Costing-out the Big Bang: Impact of external shocks on the Armenian economy at the outset of transition

Vahram Avanesyan and Lev Freinkman

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores factors of economic decline in the small republican economies of the former USSR. It develops quantitative estimates of the costs of major transitional shocks for Armenia during the early transition, including the direct impact of terms of trade shock (price shock), direct impact of external demand shock (market loss), direct impact of fiscal shock (loss of transfers), as well as secondary effects of all the above shocks, defined as a further decline in macroeconomic aggregates due to a weakening of the overall domestic demand. These estimates are obtained within a single framework, built on a detailed input-output model for Armenia, and using the actual 1987 data. Our estimates suggest that the cumulative impact of the external shocks of the early 90-s amounted to the equivalent of 85 percent of the pre-transition GDP, and both price and demand shocks were highly significant. At the same time, the fiscal shock was much less important in Armenia due to its lower dependence on transfers from the union budget. The actual economic decline in Armenia in the first part of the 90-s was less severe than the model’s projections. We attribute this difference to a positive impact of market reforms on economic incentives.

Keywords: Armenia; costs of transition; USSR collapse; external shock (search for similar items in EconPapers)
JEL-codes: C67 F32 O11 O52 P30 (search for similar items in EconPapers)
Date: 2002-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Armenian Journal of Public Policy 1.1(2003): pp. 1-34

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:10012

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