In this post, we take a look at historical data to trace the evolution of GDP per capita (in dollars and at 2015 prices) in the former Soviet republics. At its peak, the Union of the Soviet Socialist Republics consisted of 15 members: Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Lithuania, Latvia, Moldova, Russia, Turkmenistan, Ukraine and Uzbekistan. Of these, Russia was (and is) the largest country in terms of population and land. It was also the brain and heart of the Union. It is not the goal of this post to revise the story of the Soviet Union, so we will just note that the constituent republics eventually established as independent nations during the 1990s.
Since the 1990s, the political model followed by the different republics has been diverse, ranging from functioning liberal democracies (such as Estonia) to dictatorial, quasi-fascist systems (the Russian Federation). As we are going to see, the economic trends in these republics has also been diverse and while some republics have experience staggering increases in GDP per capita, others have stalled, particularly after 2008. This is the case of Russia. Specifically, this post shows how, up to 2007, Russia experience growth rates comparable to those experienced by the other republics. However, since 2008 Russia’s growth has decoupled from that in the area and this is particularly noticeable since 2014, coinciding with the annexation of Crimea.
The next interactive figure, shows how things have been all these years. The overall trend is upwards. The drop in GDP caused by the 2008-9 global financial crisis are easy to identify, and so is the drop caused by the 2020 Covid-19 pandemic. You can click on the lines in the figure to read the levels of each country at each point in time and you can click on the name of a country in the list to hide/reveal its series.
Figure 1: GDP per capita, USD, 2015 prices. Click on the lines to see values; click on the names in the legend to hide/reveal a particular country.
The variation in GDP per capita across countries is significant (at its peak, the GDP per capita of Kyrgyzstan and Tajikistan was 20 times smaller than that of the wealthiest country, Estonia -itself 3 times poorer than Switzerland). As would be expected, the Russian Federation sits somewhere in between Estonia and Tajikistan. This is not surprising in such a vast country and, although gas and oil rich regions such as Yamalo-Nenets and Khanty-Mansi have nomial GDPs per capita exceedingUSD40,000, and Moscow enjoys levels of income per-capital comparable to the Estonian, the tail of the income distribution is fairly large. Already St. Petersburg has a GDP per capita of around USD12,000, and the further we move towards the east and south, the faster income declines. The poorest region in Russia, Ingushetia (in the border with Georgia) has a nominal per-capita GDP of just over USD1,000. You can find these latter data in Wikipedia1
The glorious noughties.
The previous figure suggests that most of the local economies were already in the path of recovery by 1998. Prior to the 2008 crisis, all these countries experienced staggering economic growth, as can be seen in the first column of the next table.
| Country | % Change 2000-2007 | % Change 2012-2019 |
|---|---|---|
| Armenia | 139.81759 | 31.315800 |
| Azerbaijan | 192.21287 | 2.955430 |
| Belarus | 79.02698 | 3.587871 |
| Estonia | 75.28970 | 25.528585 |
| Georgia | 85.18944 | 32.698163 |
| Kazakhstan | 89.77161 | 16.074058 |
| Kyrgyzstan | 25.29287 | 23.455596 |
| Lithuania | 86.58163 | 35.986066 |
| Latvia | 96.03416 | 29.376605 |
| Moldova | 54.61345 | 44.728471 |
| Russia | 62.30178 | 4.925149 |
| Tajikistan | 61.02937 | 35.780168 |
| Turkmenistan | 46.53787 | 46.533566 |
| Ukraine | 78.01927 | -1.387220 |
| Uzbekistan | 40.00202 | 34.265858 |
The percentage change in GDP per capita (again, in 2015 prices) between 2000 and 2007 was 80.8%. During those seven years, even the worse performing nation (Kyrgyzstan) experienced a growth rate of 25%. Armenia more than doubled its economy and Azerbaijan grew three-fold. The Russian Federation experienced an impressive growth of around 60% in GDP per capita. In economic terms, these were happy years of growth for the former Soviet Republics. Then, things changed.
In 2007, the Russian President Putin exhausted his second term in Office, leaving the scene (at least nominally) for Medvedev. In 2008, the financial crisis exploded and rocked the world. But, probably because of its abundant natural resources (and an at-the-time-unknown Germa… ehem… European dependency of those resources -gas in particular), Russia escaped relatively unscathed from the crisis. Its GDP per capita fell just USD700 (under 7%;compared to the 17% drop experienced by, for example, Estonia). By 2010, GDP was already at its pre-crisis level and the country seemed, once again in the path of growth. Worth noting here that in December 2010 the Arab Spring started, sending waves of revolt and hope across the arab wold, from Egypt to Syria (it did not end up well). The extent to which the latter was Putin’s epiphany for what would come after, God only knows.
An Economy of 9,475 dollars.
Putin, by now a bored Primer Minister of Russia, was not planning retirement yet. He side-lined Medveded and in 2012, the P-Tzar was back in power, on a Harley Davidson (so to speak -yet literally). Putin picked the Russian Economy in 2012 at a record 9,475 dollars per person (2015 prices). What happened after, however, is summarised in the second column of the above Table. Between 2012 and 2019, growth rate across the former Soviet Republics averaged 24%. Aside from the Baltic nations (which by then were consolidated liberal democracies with full membership of NATO and the EU), most other nations continued to show strong two-digit growth. However, a handful of nations stalled: Azerbaijan, Belarus, Ukraine and Russia.
The reasons behind poor growth in Azerbaijan and Belarus are beyond the scope of this entry. However, there are a number of potential reasons (all of them compelling) that might explain what went wrong with Ukraine and Russia. In November 2013, a series of protest started in Kyev and other Ukrainian cities. These were in principle caused President Yanukovych rolling back an electoral pledge to seek further integration of Ukraine with the European Union (widespread corruption and abuse of power did not help to keep the protests down). The protest ended up with more than 100 people killed (a trifle, compared to what came after) and around 2,500 people injured in clashes with security forces. Yanukovych escaped to Russia, but trouble only started there. Russia immediate enacted economic sanctions over Ukraine. Separatist movements arose in the east of the country, and Russia took over the Crimean peninsula militarily in the few days between the 20th of February and the 26th of March of 2014. A low-intensity war ensued, which has costed the lives of over 15,000 people. Then, on the 24th of February 2022 things went totally mad…
Following the attack on Crimea on 2014, the US, EU and their allies responded with a string of economic sanctions intended to hit the Russian economy. These started in March 2014, and were boosted in 2015. All these sanctions were aimed principally at defense, energy and financial firms, as well as specific individuals.
A no-war counterfactual.
Now, there is quite a bit of debate regarding the extent to which sanctions work. They do, but showing this is beyond the scope of this entry. So, let’s say at this point that we cannot attribute the sluggish economic growth of the 2012-19 period directly to the economic sanctions, nor the war, nor even to Putin itself (himself? itself?… itself). But all these factors are unlikely to have helped. It seems reasonable to speculate that, if none of these crises had occurred, the Russian Economy (and probably that of Ukraine too) had experience growth patterns in line with those observed in the 2000-2007 period or, at least, as those enjoyed by other former Soviet republics. Under that premise, then, we can try to construct the counterfactual of the Russian economy in 2019. Specifically, we can consider these scenarios:
- Russia experiences typical growth
- Russia experiences mean growth
- Russia leads the growth in the area
Let’s start with the last scenario. In the 2000-2007 period, Russia’s growth was 62%, or 77.5% of the average growth of all the former Soviet republics. This would mean that the equivalent growth figure for 2012-19 had been 77.5% of 24% or 18.%. This would put Russia’s GDP at USD11,234 per person. If, instead, growth had been average, the figure would stand at 11,740. However, if Russia had led the area, its GDP per capita in 2019 had been at least a 46% higher, at USD13,833 or above. That is, over 4000 dollars more per Russian. The figure 46% comes from Turkmenistan. This country has benefited from having the fifth largest reserves of natural gas in the world and its main clients are China and Iran (plans for a pipe connecting to Pakistan and India are under way). Therefore, it would appear that Turkmenistan’s diversification strategy allows them to avoid pressures from Russia. By the way, Turkmenistan does not have geographical border with Russia; the two are separated by vast areas of land, and this also probably helps (Turkmenistant). Now, Russia could have benefited from an identical energy policy to that followed by Turkmenistan, with the additional advantage of having plenty of other resources, including a large pool of highly educated citizens. So figures in excess of 46% should have surprised to nobody.
So, how much?
In all, assuming that the ides of the Russian economy since Putin took charge in 2012 are down to an appallingly fruitless and highly damaging foreign policy, we can conclude that the GDP of Russia could be at least 46% higher, and with great probability no less than 18% higher. For a comparison, Brexit is believed or expected to cost the U.K. between 0.2 and 1.6% of its GDP2. In per capital terms, this means that Russia’s GDP could have been somewhere between 1759 and 4358 dollars higher per person. Of course, this does not mean that the average citizen in the Federation would have seen his income raise by that much. However, we can also fantasise about how much higher the average wage in Russia could have been (applying the percentages we have just calculated). The average monthly salary in Russia in 2019 was in the region of 45-95,000 rubles. In accordance to https://www.exchangerates.org.uk/, the average exchange rate between the dollar and the Russian rouble was around 65 rubles per dollar. This means that the average salary stood at 692-1461 dollars in 2019. Using the lower and upper bound of 18 and 46%, we then cas see that, the average Russian could be earning somewhere between 124 and 672 dollars per month more. To be clear: 124 dollars takes you a long way in Russia.
The story is compelling. If Putin had not put in his green men in Crimea it is very likely that the Russian economy had done a lot better after 2014. Sanctions (which are effective in the mid and longer term) had not been imposed, and Russia could have followed an economic policy similar to Turkmenistan’s. Growth in the 18-46% region has been realistic… if Putin had not been messing about. But he has, at the cost of 124-672 dollars per Russian per month.
https://en.wikipedia.org/wiki/List_of_federal_subjects_of_Russia_by_GDP_per_capita. Accessed 3 March 2022.↩︎
Institute for Government, https://www.instituteforgovernment.org.uk/sites/default/files/Economic%20impact%20of%20Brexit%20summary.pdf↩︎