Was Stalin Necessary for Russias Economic Development?

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 during the two periods. We …nd 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 under 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 the 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. The projected performance under both Tsarist’and Stalin’s wedges is much worse than the economic performance of Japan, which in 1885-1913 had similar levels of per capita GDP and distortions as Tsarist Russia, but experienced a rapid acceleration of non-agricultural TFP during the interwar period. Relative to this benchmark, the welfare loss of Stalin’s policies are about -31 percent of consumption. Cheremukhin: Federal Reserve Bank of Dallas; Golosov: Princeton and NES; Guriev: NES; Tsyvinski: Yale and NES. The authors thank Mark Aguiar, Bob Allen, Paco Buera, V.V. Chari, Hal Cole, Andrei Markevich, Joel Mokyr, Lee Ohanian, Richard Rogerson for useful comments. We also thank participants at the EIEF, Federal Reserve Bank of Philadelphia, NBER EFJK, New Economic School, Northwestern, Ohio State, Princeton. Financial support from NSF is gratefully acknowledged. Golosov and Tsyvinski also thank Einaudi Institute of Economics and Finance for hospitality. Any opinions, …ndings, and conclusions or recommendations expressed in this publication are those of the authors and do not necessarily re‡ect the views of their colleagues, the Federal Reserve Bank of Dallas or the Federal Reserve System.