Internationalization of the Russian strongEconomystrong.pdf

INTERNATIONALIZATION OF THE RUSSIAN ECONOMY: What Went Wrong? Vladimir Popov The opening up of the previously closed centrally planned economies (CPEs) is one of the most remarkable developments of the 1990s because it means that the last large group of countries previously isolated from the world economy is now part of the globalization process. With the exception of China and Vietnam, however, market reforms and internationalization in former communist countries have been accompanied by mounting economic hardship; output and real incomes fell markedly, and mortality and crime rates increased. In Russia and other former Soviet Union (FSU) states, the costs of transi- tion have been especially high, much higher than in East European countries (Tables 1 and 1A in the Appendix). To what extent were the costs of transition in general and in Russia in particular associated with the opening up of the previously closed economies? Could these costs have been avoided if reformers were pursuing a different strategy of internationalization? One popular observation is that the disruption of the Comecon trade in 1991 and of the inter-republican trade within the FSU in 1992– 95 contributed a great deal to the poor performance of East European (EE) and FSU countries. The other view, however, is that the collapse of these trade flows was more or less inevitable, since they were based on prices that were so different from the world market prices; these trade flows were inefficient and were supposed to be reshaped and restructured in any case, whereas the real problem was the lack of a consistent policy of liberalization. These two approaches correspond to two schools of thought in a more general deb