The Impact of Adjusted Factor Cost Valuation on the CES Interpretation of Postwar Soviet Economic Growth

Abstract

Assessing the determinants of Soviet postwar economic growth has proven to be an enticing but elusive pursuit. Various aggregate production function studies carried out with both official Soviet and Western data have yielded results that raise as many questions as they clarify (principally Weitzman, 1970, subsequent comments on his study, and the studies of Desai, 1976, and Gomulka, 1974). In addition to sundry interpretive difficulties of a purely technical sort, deep problems of valuation continue to obscure the analytic significance of any parametric estimation of postwar Soviet economic growth. This paper seeks to illuminate these issues by testing the CES specification of Soviet growth in adjusted factor cost prices, which more closely approximate the neoclassical opportunity cost norm than do valuation schema employed in previous studies. A two-step estimation technique is utilized for estimation purposes, the results of which reveal that the rate of neutral technical change has been greater, and the degree of capital utilization less, than formerly supposed, while the elasticity of substitution remains essentially unchanged from the already low estimates reported by others for this important parameter. Moreover, in the broader perspective of Soviet economic development, our analysis suggests that the Soviets may be more firmly shackled to their traditional growth model than recent scholarly speculation indicates. Before proceeding to a detailed consideration of postwar Soviet growth valued in adjusted factor cost prices, however, fundamental problems of aggregation raised by the peculiar nature of Soviet price formation must be addressed.