Russia's economic transition from Soviet central planning to market-based economy

Russia Case Report

"You need to be pro-active; go and seek knowledge so that you can become a valuable resource to Gulf Air and to Bahrain"

Jassim Al Marzooqi, Chief Technical Officer

(Marzooqi, as cited in Gulf Air welcomes…, 2009).

Russian Federation

Russian Federation, the official name for Russia, a Federation, consists of 17 million square kilometers (6.5 million square miles); approximately1.8 times the size of the United States (U.S.). Out of Russia's ppopulation which totalled approximately 141.9 million in January 2009, Moscow, the capital, has a population of 10.4 million (Background Note: Russia).

During the 12th century, the Principality of Muscovy was founded after emerging from 200 years of Mongol domination. From 1682-1725, when Peter the First ruled, the Russian Empire was founded. The article, "Introduction: Russia," published by the Central Intelligence Agency, asserts "repeated devastating defeats of the Russian army in World War I led to widespread rioting in the major cities of the Russian Empire and to the overthrow in 1917 of the imperial household" (¶ 1). Vladimir Lenin seized power and the communists formed the U.S.S.R.

From 1928-1953 in the U.S.S.R., during the rule of the brutal leader, Iosif Stalin, thousands of individuals lives were abruptly lost.

The Soviet economy and society stagnated in the following decades until General Secretary Mikhail Gorbachev (1985-91) introduced openness and restructuring in an attempt to modernize Communism, but his initiatives inadvertently released forces that by December 1991 splintered the U.S.S.R. into Russia and 14 other independent republics (Introduction: Russia, ¶ 1).

Russia gained its independence August 24, 1991 and its constitution established December 12, 1993. Russia, divided into nine different time zones, geographically borders the Arctic Ocean between the North Pacific Ocean and Europe. Russia's west borders Northern Asia. Figure 1 portrays a map of Russia today.

Figure 1: Map of Russia (Russia).

Research and Development; Infrastructure and Institutions

Russia has other heavy industries dependent on its domestic market; much less competitive than the gas, oil and metal industries. "This reliance on commodity exports makes Russia vulnerable to boom and bust cycles that follow the highly volatile swings in global commodity prices" (Introduction: Russia, Flag section, ¶ 3). In 2007, to boost the country's technology sectors, the Russian government launched an aggressive program to lessen its dependency. Few results, albeit, evolved come from the program.

In the agricultural realm, Russia has begun to emerge as an exporter of grain, whereas in the past the country excelled as an importer of grain. Since 1998, when Russia experienced a financial crisis, it has averaged a 7% growth annually. This has doubled disposable incomes; consequently creating a middle class. "The Russian economy, however, was one of the hardest hit by the 2008-09 global economic crisis as oil prices plummeted and the foreign credits that Russian banks and firms relied on dried up" (Introduction: Russia, Flag section, ¶ 3). In late 2008, the Central Bank of Russia, the world's third largest bank, had to spend a third of the country's $600 billion international reserves to slow down the devaluation of the ruble.

Russia committed $200 billion for a rescue plan to enlarge liquidity in the banking industries to essentially aid the Russian banks not able to roll over major foreign debts soon due. "The economic decline appears to have bottomed out in mid-2009 and by the second half of the year there were signs that the economy was growing, albeit slowly" (Introduction: Russia, Flag section, ¶ 3). Future long-term challenges Russia still faces include high levels of corruption, a shrinking workforce, poor infrastructure and a significant need for large capital investments.

Business Cycles

Researchers who study the international correlation of output changes basically have evaluated the delivery of business cycles between industrial countries. In the book, Is Russia still driving regional economic growth?, Issues 2005-2192, Clinton Shiells, Marco Pani, and Etibar Jafarov recount that a number of previous practical studies "have investigated the determinants of economic growth within each country rather than regional growth linkages and mostly refer to the period prior to the Russian crisis" (p. 5). Havrylyshyn, Izvorski and van Rooden conducted a few studies on growth and regression in transition economies.

The studies conducted by the researchers focused on identifying an array of institutional, macroeconomics, and structural factors as grounds for economic growth in economies that are in transition. "In contrast to these previous studies, the present paper estimates the growth linkages between Russia and other CIS and Baltic countries econometrically and considers how these may have changed