V. The Economic and Social Impact of Systemic Transition in Central Asia and Azerbaijan

in Perspectives on Global Development and Technology
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Abstract

The economies of Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan differ from the other states that quit the Soviet Union in 1991 by their inheritance of poor productivity growth and high demographic pressure for job creation. Moreover, since their incorporation into the Russian Empire during the nineteenth century, their production has been geared to primary goods - cotton and hydrocarbons - that in the 1930s Stalin's policy towards autarky was directed to Soviet domestic consumption. The six countries hence gained independence, but with high export dependency on markets that all suffered severe demand recessions. The corresponding production decline in the six states was modified during the 1990s by diversifying the direction of trade and was not as deep as indicated by the official GDP data by reason of the substantial growth of unmeasured production. That 'shadow economy' goes untaxed and all six states show government revenue inadequate for the social expenditure required to maintain the stock of human capital inherited from Soviet planning priorities and to reverse the widening of income differentials, as well as for capital formation to employ the expanding labor force. Some improvement has resulted from emigration and foreign investment by Kazakhstan, and from foreign investment by Azerbaijan. But that inflow has enhanced those states' dependence on hydrocarbons and the danger of a "Dutch disease." In all six states, authoritarian and corruption-prone governance inhibit foreign investment, though in two, Azerbaijan and Kazakhstan, state funds have been established so that eventual income from fixed assets replace that from depleting hydrocarbon deposits.

V. The Economic and Social Impact of Systemic Transition in Central Asia and Azerbaijan

in Perspectives on Global Development and Technology

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