5/9/11

Economic growth: Russia vs Russia vs USA

There are several ways to estimate real economic performance of a given country. Here we present three different approaches to the case of Russia.
We have modelled the transition from socialism to capitalism in a number of socialist countries. Figure 1 displays the observed and predicted GDP per capita. We used the total economy database published by the Conference Board in 2011 (GK PPPs, 1990 US dollars). Both curves are normalized to their values in 1991. This is the start point of the transition, which was effectively finished around 2000. Since then the Russian economy has been evolving according to general rules applied to capitalist countries. The long term rate of growth was estimated as 0.033 1/y. Figure 1 shows that this rate is likely a good estimate irrelevant to shirt-term deviations. Thus, one can expect that the Russian economy will return to the trend in the near future.

Figure 1. Observed and predicted evolution of real GDP per capita (Geary- Khamis PPPs) in Russia.
Several posts in May 2011 were devoted to the evolution of real GDP per capita in developed countries. We have shown that the difference between the US and other countries has quasi-linear trends. This observation followed from our general (empirically derived) concept of constant annual increment in GDP per capita. This should also work for all former socialist countries turned to the capitalist railway. Russia is not an exclusion as Figure 1 confirms. Thus, Figure 2 compares the mean annual GDP increment for the USA (between 1950 and 2010), which is $387 in 1990 US dollars, and the estimates of annual increment in Russia since 1989. Obviously, it was very slow start because of the transition; real GDP in 1998 was ~60% of its value in 1991.  After 2003, Russia has experienced a period of quick growth with annual increments well above $387. This was a period of good performance. In 2009, all countries suffered a deep fall in real GDP per capita. The year of 2010, looks very average.

Figure 2. Annual increment of real GDP per capita in Russia compared to the long-term average in the USA.
The above comparison with the long-term average demonstrates the healthy pace of the Russian economy in the long-run. This is also valid for the short run. Figure 3 depicts the difference between GDP per capita in the US and Russia between 1990 and 2010. The concept of the constant increment implies that the gap in real GDP can be never decreased since the rate of growth falls inversely proportional to the level of GDP. This means that all former socialist countries will never approach the most developed countries. According to this principle, the gap in Figure 3 must return to the level between $13000 an $1500 in the near future. Russia has been growing too fast in the 2000s. This growth is not likely to be repeated.   

 Figure 3. The difference between real GDP per capita in the USA and Russia.

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