DP1035 | The Role of Government Aid to Firms during the Transition to a Market Economy: Russia 1992-94

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The paper develops two economic grounds for gradualism in the context of the Russian move towards a market economy: one for the support of output through subsidies, another for similar support through credit. The first argument relates to the usual case for softening the blow to a sector hit by an adverse, permanent shock. The other argument depends on the absence of a well-functioning capital market. Having presented the two arguments, we discuss the extent to which they justify the course of Russian policy. Essentially we show that the arguments support much less gradualism than actually took place in Russia in 1992 and 1993.