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This article looks at profitability and trade in the republics of the former Soviet Union. Looking at individual industries, republic by republic, there emerges a picture of some highly profitable sectors along with others with negative value-added. The most profitable industries, mostly associated with oil and gas extraction, are the least protected, the least intensive in labour and already the most developed. The least efficient industries include food processing and light industry and are the most protected ones. Trade patterns, both within the former Soviet Union and with the rest of the world, are unrelated to comparative advantage. Consequently sizable gains from trade are potentially available, and the relevant industries are identified. When the single trade balance constraint is replaced by constraints at the republic level, it is clear that Russia stands to benefit from not having to cover with its surpluses the deficits of the other republics. Russia again, along with Kazakhstan and Ukraine, should benefit from a shift to market-based terms of trade. by guest on

This paper looks at the reaction of Russian firsm to the shock of liberalization. Firms are exposed to two kinds of shocks. A supply affects their profitability. A demand shock reflects the new expression of consumers and the opening of the country to foreign competition. Econometric tests show that firms adapt to these changes. They react by adjusting their output. They are not able to change their production techniques for lack of fresh capital. Employment is more stable that output: it is preserved by the adjustment of real wages. Therefore, firms with a low share of material inputs are relatively better off. Copyright The European Bank for Reconstruction and Development, 1997.

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