Soviet power plus electrification: What is the long-run legacy of communism?

Type Journal Article - Explorations in Economic History
Title Soviet power plus electrification: What is the long-run legacy of communism?
Volume 50
Issue 1
Publication (Day/Month/Year) 2012
Page numbers 116-147
Two decades after the end of central planning, we investigate the extent to which the advantages
bequeathed by planning in terms of high investment in physical infrastructure and human capital
compensated for the costs in allocative inefficiency and weak incentives for innovation. We
assemble and analyse three separate types of evidence. First, we find that countries that were
initially relatively poor prior to planning benefited more, as measured by long-run GDP per capita
levels, from infrastructure and human capital than they suffered from weak market incentives. For
initially relatively rich countries the opposite is true. Second, using various measures of physical
stocks of infrastructure and human capital we show that at the end of planning, formerly planned
countries had substantially different endowments from their contemporaneous market economy
counterparts. However, these differences were much more important for poor than for rich
countries. Finally, we use firm-level data to measure the cost of a wide range of constraints on
firm performance, and we show that after more than a decade of transition in 2002–05, poor
ex-planned economies differ much more from their market counterparts, in respect to both good
and bad aspects of the planning legacy, than do relatively rich ones. However, the persistent
beneficial legacy effects disappeared under the pressure of strong growth in the formerly planned
economies in the run-up to the global financial crisis

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