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Growth and distribution in Russia and China: a Social Accounting Matrix analysis.

Article Excerpt
Abstract

The paper reports on the multiplier analysis of comparable Social Accounting Matrices for Russia and China. The benchmark is around 1990, which constitutes a crucial year in their transition to more mixed market-state economies. Growth multipliers in China are found to be higher than in Russia, reflecting more intensive and balanced circular flow interactions. Distribution multipliers are less regressive in China than in Russia, which reflect stronger trickle-down effects and weaker leakage-up effects in the income and expenditure patterns of rich and poor household groups in China as compared to Russia. (JEL O1, P5)

Introduction

The Social Accounting Matrix, SAM, brings the aggregate national accounts of a country together and breaks them down into production sectors, production factors, earning households expenditure categories, government, and the rest of the world; the whole within a consistent and statistically closed matrix. Assuming linear relations and constant prices, the SAM is convertible in a model that gives the functioning of the economy and its performance. The objective of the paper is to analyze the structures and performances of Russia and China, making use of the SAM as a framework for the comparative analysis of their systemic differences.

A few figures are helpful in giving a quick insight into the empirics of different performances between Russia and China. Russia's GDP grew between 1979-89 by 43.2 percent and then decreased between 1989-97 by about 60 percent, according to official Russian statistics. China's GDP has been increasing at an annual average rate of 9.5 percent since 1979. Even if a more modest estimate of eight percent were used, that would mean a total increase between 1979-97 of four times. Taking as a benchmark estimates of the World Bank Development Indicators for 1997, these show China's GDP in 1997 to be 2.25 times as large as that of Russia. Twenty years earlier China's GDP was about half that of Russia. (1)

The relative sizes of the two economies have reversed position in historically unmatched terms during less than two decades. The contrast between both countries can also be seen from a comparison of output of some 10 major goods in physical terms, ranging from electric power to grain production. Unweighted averages give an increase of 45 percent over five transitional years for China and a decrease of 61 percent for the same years for Russia. De Melo, Denizer, Gelb, and Tenev [2001] explain the opposite performances in terms of differences in initial conditions, system structures, and the types and timing of government policies. Nolan [1995], among others, emphasizes the difference in pursued policies. The intensification of the gap between the two countries over many years suggests that the causes are more related to structural differences in the two systems than to economic policy. This paper shall attempt to separate the two effects.

Turning from economic growth to income distribution, Russian data show an increase in the skewness of income distribution from 1988 onwards, together with a surge in the proportion of the population at and below the poverty line, Silverman and Yanowitch [1997]. The transition in China was initially believed to be accompanied by more equitable income redistribution than in Russia, Walder [1996], but more recent evidence suggests that China's income distribution is catching up in terms of regressive tendencies.

Contrasting performances in growth and distribution between these two major countries have been persistent for a long time. The contrast remained intact even in the periods of reform suggesting that the differences in the structures and mechanisms behind these performance trends are endurable, and can be subjected fruitfully to comparative systemic analysis. A very suitable analytical framework in this context is provided by the Social Accounting Matrix (compare Pyatt and Roe [1979], Pyatt and Round [1985], and Pyatt [1991]). SAM brings together in a square matrix transactions between the various agents and accounts in the economy. Under several assumptions, to be explicated and evaluated below, the SAM is convertible in a model of the economy. The model can be solved to give SAM multipliers that show the growth and redistributionary impact of changes in exogenously assumed inputs in the economy such as the final demand categories of government expenditure, investment exports, and income transfers. Basically, differently functioning economies will show contrasting multipliers.

While the next section introduces the SAMs of Russia and China, the following section will derive the SAM multipliers, followed by an analysis of the growth effects of injections in final demand and income transfers. The next section does the same for redistributionary...

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