23.05.2024 Effects in the Long run#

Communism = Soviet Power + Electrification (Lenin)

Hypotheses:

  1. Planning = long run bad for growth

    • static allocative inefficiencies

    • inhibits adoption of higher up technology

    • no creative destruction

  2. Planning = over-focus on physical investment and education

Methods: Regressions and a new Model

Planning and Growth#

Initial Advantage of Planning

  • mobilize savings better

  • better infra => higher ROI on investment

  • more ducation => higher real wages

=> good for pre-industrial countries

Adoption of Planning

  1. Group: Russia and extended after 1.WW

  2. Group: bloc expansion after 2.WW

Different types of adopter countries:

  • Agrarian (Balkan etc.)

  • industrious (Czech, East Germany, …)

Comparators:

  • European, Central Asian …

Method: Regression $\( ln(GDP) = \beta_0 + \beta_1 PLAN+ \beta_2 ln(GDP_{t1}) + \beta_3 (PLAN \cdot GDP) \)$

  • PLAN = Dummy for planned economy

  • Esitmation of Contrafact

Results:

img

  • ME = Market Economy

  • PE = planned economy

  • countries with higher GDP at start = comparatively lower GDP in end

  • vice-versa

Education and Investment#

Method = similar to above

Results:

img

  • Caveat: Aggreagte Infastrucutre =! usable infrastructue

  • planners planed only transport infratstructure, not personal (eg. commuter rail)

  • human capital measurement as years =! always usable in market economy (e.g Marxist study)

Insitutional Heritage

  • measured with „Ease of Doing Businnes“ Indicator

  • difficult indicators

  • no clear picture emerges

img

Model#

Data = individual Business Surveys

  • World BAnk Questionnaires

  • firms asked to evaluate public inputs

    • Telecoms, electriciy, skills, stability, …

    • how hindering they are

  • => shadow price interpretation

General Results:

img

  • PE = hgigher shadow prices of public inputs

  • means more difficult business environment

  • rich PE = differ less from ME peers than poor PE vs their peers

  • poor PE vs their peers

    • better education, physical capital, labor costs etc

    • worse institutions: corruption, courts, …

=> Benefit of Communism depends on inital stage