From Sickle to Hammer: Frictions’ Role in the Industrialization of Russia

Abstract

This paper studies the structural transformation of Russia in 1885-1940 from an agrarian to an industrial economy. To do so, time-series for Tsarist Russia and the Soviet Union during 1885-1940 are reconstructed and a methodology is developed that allows us to identify the different factors that had the largest quantitative impact on Russia’s economic development, through the reduction of frictions in the productive process. The results of the research showed that investment was the main economic variable in diminishing the production frictions. War communism exacerbated market distortions in the production process, due to their extremist policies in extremely harsh times. During Stalin’s Five-Year Plans, investment was channeled through the granted easy credit of the Gosbank to fund the impossible high production objectives. This set of policies seemed to have the largest impact in the reduction of the production market frictions of the analyzed period, particularly, the first Five Year Plan. At the contrary, education was not found significant in the reduction of the production frictions and, as expected, frictions remained high during the Tsarist Period, deterring industrialization.