Indirect Transfers in Trade Among Former Soviet Union Republics : Sources, Patterns and Policy Responses in the Post-Soviet Period

The former Soviet Union (FSU) was composed of 15 republics which were very unevenly endowed with human, physical and natural resources. To contain regional imbalances within the Union and to integrate all republics into a tight and centrally commanded division of labour, the central government operated a scheme of vertical fiscal redistribution between the Union budget and the republican budgets. Through this system poorer republics became net receivers of direct transfers and richer republics became net donors. This scheme, which collapsed with the dissolution of the Union in 1991, channelled sizeable funds to the poorer Central Asian republics relative to their material product. Yet it failed to equilibrate large existing differences between the per capital fiscal revenues of the republics (Orlowski, 1992)