The Soviet Economic Decline: Historical and Republican Data

57 Pages Posted: 11 Jun 2000

See all articles by William Easterly

William Easterly

New York University - Department of Economics

Stanley Fischer

Bank of Israel; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)

Date Written: May 1994

Abstract

Soviet growth over 1960-89 was the worst in the world after we control for investment and human capital; the relative performance worsens over time. The declining Soviet growth rate over 1950-87 is explained by the declining marginal product of capital; the rate of TFP growth is roughly constant over that period. While the Soviet slowdown has conventionally been attributed to extensive growth (rising capital to output ratios), extensive growth is also a feature of market-oriented economies like Japan and Korea. What led to the relative Soviet decline was a low elasticity of substitution between capital and labor, which caused diminishing returns to capital to be especially acute. Tentative evidence indicates that the burden of defense spending also contributed to the Soviet debacle. Differences in growth performance between the Soviet republics are explained well by some of the same factors that figure in the empirical cross-section growth literature: initial income, human capital, population growth, and the degree of sectoral distortions.

Suggested Citation

Easterly, William and Fischer, Stanley, The Soviet Economic Decline: Historical and Republican Data (May 1994). NBER Working Paper No. w4735. Available at SSRN: https://ssrn.com/abstract=227008

William Easterly (Contact Author)

New York University - Department of Economics ( email )

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Stanley Fischer

Bank of Israel ( email )

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Jerusalem, 91907
Israel

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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International Monetary Fund (IMF) ( email )

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