and business between nations. The economic indices of development are also affected by geographic conditions as harsh geographic conditions could affect business transaction and trade between nations in the region. All of the post Soviet states have low or moderate per capita income levels and such countries which are not advanced or developed economically naturally tend to show lower levels of cooperation with other similar states. Yet this condition being related to states of former Soviet nations, the fact that all these Soviet states share a common history and culture increase the chances of economic cooperation between them. However there are possibilities of low economic cooperation mainly due to the lack of resources and shortage of capital, surplus labour and shortage of technological development. These could explain why there is no ground for interaction between these countries and at the level of economic structure or factors of production although the post Soviet economies have been realizing the value of cooperation and have shown efforts to focus on the possibilities of integration. According to Zhukov and Reznikova (2008), the "Commonwealth of Independent States is the entity with the highest share of mutual trade in the post-Soviet space"9. Yet mutual trade flows would not necessarily mean a permanent level of economic cooperation. To highlight the importance of trade and especially exports in the nation states, Raiklin (2007).argue that the former Soviet Union imported more and exported less yet now the former USSR Republics have reversed the trend and there has been a lot of transformation in the structure of investment between the domestic and export segments and instead of focusing on domestic consumption, supply to meet foreign demands has become more important for the new post Soviet states10. Moldova maintains trade flows and Kazakhstan exports oil and gas to the global economy and Kyrgyzstan and Uzbekistan exports cotton, gold and aluminum. Belarus' 35% of national exports are mainly to Russia yet exports from Moldova to Russia have significantly fallen in recent years. Uzbekistan and Ukraine trade a fifth of their exports to Russia and a tenth to Turkmenistan and Kyrgyzstan11. The leading oil exporters of the region are however Russia and Kazakhstan and apart from oil, the banking sector seems to be string in these two nations. Russian mobile service providers have established monopoly in these post Soviet states mainly due to slightly better technological facilities in Russia when compared to other states. Total flow of direct foreign investments, are mainly concentrated in the three nations Russia, Kazakhstan and Ukraine and contribute to 80% of the total flow of FDI in the region with Russia having 63 percent FDI flows, Kazakhstan 21 percent, and Ukraine 16 percent12. Popov (2008) writes "Throughout the entire decade and a half of reforms, the Russian population suffered psychological trauma over the loss of greatness and international influence of their country-whether the Soviet Union or Russia"13. The former Soviet states tend to suffer from fallen grace and lost power and this highly psychological process has even affected the manner with which they have conducted their business that affected their economies. There is still the Cold war remnant of distrust towards Americans and although globalization is seen positively to an extent the spread of American consumerism remains a deterrent in opening up their economies as it cannot be accepted completely by these states. The only positive point seems to be the EU and its regulations related to trade and economic policies and the more advanced nations of the former Soviet era have followed these regulations for their own growth and for their integration with the EU in terms of politics, culture and economy. The key players of the post Soviet nations are Russia and Ukraine as also the smaller states of Kazakhstan, Latvia, Belarus and Moldova. The key economic indicators for these major Soviet states are given here and would shed light on the level of economic or GDP growth, population, inflation and FDI inflows14 and could help provide comparative analysis of economic performance: FDI inflows are almost central to development especially in an era of globalization and could be responsible for overall GDP growth of a nation and developing countries depend largely on FDIs for their economic performance. The case of India and china could justify the stance that FDIs are almost the most essential feature of globalization. From a comparative analysis of the four major nations of the post Soviet era15 it is seen that population growth is the highest in Kazakhstan and falling steadily in Latvia. Russia has also seen declining population growth although not to a significant extent. Russia however has the highest population followed by Ukraine and Kazakhstan. Real GDP growth is however highest in Kazakhstan followed by Latvia and Russia. Inflation is however highest in Ukraine and Russia and lowest in Latvia. GDP per head is the best in Latvia and Russia and the lowest in Ukraine16. Ukraine thus shows significantly low GDP rates and very high levels of inflation although has a huge population. Considering the population levels and GDP growth levels, Ukraine's economic future seems to be bleak and its economic performance poor. Comparatively Latvia has been showing surprising GDP growths and population growth being low; the country's economic performance has remained high in recent years. Russia's GDP growth has not been too significant and its population growth or inflation levels are not very encouraging either. Considering Russia as a nation that derives its traditions from one of the world's superpowers in the pat, Russia's progress or infrastructural or even technological facilities have not been comparatively superior and a lot of change and at a fast pace will be necessary. GDP growth of Russia will have to increase and this could be emphasized along with an expansion of trade and diversifying its trading functions from oil and gas to other products an from trading mainly within the post Soviet region to trading extensively with other European, Asian nations and the Americas. For this trade routes will have to be fortified and expanded, trade regulations will have to be made more flexible and more conducive to globalization and Russia's policies to attract FDIs should also become stronger to boost foreign investments as a means to change the country's economy. Raiklin (2007) summarizes the advantages of a post socialist society and the economic restructuring of the nations in the region by emphasizing that the positive aspects of transformation would be 'a definite structural shift away from industry and agriculture to services and thus a movement toward a modern postindustrial society'17. There has also been a 'lowering of investments in GDP and a wider opening of the economy to international trade and reduced military expenditure' (Raiklin 2007, p.503). However the negative influences and fallout of a disintegrated Soviet economy have been persistent demographic decline (which of course may not be true in case of Kazakhstan that is seeing a rise in its population), high levels of emigration and worsening and lowering of gross domestic production when compared with other major economies, substantial deindustrialization (Raiklin, 2007); a more unequal distribution of income through changing income structure18, increased share of fuel exports with oil and gas exported in large amounts from Kazakhstan and Russia, high proportions of military expenditure in many nations suggesting the feeling of threat from the west, a remnant of the Cold War. Developments in Russia have been marked by reforms although among the former Soviet nations, Ukraine, despite being one of the major economies has shown unexpectedly poor economic growth with very weak GDP score. Russia and Kazakhstan are the two countries that have expanded their trade, commerce and exports and possibly as a result Kazakhstan has shown high population growth compared with other states. Russia's reforms and emphasis on technology, defense, exports and foreign direct investments have made it a stronger economy than the other post Soviet states. Trade remains an important tool of economic growth in Russia and other Soviet states but the entire region with its lack of infrastructure and technological capabilities as also with the focus on reconstruction may lack the essential elements of rapid economic growth. Kazakhstan has been showing better growth than the other areas and the economic performance of Latvia has also been quite unexpected and remarkable. Latvia's economic performance could be related to its balanced immigration and control on inflation and a substantial GDP growth higher than the other nations. Kazakhstan's prosperity is related to its trade success and the fact that is one of the greatest eporters of oil, gas and many essential products to all the post Soviet nations. Apart from Russia, the surprising economic growth and prosperity of Latvia would be a case in point that deserves to be analyzed and Latvia's development and policies will have to be compared with that of other neighboring countries. Latvia may not have the natural resources of Turkmenistan., Kazakhstan, or Russia but the administrative policies being very well measured and well implemented it is rapidly becoming a major post Soviet player. Russia and Kazakhstan remain with highest emphasis on trade and exports as well as development and management of internal resources and supply of resources to fulfill foreign demand. Yet the spread of globalization and need of technological superiority has been driving Russia significantly that sees a change in the infrastructure of the country. Russia has planned extensive reforms in the 1990s although the implementation of these reforms has been criticized. As far as Russian trade relations are concerned, Garanina (2009) has suggested that Russia's main trading partners are the European Union (EU), the Commonwealth of Independent States (CIS) and China. The paper used an indicator analysis to suggest that "Russia is globally disadvantaged in manufactures trade with regard to the EU and China, and advantaged in trade within the CIS"19. This shows that Russia's trading relations with its neighbors are significant in supporting its economy and the post Soviet states play a major role in strengthening the Russian economy so there is already a mutually beneficial focus on trade in the region with increasing emphasis to use trade as a means of economic integration. The country's foreign direct investment or FDI flows also has a major impact on its economy although FDI flows are higher in Kazakhstan and Ukraine20 suggesting that these nation states may have a more open economic and trade policies that are in accordance with the demands of globalization. This review highlighted some important facts including the growth of the economies in post Soviet states, the changes in trade and business directions since the disintegration of the Soviet Union, the economic integration of the region states, and the patterns of GDP growth as well as trade, population and inflation rates in the major nations of the region. The results of this research could help in analyzing the economic growth in the region and the comparative performance of post Soviet nations in a globalized world. Bibliography: 1. Desai Raj M. and Olofsgrd Anders .Constitutionalism and credibility in reforming economies Economics of Transition.Volume 14 (3) 2006, 479-504 2. The Economist - Country factsheets (2009) From the Economist Intelligence Unit Country ViewsWire 3. EDWARDS T. HUW.Who Gains from Restructuring the Post-Soviet Transition Economies, and Why International Review of Applied Economics Vol. 20, No. 4, 425-448, September 2006 4. Garanina, Olga.What beyond oil and gas Russian trade specialisation in manufactures.Post-Communist Economies, Volume 21,Number 1, March 2009 , pp. 1-29(29) 5. Graybill, Jessica K. Continuity and change: (re)constructing environmental geographies in late Soviet and post-Soviet Russia. Area, Volume 39,Number 1, March 2007 , pp. 6-19(14) 6. Hanley, Eric. Two Steps Forward or Two Steps Back Institutional Change in Post-Soviet Russia. Contemporary Sociology: A Journal of Reviews, Volume 38,Number 2, March 2009 , pp. 111-115(5) 7. Hanson, P., and E. Teague. "Big Business and the State in Russia." Europe-Asia Studies 57, 5 (2005): 657-680. 8. Kalantaridis Christos Institutional Change in Post-Socialist Regimes: Public Policy and Beyond JOURNAL OF ECONOMIC ISSUES. Vol. XLI No. 2 June 2007 9. Kuznetsov, A., and O. Kuznetsova. "Institutions, Business and the State in Russia." Europe-Asia Studies 55, 6 (2003): 907-922. 10. Mitra, Pradeep;Yemtsiv, Ruslan.Increasing Inequality In Transition Economies : Is There More To ComeResearch Working papers, December 2006 , pp. 1-43(43) 11. Norton, Philip;Olson, David. Post-Communist and Post-Soviet Legislatures: Beyond Transition. Journal of Legislative Studies, Volume 13,Number 1, March 2007 , pp. 1-11(11) 12. Oleinik Anton. Minimizing Missed Opportunities: A New Model of Choice JOURNAL OF ECONOMIC ISSUES Vol. XLI No. 2 June 2007 13. PoPov N.P. (2008) Nostalgia for Greatness-Russia in the Post-Soviet Space. Sociological Research, vol. 47, no. 5, September-October 2008, pp. 36-51. 14. Raiklin Ernest.The USSR in 1990 and its Successor States in 2005:A Statistical Comparison. The Joumal of Social, Political and Economic Studies. Volume 32, Number 4, Winter 2007 15. Susak, Victor.Becoming an agent of change: Analyzing narratives by leaders in post-Soviet Ukraine.Nationalities Papers, Volume 33,Number 3, September 2005 , pp. 369-386(18) 16. Wegren, S. K. "From Communism to Capitalism Russia's Agrarian Relations in the Twentieth Century and Beyond." Journal of Peasant Studies 31, 3-4 (2004): 363-399. 17. ZHUKOV S. AND REZNIKOVA O., "Economic Integration in the Post-Soviet Space" Problems of Economic Transition, vol. 50, no. 7, (2007), 24-36. conomics o Appendix I - Economic data of post Soviet nations Ukraine Annual data 2008(a) Historical averages (%) 2004-08 Population (m) 46.0 Population growth -0.6 GDP (US$ bn; market exchange rate) 185.2 Real GDP growth 6.4 GDP (US$ bn; purchasing power parity) 333.5 Real domestic demand growth 12.0 GDP per head (US$; market exchange rate) 4,030 Inflation 13.8 Exchange rate HRN:US$ (av) 5.27(b) FDI inflows (% of GDP) 6.1 Latvia Annual data 2007(a) Historical averages (%) 2003-07 Population (m) 2.3 Population growth -0.6 GDP (US$ bn; market exchange rate) 28,782.4 Real GDP growth 9.7 GDP (US$ bn; purchasing power parity) 39,894(b) Real domestic demand growth 12.5 GDP per head (US$; market exchange rate) 12,617 Inflation 6.5 Exchange rate (av) LVL:US$ 0.51 FDI inflows (% of GDP) 5.6 Russia Annual data 2008(a) Historical averages (%) 2004-08 Population (m) 141.8 Population growth -0.3 GDP (US$ bn; market exchange rate) 1,671.5 Real GDP growth 7.0 GDP (US$ bn; purchasing power parity) 2,239 Real domestic demand growth 8.8 GDP per head (US$; market exchange rate) 11,785 Inflation 11.3 Exchange rate (av) Rb:US$ 24.9 FDI inflows (% of GDP) 3.0 Kazakstan Annual data 2008(a) Historical averages (%) 2004-08 Population (m) 15.8 Population growth 1.1 GDP (US$ bn; market exchange rate) 129.8 Real GDP growth 8.3 GDP (US$ bn; purchasing power parity) 176.7(b) Real domestic demand growth 10.9 GDP per head (US$; market exchange rate) 8,226 Inflation 10.1 Exchange rate Tenge:US$ (av) 121 FDI inflows (% of GDP) 7.5 Read More