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This paper draws on econometric work by Zettelmeyer (1998). We are grateful to Gérard Bélanger, Isaias Coelho, Vincent Koen, Christoph Rosenberg and especially Peter Keller for helpful comments and discussions and to Nada Mora for outstanding research assistance. Any remaining errors are ours.
Transition year zero is defined as the year in which central planning was decisively abandoned (Berg et al, 1998). This is taken to be 1992 for the BRO countries, 1990 for Poland, Hungary and countries on the territory of the former Socialist Federated Republic of Yugoslavia and 1991 for the remaining Eastern European countries.
Berg et al. (1998), de Melo et al. (1997), Hernández-Catá (1997), IMF (1998a), Fischer, Sahay, and Vegh (1996a, b), Sachs (1996), Åslund, Boone and Johnson (1996), Selowsky and Martin (1997), Wolf (1997) and World Bank (1996).
Uzbekistan is well endowed with reserves of natural gas, oil, and coal, and has substantial deposits of gold, silver, copper, lead, zinc, wolfram, uranium, and tungsten. It is the world’s fifth largest cotton producer and second largest cotton exporter (about 17 percent of world exports), and among the 10 largest gold producers. Agriculture has always been the key sector of the Uzbek economy, and a significant part of the industrial and services sectors depend on transporting and processing of agricultural commodities. At independence, agriculture’s share in GDP was over 30 percent, and the sector’s relative importance has remained high despite the Government’s efforts to diversify the country’s economic base.
Official investment data are very weak and need to be interpreted with caution, in part because they include current expenditures by the budget and state-owned enterprises.
See Gavrilenkov and Koen (1994) and Easterly and Fischer (1995) who discuss problems related to this investment approach in the context of the former Soviet Union. With assistance from the World Bank, a public sector investment review was initiated in 1996, which however did not produce useful results because of the unavailability of data.
The government has also financed a number of large construction projects including the restoration of tourist sites, hotels, and several new administrative and representational buildings.
Estimates of foreign direct investment are subject to considerable uncertainty. US$200 million is equivalent to less than US$10 per capita for Uzbekistan, compared to a CIS (BRO) average of about US$20 (35) for 1996 and US$23 (35) for 1997 according to IMF estimates. The EBRD (1998) estimates are much lower; it estimates Uzbekistan’s net FDI at only US$50 million for 1996 and US$ 60 million for 1997. This translates to an average of less than US$ 3 per capita, as compared to a CIS (BRO) average of about US$ 26 (57) for 1996 and US$33 (69) for 1997, according to the EBRD.
See also De Melo et al.’s liberalization index for 1995, which is reproduced in Table 1 (last column) for the BRO countries.
The exception is “Securities markets and non-bank financial institutions”, where the country is given exactly the median grade.
See EBRD (1997). The EBRD has estimated the private sector share in GDP at 45 percent in mid-1997. This estimate is more plausible than the government’s official data which equates non-state ownership with private ownership.
This strategy could be referred to as “import substitution” (see Bruton (1998)), but this is not a term which the Uzbek authorities use or would agree with.
On empirical evidence implicitly or explicitly contradicting gradualism, see the references given in the introduction; for an empirical study supporting gradualism, see Heybey and Murrell (1997). In order to justify gradualism theoretically (at least in some circumstances), it would be possible to invoke Blanchard and Kremer (1997), who emphasize the role of “disorganization” in the output decline.
See Dobozi and Pohl (1995), Kaufmann and Kaliberda (1996) and Bloem, Cotterell, and Gigantes (1996). In the context of specific countries, see Berg (1993) for Poland, Gavrilenkov and Koen (1994) for Russia, and de Broeck and Kostial (1998) for Kazakhstan.
Thus, the bias is greater (more negative) the larger the private sector share, YP/Y.
The estimate for 1995 is consistent with estimates from the Uzbek authorities, who put the share of the unofficial economy at about 6 percent of GDP in 1995 and about 10-12 percent in 1996 and 1997.
The weighted average would be even higher, since the estimated shares for Russia and Ukraine are 40.3 and 45.7 percent for 1994 and 41.6 and 48.9 for 1995, respectively.
Note that this approach falls somewhat short of constituting a formal test of these hypotheses as the null hypothesis in the context of a significance test is that the variables under scrutiny do not matter, whereas the null we are really interested in rejecting is that they do matter.
These regressions use the official output data, as output estimates based on electricity consumption seem even more problematic (i) in assuming constant output elasticities of electricity consumption along time; (ii) in making somewhat arbitrary assumptions about the magnitude of this elasticity across countries. As Koen (1995) has pointed out, these are implausible assumptions in the context of transition economies undergoing fundamental structural changes, including drastic changes in relative prices, a large potential for energy savings, and substantial shifts in the structure of production (e.g., strong growth in services sectors). In the context of a panel regression, this is a particularly serious issue as the speed of these changes is likely to vary substantially across countries. While the official data probably exaggerates the differences between Uzbekistan and the other countries, it is thus not clear that differences in the output paths within the remaining set of countries, on which our regression results are based, are more accurately captured by electricity-based consumption estimates than by the official data.
One important caveat applies, which is that the quality and consistency of public investment measurement across countries is questionable and this might bias the coefficient on public investment towards zero.
For example, output fell dramatically in the case of paper, cement, mineral fertilizer, chemical production, power transformers, tractors, and cotton harvesters.
One manifestation of this fact is that, as can be seen from the negative constant in Table 4, the model predicts a decline in output unless there is continuing liberalization and structural reform. Obviously, one would not expect this to continue indefinitely once liberalization and reform indices have reached the levels of market economies.