I’ve never been a fan of growth accounting or TFP estimations. Check out Jesus Felipe’s website for a variety of articles explaining the theoretical problems behind these exercises. Given my anti-TFP bias, you can imagine my reaction to a working paper entitled “Was Stalin Necessary for Russia’s Economic Development?,” which calculates Soviet TFP numbers to evaluate Stalin’s legacy. Here’s the abstract:
This paper studies structural transformation of Soviet Russia in 1928-1940 from an agrarian to an industrial economy through the lens of a two-sector neoclassical growth model. We construct a large dataset that covers Soviet Russia during 1928-1940 and Tsarist Russia during 1885-1913. We use a two-sector growth model to compute sectoral TFPs as well as distortions and wedges in the capital, labor and product markets. We find that most wedges substantially increased in 1928-1935 and then fell in 1936-1940 relative to their 1885-1913 levels, while TFP remained generally below pre-WWI trends. Under the neoclassical growth model, projections of these estimated wedges imply that Stalin’s economic policies led to welfare loss of -24 percent of consumption in 1928-1940, but a +16 percent welfare gain after 1941. A representative consumer born at the start of Stalin’s policies in 1928 experiences a reduction in welfare of -1 percent of consumption, a number that does not take into account additional costs of political repression during this time period. We provide three additional counterfactuals: comparison with Japan, comparison with the New Economic Policy (NEP), and assuming alternative post-1940 growth scenarios.
I’m not even sure where to start. Is a two-sector neoclassical growth model appropriate in this circumstance? How much can we really trust the Russian data from the late 1800s and the Soviet data in the 20th century? Who is the representative consumer? How can we really talk about welfare under Stalin with a neoclassical growth model? It’s no wonder economists have a bad name in the social sciences. Is this really the right way to study welfare losses under Stalin?
Ok, I guess I did know where to start.