Free Fall or Restructuring. An Empirical Analysis of Economic Performance of Russian Industries and Regions

Improvements in economic efficiency and productivity are the most important sources for economic growth, however, have yet to occur in Russia. The Soviet Union left an institutional vacuum and large economic distortions behind, which set the stage for an established elite to systematically exploit factors of production for their personal benefit lacking the incentives to restructure. This paper generates some empirical highlights of the outcomes of industrial transformation from 1987 to 1997. The following results are worth mentioning: (1) Early steps of liberalization, the attempts to macro-stabilization and the launch of the privatization package did not bring about improved economic efficiency in industrial production; (2) Less concentrated and highly localized industries performed better, which can mainly be explained by the performance of the resource extracting industries; (3) Price liberalization revealed increasing returns in industrial production and the contribution of capital to output declined rapidly, while the contribution of labor increased.