Putin's Russia: Is It a Doable Project?

Demokratizatsiya, Winter 2004 by Beliaev, Mikhail

There is also an intermediate position in the debate on the relative importance of initial conditions and reforms. De Melo et al. (1996, 1997) introduce the concept of "patterns of transition." They claim that countries with favorable initial conditions and advances in liberalization have demonstrated exemplary performance, while other nations have been less successful.

According to the World Bank (2002), the relative importance of policy factors grows over time: "While the initial conditions that prevailed at the beginning of transition were critical for explaining the output decline that occurred initially in all countries, market-oriented policy reforms have played a significant role in promoting subsequent economic growth" (2002, 28). The study estimates that initial conditions explain 51 percent and 44 percent of variance in economic growth in 1990-94 and 1995-99, respectively. Findings by Castanheira and Popov (2000) and Falcetti et al. (2000) are similar.

Those authors claiming a strong impact of economic liberalization on subsequent performance present different views of the shape and conditionality of that relationship. Some argue that the effect of liberalization is robustly positive (Berg et al. 1999; Hernandez-Gata 1997). Others contend that this effect has a non-linear shape, or that it is conditioned on socio-political factors, the level of economic development, or the geographical location of a country.

De Melo and Gelb (1996) find that the relationship between economic liberalization and performance of post-communist countries is close to the classic J-shaped response to policy or institutional changes. Initially, liberalization has a negative impact on output. However, if reforms are sustained and liberalization advances beyond a certain point, economic recovery and sustainable growth will be achieved. The estimated threshold is at approximately .4 on the authors' liberalization index-approximately the level of Russia in the late 1990s. The countries that do not advance their reforms beyond the threshold are likely to experience a continuous decline, resembling an L-curve of the rapid GDP fall, followed by a prolonged output contraction as in some CIS countries (Bradshaw et al. 1998; Lavigne 1995).

Having reported similar findings, Fidrmuc concludes: "Either no liberalization or full liberalization is better than intermediate liberalization" (2000, 8). This argument is supported by the observations that the positive effect of economic liberalization on growth has been stronger since 1995 than in the initial period of transformation (Fidrmuc 2000), and quicker in CEE than in the CIS (Selowsky and Martin 1998).9 This perspective also helps to explain why the contraction was relatively low in "non-reformers" Belarus and Uzbekistan, while cautiously reformist Ukraine experienced the longest period of output decline (ten consecutive years, more than any other country in transition).

The effect of political liberalization on performance is a hotly debated issue as well. In comparison to the research on less developed countries of the "Third World" (Sirowy and Inkeles 1990; and Siermann 1998), empirical studies of post-communist transformation are much more supportive for the notion that political liberalization facilitates socio-economic development. Campos and Coricelli (2000) infer that the rule of law and quality of democracy, alongside economic stabilization and liberalization, have been the crucial factors of performance in transition.10 A stylized fact is presented in the Freedom House report "Nations in Transition" (1999), which compares three groups of transition countries: consolidated democracies, transitional societies, and consolidated autocracies. The former group demonstrated average growth of 4.7 percent in 1997, the second averaged growth of 1.4 percent, and the third showed average decline of 2.4 percent.