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Matthew David Hauer Yia Yang

Macroeconomic Disorder By Andrei Belousov and Lance Taylor with Elena Abramova , Dongyi Liu, Alexander Vorobyov , and Stanislav Zhukov. Matthew David Hauer Yia Yang. China.

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Matthew David Hauer Yia Yang

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  1. Macroeconomic Disorder By Andrei Belousov and Lance Taylor with Elena Abramova, Dongyi Liu, Alexander Vorobyov, and Stanislav Zhukov Matthew David Hauer Yia Yang

  2. China • High level of transfers between firms and government (31% to gov., 24% to firms) (All numbers expressed in percentages of GDP) • High level of trade (16.8%) • High savings from firms and households (37.5% and 10.4%) • High investment and capital accumulation • With large deposits by firms and households hyperinflation seemed imminent • Curbed by increase in output and monetization of rural economic activity

  3. Russia in 1989 • More closed than China (8.7%) in foreign trade • Slightly lower savings rates (7.6% for households and 26.8% for firms) • Still run by command economy

  4. Russia in Early Transition 1992-1993 • Large increase in foreign trade (50.4% in 1992) • Huge price jumps with removal of controls (3.5 to 7.7 times) • Drop in household income (60.8% in 1989 to 46.7% in 1992) • Firms savings spike in 1992 (74.5%) • Firms couldn’t pay high prices for intermediate goods, ran mutual arrears, 39 billion Rubles in Jan. 1992, 3,900 billion Rubles in July 1992

  5. Russia in 1993 to 1995 • Household income and firm income had moderate recovery (54.4% for households and 54.8% for firms in 1995) • Larger shares of household income for social payments and distributed profits • Savings peak in 1994 but drop in 1995 because of investment scams • Falling inflation • Declining tax shares (40.2% in 1990 to 25.5% in 1995) • Ruble appreciated leading to increase in foreign assets held by Russians and a drop in manufacturing exports

  6. Differences between Russia and China • China’s high savings absorbed by domestic investment, in Russian savings went to foreign assets • Russia’s financial system incapable of promoting domestic investment • China’s growth fueled by exports • Russia’s export are mostly raw materials, low domestic demand, due to low consumptions and investment, cannot fuel growth either

  7. “The development and Sustainability of the Russina GDP” by SimoLeppänen • Depreciation of Ruble in late 1990’s fueled industrial output • Russia is highly vulnerable to changes in energy prices and real exchange rates • Financial system still struggling to close gap between saving and investment • Services increasing in GDP share

  8. McKinnon, Ronald I, Aslund, Anders, & Rostowski, Jacek. (1993). Gradual versus rapid liberalization in socialist economies: The problem of macroeconomic control. The World Bank Research Observer:Annual Conference on Development Economics,63.  Retrieved November 29, 2009, from ABI/INFORM Global.  • China took the gradualist approach • Russia took the rapid liberalization approach • Wanting an unrestricted foreign trade with other industrialized countries • Sharp decrease of output • A weak communist party • Collapse of Council for Mutual Economic Assistance (CMEA)

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