WHEN THE BROOKINGS Panel on Economic Activity began in 1970, the world economy roughly accorded with the idea of three distinct economic systems: a capitalist first world, a socialist second world, and a developing third world which aimed for a middle way between the first two. The third world was characterized not only by its low levels of per capita GDP, but also by a distinctive economic system that assigned the state sector the predominant role in industrialization, although not the monopoly on industrial ownership as in the socialist economies. The years between 1970 and 1995, and especially the last decade, have witnessed the most remarkable institutional harmonization and economic integration among nations in world history. While economic integration was increasing throughout the 1970s and 1980s, the extent of integration has come sharply into focus only since the collapse of communism in 1989. In 1995 one dominant global economic system is emerging. The common set of institutions is exemplified by the new World Trade Organization (WTO), which was established by agreement of more than 120 economies, with almost all the rest eager to join as rapidly as possible. Part of the new trade agreement involves a codification of basic principles governing trade in goods and services. Similarly, the International Monetary Fund (IMF) now boasts nearly universal membership, with member countries pledged to basic principles of currency convertibility. Most programs of economic reform now underway in the developing world and in the post-communist world have as their strategic aim the 2 Brookings Papers on Economic Activity, 1:1995 integration of the national economy with the world economy. Integration means not only increased market-based trade and financial flows, but also institutional harmonization with regard to trade policy, legal codes, tax systems, ownership patterns, and other regulatory arrangements. In each of these areas, international norms play a large and often decisive role in defining the terms of the reform policy. Most recently, China made commitments on international property rights and trade policy with a view toward membership in the WTO, and membership in the world system more generally. Russian economic reforms are similarly guided by the overall aim of reestablishing the country's place within the world market system. In several sections of its April 1995 agreement with the IMF, the Russian government commits to abide by WTO principles, even in advance of membership. The goal of this paper is to document the process of global integration and to assess its effects on economic growth in the reforming countries. Using crosscountry indicators of trade openness as the measures of each country's orientation to the world economy, we examine the timing of trade liberalization, and the implications of trade liberalization for subsequent growth and for the onset or avoidance of economic crises. Of course, trade liberalization is usually just one part of a government's overall reform plan for integrating an ...
A prominent specialist on economic transition in the former Soviet Union discusses changes in Ukraine's economic policy in the aftermath of Viktor Yushchenko's accession to that country's presidency in January 2005. The author relates his recent (through midJune 2005) observations as co-chair of the UN's Blue Ribbon Commission for Ukraine. He analyzes the country's macroeconomic stability and growth since 2000, the regional divide, the winner's election program, the impact of the oligarchs, and the unexpected populism of the new government, which prompted re-privatization, price controls, and fiscal excesses. Journal of Economic Literature, Classification Numbers: E60, E63, F13, H20, H60. 1 figure, 6 tables, 62 references. Key words: Ukraine, Orange Revolution, macroeconomic stability, regional divide, oligarch, populism, re-privatization, oil prices, price controls, fiscal policy.kraine went through the historic Orange Revolution during the course of the last two months of 2004. After falsifying the results of the second round of the presidential elections, the old regime proclaimed the victory of its favorite, Prime Minister Viktor Yanukovych. But massive protests and extensive international attention prompted the Supreme Court to decree a rerun of the second round, leaving the old regime no choice but to comply. As expected the former Ukrainian Prime Minister Viktor Yushchenko became the ultimate winner. 2 In this paper, I discuss the economic policy that followed the Orange Revolution. Rather unexpectedly, this liberal revolution yielded an outburst of socialist populism. How could this happen? In the first part of the paper I address the question of why the revolution occurred by reviewing three standard factors of economic dissatisfaction, namely the macroeconomic situation, the political regional divide, and oligarchic influences in the Ukrainian state. The second part will cover the programmatic work undertaken before the new government ascended to power. Initially, the government's program aimed to establish a liberal market economy with some elements of populism. The surprise comes in the third part of the paper, devoted to the first policy steps of the new government, which turned out to be pretty socialist and populist. The three key topics discussed in some detail are re-privatization, fiscal policy, and control of prices.
A key to understanding any society is its informal institutions, which influence both its economy and its politics. In Ukraine, the most important such institution is endemic corruption, which— aside from Russia’s campaign against Ukraine’s territorial integrity and sovereignty—is the main threat to the nation. Under Viktor Yanukovych, this corruption took three forms: The first had to do with the trade in natural gas; the second involved Yanukovych handing out large infrastructure projects at his personal discretion; and the third was outright stealing from the government. Now that the Ukrainian people have now made a choice for Europe, they will have their best chance to clean up their country’s long-corrupt economy and political realm.
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