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Y376 International Political Economy
March 5, 2012
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Comparative Economic Sizes, in Current Billions of Dollars, 1995
$0 $200 $400 $600 $800 $1,000
Russia
Poland
Czech Rep.
Hungary
Bulgaria
Slovakia
Slovenia
Albania
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Key Issues
• Why did the Cold War end?
• What were the different political and economic strategies being pursued by the transition economies?
• How successful were these strategies?
• What general lessons can be learned from the above?
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The End of the Cold War
• The desire to end Stalinist oppression
• Inability to keep up with the United States and Western Europe economically and technologically
• Errors of judgment on the part of Soviet leaders, e.g.,– Chernobyl– Afghanistan
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Dissidents
• Andrei Sakharov
• Nuclear Physicist
• Father of Soviet hydrogen bomb
• Human Rights advocate
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Main Problems of Centrally Planned Economies in the 1980s
• Low growth rates
• Low productivity growth rates
• Slow diffusion of new technologies
• Consumer shortages
• Foreign currency shortages
• Declining purchasing power of exports
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Figure 10-2. Average Annual Growth in Real GNP in the Soviet Union and Eastern Europe, 1961-1985
0
1
2
3
4
5
6
1966-70 1971-75 1976-80 1980-85
Source: Central Intelligence Agency, Handbook of Economic Statistics 1988 (Washington, D.C.: U.S. Government Printing Office, 1988), p. 33.
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Slow Technology Diffusion
Stalin with a Zil Automobile
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The New Russia
This is Saint Basil’sCathedral in Red Square in Moscow, symbolicof the centralizedpower of the RussianState. The building onnew churches in Moscowis symbolic of the endof Communism.
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Figure 10-3. Annual Growth in GDP in the Russian Federation, 1981-2006, in Percentages
Source: World Bank, World Data '95 CD-ROM (Washington, D.C.: World Bank, 1995); World Bank, World Development Indicators 2008.
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Russia Real GDP Growth, 2003-2010
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Figure 10-5. Budget Deficit/GDP and Growth in Consumer Prices in the Former Soviet Union and Russia, 1985-2006, in
Percentages
Sources: Stanley Fischer, “Russia and the Soviet Union Then and Now,” in Oliver J. Blanchard, Kenneth A. Froot, and Jeffrey D. Sachs, eds., The Transition in Europe: Country Studies (Volume 1) (Chicago: University of Chicago Press, 1994), p. 234; and Keith Bush, The Russian Economy in March 2002 (Washington: Center for Strategic and International Studies, 2002).
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Russian GDP Growth and Crude Oil Prices, 1999-2007
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Figure 10-4. Annual Growth in GNP in Eastern Europe, 1986-2006, in Percentages
Source: World Bank, World Development Indicators 2008.
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Figure 10-7. FDI Inflows in Billions of Current Dollars, 1990-2006
Source: World Bank, World Development Indicators 2008.
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Figure 10-6. Long-Term Debt Outstanding in Russia and Three Countries in Eastern Europe in Billions of Current
Dollars, 1981-2006
Source: World Bank, World Development Indicators 2008.
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Lessons Learned
• A fast economic transition (shock therapy) may be better than a slow one.
• In Russia, the transition was slow.
• In Poland, Hungary, and Czechoslovakia the transition was relatively more rapid.
• In Eastern Europe, the prospect of entry into the EU played a major role in both transition strategies and political reform.
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Deng Xiaping’s 1978 Economic Reforms
• Household responsibility system
• Land use rights
• Township and Village Enterprises (TVEs)
• Special Economic Zones (SEZs)
Lester Thurow video
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Example: Shenzhen SEZ
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Real GDP Growth in China, 1961-2008
Source: World Bank, World Development Indicators 2008.
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Per Capita Income in China, 1980-2006, in Dollars
Source: World Development Indicators 2008.
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Figure 10-9. U.S. Exports to and Imports from China, 1989-2007, in Billions of Current Dollars
Source: U.S. Census Bureau, Foreign Trade Statistics.Note: The trade balance is the difference between exports and imports.
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Figure 10-11. Inflows and Outflows of Foreign Direct Investment into and from China, 1982-2006, in Billions of
Current Dollars
Source: World Bank, World Development Indicators 2008.
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Figure 10-10. Long Term Debt Outstanding in China in Billions of Current Dollars, 1979-2006
Source: World Bank, World Development Indicators 2008..
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Summary
• Russia elected to pursue a state-controlled energy-based growth strategy
• China elected to pursue its own form of the Asian developmental state approach, following the examples of Japan, Korea and Taiwan
• China’s strategy has been more successful but both are growing rapidly now