The Economic Gain to the Ussr from Trade with the Oecd in 1972 and 1976 (West, Developed Countries).

Abstract

The dissertation estimates the resource gain to the USSR from trade with the OECD countries in 1972 and 1976. This is the Soviet gain from trade according to comparative advantage, as opposed to the gain from importing goods which relieve production bottlenecks. The resource gain equals the potential adjusted-factor-cost (AFC) to the Soviets of domestically producing imports minus the AFC of producing exports. The gain measures the increase in Soviet absorption, as opposed to output, from trade. Estimation of the gain involves three tasks. The first is calculating the value in Soviet producers' prices of Soviet exports and potential import-substitutes concerning OECD trade. For most goods one multiplies the quantity of the product traded times an appropriate Soviet domestic price. Because Soviet cost-based prices exclude interest charges for much of the capital and charges for most l and and natural resources used in production, they are inaccurate measures of the full resource cost of goods. The second task is adjusting the values of goods in producers' prices with an input-output technique so that the values capture these additional production costs. In 1972 and 1976 the Soviets had an aggregate trade deficit with the OECD countries. The third task is correcting for this problem. The Soviets apparently financed the deficits by borrowing from Western creditors. Correcting for unbalanced trade involves estimating the discounted resource cost to the Soviets of producing the exports which earn the foreign exchange needed to repay the loans. The unbiased estimated Soviet resource gain from trade with the OECD in 1972 equals 0.52% of Soviet GNP (measured in AFC), and in 1976 1.0%. The estimates of the gain in 1972 from sensitivity analysis range from 0.07% to 0.95% of GNP, and in 1976 from -0.08% to 2.06%, the most important cause of the variation being the differing estimates of the royalty cost of Soviet oil extraction. The results show that in both years the contribution to the total Soviet economy of trade with the OECD according to comparative advantage was modest, though not insignificant. Yet, for each AFC ruble of resources used to produce exports to the OECD in 1972 (1976), the Soviets earned a net return of 2/15 (2/7) of an AFC ruble of resources embodied in imports. Thus, trade with the OECD, per ruble of resources devoted to producing exports, was advantageous.