Industrial Profitability and Trade among the Former Soviet Republics

Abstract

The break-up of the Soviet Union Claudia Senik-Leygonie and Gordon Hughes This article looks at profitability and trade in the republics of the former Soviet Union. Looking at individual industries, republic by republic, there emerges a picture of some highly profitable sectors along with others with negative value-added. The most profitable industries, mostly associated with oil and gas extraction, are the least protected, the least intensive in labour and already the most developed. The least efficient industries include food processing and light industry and are the most protected ones. Trade patterns, both within the former Soviet Union and with the rest of the world, are unrelated to comparative advantage. Consequently sizable gains from trade are potentially available, and the relevant industries are identified. When the single trade balance constraint is replaced by constraints at the republic level, it is clear that Russia stands to benefit from not having to cover with its surpluses the deficits of the other republics. Russia again, along with Kazakhstan and Ukraine, should benefit from a shift to market-based terms of trade.