USSR-LDC TRADE: AN ECONOMIC AND QUANTITATIVE ANALYSIS

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• Collection: General CIA Records
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• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 38
• Document Creation Date: December 22, 2016
• Document Release Date: January 19, 2010
• Sequence Number: 2
• Publication Date: February 1, 1985
• Content Type: REPORT

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Directorate of Confidential
Intelligence
USSR-LDC Trade:
An Economic and
Quantitative Analysis
A Technical Intelligence Report
Confidential
SOV 85-10010
February 1985
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Directorate of Confidential
Intelligence
USSR-LDC Trade:
An Economic and
Quantitative Analysis
Comments and queries are welcome and may be
directed to the Chief, Soviet Economy Division,
SOYA,
Confidential
SOV 85-10010
February 1985
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July 1982 to October 1983.
research contract with the Office of Soviet Analysis and carried out from
The research contained in this report was funded under an external
Confidential
SOV 85-10010
February 1985
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USSR-LDC Trade:
An Economic and
Quantitative Analysis
Summary An analysis of Soviet trade with the LDCs since the early 1970s using a
Information available new body of statistics suggests that some common perceptions of the nature
as of 31 October 1983 and importance of this trade are mistaken.
was used in this report.
The growth in the volume of Soviet-LDC trade since 1970 has exceeded
the rate of growth in Moscow's trade with developed Western economies,
although the value of trade with the developed West grew at a faster rate.
Hence, price trends in this trade have tended to move against the USSR:
? Real Soviet imports from LDCs increased over the period at an average
annual rate of 8 percent, but the pattern of growth was erratic. Real im-
ports declined in each year during 1976-79 and then climbed in 1980 and
1981 as a result of massive food imports-mainly from Argentina,
Brazil, India, and Thailand.
? Real Soviet exports to LDCs grew at an average rate of 5.5 to 9.5 percent
per year in 1971-8 1, primarily because of a surge in military exports.
Identified (primarily civilian) exports, however, stagnated in real terms
during 1971-75 and have grown by only 2.5 to 5 percent per year since
then.'
? Soviet terms of trade with the developing countries have deteriorated
since the early 1970s, whereas terms of trade with the industrialized
West have improved.
From the LDC viewpoint, the USSR has not proved to be as important a
trade partner as is sometimes believed in the West. In particular, it has not
provided a substantial market for LDC manufactures:
? Soviet trade with the LDCs is still highly concentrated among five to 10
trading partners.
? Real reported exports to socialist-oriented clients and oil-exporting
countries grew more rapidly than exports to the LDCs as a whole in
1971-81.
? Soviet purchases from non-socialist-oriented, non-oil-exporting countries,
on the other hand, accounted for most of the growth in real imports from
the LDCs during this period.
? Soviet imports from the Third World have been increasingly dominated
by raw materials, especially agricultural commodities. The share of
manufactured products in Soviet imports has diminished since the early
1970s.
' This estimate assumes that Soviet prices for machinery and equipment and unspecified ex-
ports (believed to be mostly if not entirely military-related items) grew at an average annual
rate of 4.5 percent to 9 percent. 25X1
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The Soviets have long claimed that the USSR, and the "socialist"
countries in general, represent relatively fast-growing and stable markets
for the raw material exports of the developing countries. This was a
common assertion in Soviet writings of the 1950s and 1960s, and it was fre-
quently voiced in the United Nations Conference on Trade and Develop-
ment (UNCTAD) forums in the 1970s in the context of continued debate
on The New International Economic Order. Analysis of the trade of the
USSR, West Germany, Japan, and the United States with the LDCs shows
that:
? The Soviet Union accounted for 17 percent of combined imports by the
four countries of nine important primary products in the 1960s. In terms
of the market size for these products, the USSR ranked third after the
United States and West Germany.
? In 1971-81 the Soviet share of the combined imports increased to 23
percent, and the USSR and the United States shared first place in terms
of market size.
? Soviet real imports of primary products from the LDCs seem to have
been more variable than those of the average developed West importing
country in 1960-70. The USSR ranked last in terms of variability of real
imports in the 1970s, but the differences were not great enough to be sta-
tistically significant.
? Examination of more than 20 years of Soviet imports of raw materials
suggests some slight relative improvement in the stability of the prices
the USSR pays for LDC exports, although Soviet performance in this
respect must be considered as essentially no different from that of
Western market economies.
In sum, few LDCs outside the Soviet orbit depend heavily on the Soviet
Union as a trade partner. Soviet shares of total trade have declined for
some of the USSR's more important LDC trade partners but have
increased for a number of other LDCs. Instances in which the Soviet share
has fallen were twice as frequent as instances in which the share increased.
This trend, in conjunction with the concentration of Soviet import growth
in the raw materials group, suggests that the economic interdependence
between the USSR and the LDCs probably has increased more slowly over
the past 10 years than is often perceived in the West and claimed by the
Soviets.
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A statistical analysis of the determinants of Soviet-LDC trade suggests
that political factors have been significant to some degree. The level of
Soviet exports to an individual LDC was found to be related to whether it
had a "socialist orientation" and to whether it had a soft currency clearing
agreement with the USSR. Soviet imports, however, seem to be unrelated
to the socialist orientation of the exporting countries.
The issue of how much market power the Soviet state trading monopoly
can exert on prices cannot be settled with the available evidence. The trade
data, however, point to relative price discrimination in favor of the USSR's
trading partners in the Council of Mutual Economic Assistance (CEMA).
Moreover, this discrimination appears to have increased over time. While
this trend probably results mainly from a combination of political factors,
it also reflects an inertia built into the intra-CEMA foreign trade system.
The Soviets also appear to discriminate against socialist-oriented and soft
currency countries, possibly because the USSR may have relatively more
bargaining power with these countries than with other non-Communist
LDCs.
Finally, because the USSR continues to conduct its trade relations with
several of its important trading partners through bilateral clearing ac-
counts rather than in hard currency, the role these arrangements play in
Soviet-LDC trade was investigated. Since the early 1970s, a number of soft
currency agreements have been terminated, and trade has flourished most
with those countries with which settlements are made in hard currency.
Nevertheless, imports from Moscow's soft currency trade partners seem to
be more diverse and stable than imports from hard currency partners. This
trade also seems to include a higher proportion of manufactured commod-
ities. Thus, it appears that Moscow's soft currency partners still benefit by
maintaining their clearing account arrangements with the USSR.
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Trends in Aggregate Real Trade and Terms of Trade
1
Disaggregated Trends and Determinants of Soviet-LDC Trade
4
Composition of Trade
5
Trade by Country Group
6
Trade and the Payments Mechanism
7
Price Discrimination in Soviet Trade With the Developing Countries
8
Growth and Stability of Soviet Imports of Primary Products
13
Previous Investigations
13
The Role of Bilateral Clearing Agreements
15
Sample
15
Hypotheses Tested
15
Summary
17
A. Methodology for Calculating Price and Quantity Indexes
19
C. USSR: Soft and Hard Currency LDC Trading Partners
23
D. Statistical Notes on Calculating the Determinants of Soviet Trade
With the LDCs
25
E. Methodology for Calculating Price Discrimination
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USSR-LDC Trade:
An Economic and
Quantitative Analysis
The goal of the contract research described in this
technical intelligence report was to increase under-
standing of Soviet trade with the Third World. A
great deal of time was first spent in compiling statis-
tics-that is, data on the dimensions of Soviet-LDC
trade by country and commodity. That such an effort
played an important role in the research will come as
no surprise to students of the USSR's foreign trade,
especially in view of the relative paucity and the
recent deterioration in Soviet statistics. With the help
of these statistics on the value and volume of LDC
trade with the Soviet Union, the contractor proceeded
to investigate a number of questions that before now
have been looked at only in passing or not at all
because of the lack of adequate data. His findings are
This report first sets out the aggregate trends in the
volume of Soviet-LDC trade in 1971-81 and estimates
the changes in the terms of this trade over the period.
In the next section, a disaggregated view of the trade
is presented. Topics covered include the commodity
composition of the trade, the distribution of trade by
country group, the payment mechanisms, and the
degree of concentration in this trade. The results of an
econometric analysis of the determinants of the size
and direction of Soviet-LDC trade also are described.
In the following three sections, the report summarizes
the contractor's research on three questions that have
been discussed extensively over the years:
? Does the USSR offer more favorable prices in
buying from and selling to LDCs who are political
allies, strategically important, or participants in
bilateral clearing arrangements with the USSR?
' This paper uses the Soviet definition of less developed countries,
which encompasses: (1) all countries in Africa except the Republic
of South Africa; (2) all countries in East Asia except Hong Kong,
Japan, Laos, and Vietnam; (3) all countries in Latin America except
Cuba; and (4) all countries in the Middle East except Israel. The
terms less developed countries (LDCs), the Third World, and
? Does the Soviet Union represent a more stable and
faster-growing market for LDC primary products
than developed Western economies?
? How influential are bilateral clearing agreements in
explaining Soviet trade with developing countries?
Finally, a series of appendixes (a) explain the proce-
dures followed in delivery price and quantity indexes
for Soviet-LDC trade, (b) set out the definitions of
socialist-oriented LDCs and soft and hard currency
trading partners employed in the research, (c) provide
the statistical basis for the findings regarding deter-
minants of Soviet-LDC trade, and (d) reviews the
methodology used to investigate price discrimination
in this trade.
Trends in Aggregate Real Trade
and Terms of Trade
The initial report focuses on the volume and terms of
trade in Soviet commerce with the Third World
during 1971-81. The developing countries studied
were all those not classified as "socialist" LDCs in
Soviet foreign trade statistics. The study included 73
developing countries for which Soviet trade statistics
were available. The three developing country mem-
bers of the Council for Mutual Economic Assistance
(CEMA) (Cuba, Mongolia, and Vietnam) and socialist
LDCs (Laos, North Korea, and China) were excluded.
Basis for the Estimates
Because of the dramatic deterioration in the coverage
of Soviet foreign trade statistics since 1975-76, analy-
sis of prices, quantities, and terms of trade has
become very difficult. Soviet foreign trade with the
developing countries is no exception. In particular, the
reduced amount of data on quantities traded (that is,
trade volume) and the Soviet tendency to report trade
values at a higher level of aggregation for many
products have made it impossible to calculate mean-
ingful unit values from Soviet statistics.
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A rather eclectic approach had to be followed in
estimating price and quantity trends in recent Soviet
trade with the developing countries. For machinery
and equipment and "residual" exports-largely arms
deliveries unidentified by country and/or commod-
ity-indexes of world market prices and evidence of
overall movements in Soviet export prices were used
to derive two "synthetic" price indexes. Specifically, it
was assumed that the average annual increase in ruble
export prices for these two commodity groups fell
within a range of 4.5 to 9 percent during 1971-81.
Unit values for trade in fuels, metals, and minerals,
and a few other primary or intermediate products
were calculated from official Soviet foreign trade
statistics for 1971-76, and synthetic price indexes
were created on the basis of movements in world
market price for these products after 1976. For all
remaining products-including chemicals, building
materials, other nonfood raw materials, foodstuffs,
and industrial consumer goods-price indexes were
developed from unit value calculations at the individ-
ual country-product level.
These price indexes were constructed for Soviet trade
with each LDC and were aggregated to obtain overall
price indexes for aggregate exports and imports,
respectively. Quantity indexes were then derived for
exports and imports using available data on trade
values and the constructed aggregate price indexes.
(See appendix A for a more complete description of
the calculation of the price and quantity indexes
presented in the report.)
Results
The calculations reflected several developments in
aggregate Soviet trade with the developing countries
over the past decade. From 1971 to 1981, the prices of
Soviet exports to LDCs of identified trade (presumed
to be civilian commodities) tended to rise more
rapidly than prices for Soviet residual trade (pre-
sumed to be military exports). This trend probably
reflects the important role that exports of crude oil
and oil products continue to play in Soviet trade with
these countries. In 1981, for example, petroleum
exports accounted for 38 percent of total identified
Soviet exports to the LDCs. Over the entire decade,
the reported calculations indicate that Soviet export
prices to the developing countries increased at an
average annual rate of 6.9 percent to 10.7 percent.
Figure 1
USSR-LDC Trade: Trends in Soviet
Export and Import Prices a, 1975-81
a Some 73 developing countries for which Soviet trade statistics are
available are examined in the report.
b Variant A: Machinery and equipment export prices and residual export
prices are assumed to increase at 9 percent per annum.
c Variant B: Machinery and equipment export prices and residual export
prices are assumed to increase at 4.5 percent per annum.
Second, prices for Soviet imports from LDCs have
risen over the past decade at an average annual rate
of about 11 percent. The rate of price increase slowed
during 1976-78 but picked up again in 1979 as prices
for oil, natural gas, and some foodstuffs increased
rapidly on world markets (see figure 1).
Third, Soviet net barter terms of trade with the
developing countries have deteriorated since the early
1970s.3 How sharply they have declined depends a
' Net barter terms of trade reflect how well Soviet export prices
have done vis-a-vis import prices. Declining terms of trade indicate
that increases in Soviet export prices have not been sufficient to
keep up with increases in import prices, thus the USSR must pay
more in real exports to pay for the same quantity of goods imported
in the base year. Improvement in the USSR's terms of trade would
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Figure 2 .
USSR: Net Barter Terms of Trade
With the LDCs, 1975-81-
975-81 a
Figure 3
Figure
USSR: Trends in Exports to the
LDCs, 1975-81
**\, L - ~ - -
aNet barter terms of trade reflect how well Soviet export prices have
done vis-a-vis import prices. Declining terms of trade indicate that
increases in Soviet export prices have not been sufficient to keep up
with increases in import prices. Thus the USSR must pay more in real
exports to buy the same quantity of goods imported in the base year.
Improvement in the USSR's terms of trade would be the opposite situation.
b Variant A: Machinery and equipment export prices and residual export
prices are assumed to increase at 9 percent per annum.
c Variant B: Machinery and equipment export prices and residual export
prices are assumed to increase at 4.5 percent per annum.
great deal, however, on which export price variant is
presumed to have prevailed. Under variant A, where
machinery and equipment and "residual" (or military)
export prices are assumed to have grown at 9 percent
per annum, there is a slight terms-of-trade improve-
ment since 1975 and only a 2.5-percent cumulative
deterioration since 1971. Variant B, on the other
hand, assumes a 4.5-percent average annual rate of
growth of prices for the same commodity groups and
appears to be more consistent with aggregate Soviet
export price trends for these products as reflected in
official Soviet statistics. This variant yields a 15-
percent cumulative terms-of-trade decline against the
LDCs since 1975 and a more than 30-percent decline
since 1971 (see figure 2).
Regardless of price variant, the real growth of residu-
al exports to LDCs by the USSR surpasses the real
100 1975 76 77 78 79 80 81
a Variant A: Machinery and equipment export prices and residual export
prices are assumed to increase at 4.5 percent per annum.
b Variant B: Machinery and equipment export prices and residual export
prices are assumed to increase at 9 percent per annum.
growth of identified exports during 1971-81. Residual
exports, which are probably arms deliveries, have
increased in real terms at an average annual rate of
10 to 15 percent over the past decade. Identified
exports, however, essentially stagnated in real terms
from 1971 to 1975 and since 1975 have grown by only
2.5 to 5 percent a year. Overall real exports grew at
an annual average rate of 5.6 to 9.4 percent (see figure
3). The much faster growth of residual exports has
caused that group to play an important role in overall
Soviet exports despite the slower rate of increase in
their prices. The proportion of residual exports in total
Soviet exports to LDCs climbed from 47 percent in
1971 to 51 percent in 1975, and exceeded 60 percent
in 1977-79. Because variant B suggests such a high
(15 percent) rate of growth in the volume of Soviet
residual exports, it is likely that Soviet prices of these
exports have been growing at a faster rate than
assumed under that variant-that is, greater than 4.5
percent per annum.
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Figure 4
USSR: Trends in Imports From the
LDCs, 1975-81
1 1
50 1975 76 77 78 79 80 81
Constant
1975 prices
Over the past decade, real Soviet imports from the
LDCs increased at about an 8 -percent average annual
rate, although the growth pattern was erratic within
this period. Real imports grew at an average rate of
9.2 percent per annum during 1971-75, declined each
year from 1976 to 1979, and then surged again as
massive Soviet grain purchases were redirected to
developing countries, particularly Argentina, in 1980
and 1981 (see figure 4). The growth in real imports
over the past decade matched the growth in real
exports by averaging the growth rates under variants
A and B.
Finally, the calculations for Soviet trade with the
LDCs were used in conjunction with official Soviet
statistics on trade with all "nonsocialist" countries to
derive rough measures of trends in prices, trade
volume, and terms of trade in Soviet economic rela-
tions with the industrialized West. The calculations
suggest that prices of Soviet exports to the industrial-
ized West rose in 1976-81 at an average annual rate
of 14 to 16 percent, while prices of Soviet imports
from this region grew at an average rate of about 4
Figure 5
USSR: Implied Terms of Trade With
Industrially Developed Countries, 1975-81
Export prices:
Variant A a
Export prices:
Variant B b
100 1975 76 77 78 79 80 81
a Variant A: Machinery and equipment export prices and residual export
prices are assumed to increase at 4.5 percent per annum.
b Variant B: Machinery and equipment export prices and residual export
prices are assumed to increase at 9 percent per annum.
percent.' In contrast to the stagnation or possible
cumulative deterioration of Soviet terms of trade with
the LDCs of up to 15 percent in this period, Soviet
terms of trade with the industrial West improved at
an average annual rate of 10 to 12 percent. Since the
mid-1970s, the volume of Soviet exports to the LDCs,
particularly arms exports, has apparently grown at a
much faster rate than have Soviet exports to the
West. Only because of the recent surge in Soviet
imports of foodstuffs from LDCs has the volume of
Soviet imports from the LDCs matched the growth of
real imports from the West since the mid-1970s (see
figure 5)
Disaggregated Trends and Determinants
of Soviet-LDC Trade
The statistical base also permits an analysis of recent
patterns and trends in Soviet foreign trade with the
' It is unlikely that prices of Soviet imports from the developed
West really grew at such a slow rate during 1976-81, especially
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Table 1
USSR: Commodity Composition of
Exports to the Developing Countries,
1970, 1975, and 1980
Total
100.0
100.0
100.0
Machinery and equipment
32.9
24.3
20.3
Fuels
3.5
10.2
16.8
Ores, concentrates, and.metals
5.8
3.3
1.2
Chemicals and products
1.0
3.0
1.9
Building materials
0.6
1.0
0.6
Timber, pulp, and paper
3.0
3.5
2.3
Textile
0.6
0.4
Other materials of animal,
vegetable origin
0.1
0.1
.0.1
Food and foodstuffs
4.7
2.7
1.2
Industrial consumer goods
1.5
1.1
0.5
Residual
46.9
50.2
54.7
Source: Calculated in current prices from Vneshniaia torgovlia
SSSR, various issues.
Table 2
USSR: Commodity Composition of
Imports From the Developing Countries,
1970, 1975, and 1980
Machinery and equipment
0.2
0.6
0.8
Fuels
3.7
19.3
13.9
Ores, concentrates, and metals
4.3
3.5
3.0
Chemicals and products
11.4
3.7
5.0
Building materials
0.1
Timber, pulp, and paper
0.5
0.7
0.5
Textile raw materials
25.7
11.5
5.0
Other materials of animal,
vegetable origin
8.5
5.0
6.7
Food and foodstuffs
33.2
44.3
48.4
Industrial consumer goods
12.5
8.8
7.1
Residual
2.6
9.4
Source: Calculated in current prices from Vneshniaia torgovlia
SSSR, various issues.
developing countries at a more disaggregated level,
largely by using the unit values implied by value and
quantity data and other information to calculate
changes in the volume of trade and in export and
import prices.
Composition of Trade
Over the past decade the trade residual (Soviet arms
sales) was the most dynamic source of real growth in
Soviet exports to the LDCs. Real exports of petroleum
and petroleum products also accelerated until 1979.
After stagnating during 1971-75, real exports of
machinery and equipment also grew at a respectable
rate after the mid-1970s. Real exports of the other
major commodity groups, however, either stagnated
or actually declined in the latter half of the 1970s. In
nominal or current prices the share of exports ac-
counted for by petroleum exports and arms sales
increased over the past decade, largely at the expense
of machinery and equipment shares and exports of
ores and metals (primarily iron and steel products) (see
table 1).
From 1970 to 1975, Soviet real imports of petroleum
and ores, metals, and concentrates from the develop-
ing countries climbed swiftly. From 1978 to 1981,
however, the volume of petroleum imports-apparent-
ly intended for reexport-has declined, as have identi-
fied imports of ores and metals. This estimated down-
turn in real imports of ores and metals may be
exaggerated, however, and could be completely mis-
leading (see table 2). The rapidly expanding Soviet
import residual probably contains at least some ores
and metals trade that were in the past included in
identified trade.
From 1975 to 1979, aggregate real imports from the
developing countries apparently declined. The dra-
matic growth in imports after 1979, however, resulted
almost exclusively from large purchases of foodstuffs
from such countries as India, Thailand, Argentina,
and Brazil. Contrary to Soviet public statements,
imports to the USSR from the Third World appear to
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Table 3
USSR: Trends in Terms of Trade With
Various LDC Groups, 1975-81
Trade with developing countries 100 88 to 90
with a "Socialist Orientation" a
Trade with developing "Client 100 97 to 99
Countries" b
Trade with developing oil-exporting 100 101 to 105 101 to 108 113 to 126 87 to 100 58 to 70 50 to 63
countries c
Trade with developing countries 100 99 to 101
which are neither "Socialist Oriented,"
nor oil exporters d
a "Socialist Orientation" countries-Afghanistan, Burma, Cambo-
dia, South Yemen, Syria, Algeria, Angola, Benin, Cape Verde,
Congo, Ethiopia, Guinea, Guinea-Bissau, Madagascar, Mozam-
bique, Somalia, Tanzania, Grenada, Nicaragua.
b "Client Countries"-Afghanistan, South Yemen, Angola, Ethio-
pia, Mozambique, Cambodia.
c Oil-exporting countries-Indonesia, Iraq, Iran, Kuwait, Saudi
Arabia, UAE, Libya, Nigeria, Ecuador, Mexico, Venezuela.
be increasingly dominated by primary products and
intermediate goods. The role of manufactured prod-
ucts has diminished since the early 1970s.
Trade by Country Group
Trends in Soviet foreign trade with various country
groups were also examined. Because the analysis was
limited to statistics on trade with individual countries,
most of the trade in arms exports (not included in
country statistics) was excluded.
Using Soviet classifications, 19 "socialist-oriented"
countries were identified.' Real Soviet exports to and
imports from the client group of socialist-oriented
countries grew at above-average rates in the latter
half.of the 1970s. Real. exports to the nonclient,
'These 19 countries do not encompass the six "socialist" LDCs
referenced in the first section of this report. A 1982 NATO
Economic Committee report-Soviet Economic Relations With
Selected Client States in the Developing World-classifies Afghan-
istan, Angola, Cambodia, Ethiopia, Mozambique, and South Ye-
men as Soviet "clients." The report also examined separately the
"oil-exporting" developing countries and an "all other" group of
LDCs. (A complete breakdown of country groupings is provided in
d Other developing countries-Burkina, Burundi, Camaroon, Cen-
tral African Republic, Equatorial Guinea, Gabon, The Gambia,
Ivory Coast, Kenya, Liberia, Malawi, Mauritania, Mauritius,
Niger, Rwanda, Senegal, Sierra Leone, Sudan, Togo, Uganda,
Zaire, Zambia, Argentina, Bolivia, Brazil, Chile, Colombia, Costa
Rica, Dominican Republic, El Salvador, Guatemala, Guyana,
Honduras, Jamaica, Panama, Paraguay, Peru, Trinidad and Toba-
go, Uruguay, Burma, Hong Kong, Israel, Jordan, Lebanon, Macau,
Malaysia, Philippines, Singapore, Thailand, North Yemen.
socialist-oriented countries as reported by the USSR
actually fell from 1976 to 1980, and real imports from
the group declined continuously from 1975 to 1979.
Soviet terms of trade deteriorated by roughly the
same amount for trade with both groups of socialist-
oriented countries in the 1970s. The cumulative dete-
rioration from 1971 to 1981 ranged from 33 to 47
percent for the 19 socialist-oriented countries (see
table 3).
Real Soviet imports from oil-exporting LDCs declined
from 1978 to 1981, but real exports to these countries
have grown rapidly, although quite erratically. Much
of the fluctuation originates in reported exports to the
three principal oil-exporting countries-Iran, Iraq,
and Libya. Not surprisingly, Soviet terms of trade
with this group of countries have deteriorated by an
estimated 52 to 67 percent since 1971.
In contrast to sales to socialist-oriented clients and oil-
exporting LDCs, the volume of Soviet-reported ex-
ports "to all other" LDCs declined in the first half of
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the 1970s and has stagnated since 1975. In effect, the
dynamism in Soviet civilian exports has been confined
to the socialist-oriented clients and oil-exporting coun-
tries. Because of the USSR's booming imports of
foodstuffs since 1980, however, it is this "all other"
group of countries that has accounted for most of the
growth in Soviet real imports from the developing
world. In contrast to the other two groups, Soviet
terms of trade with this third-country grouping have
improved, although nearly all of the improvement has
Comparisons between the socialist-oriented and all
nonsocialist countries highlight the much more rapid
price increases received by the socialist-oriented group
on their exports to the Soviet Union. This could be
attributable to either differences in commodity com-
position or to conscious price discrimination on the
part of the Soviets. Also noteworthy are the consistent
reported trade surpluses that the USSR ran with the
socialist-oriented-particularly the core client-and
oil-exporting countries in the second half of the 1970s
contrasted with sizable reported deficits with "all
other" LDCs as a group.
Trade and the Payments Mechanism
Developing countries can also be categorized by the
type-of payments mechanism predominating in their
trade with the USSR-by hard or soft currency
clearing arrangements.' Three groups were examined:
(1) those with soft currency arrangements throughout
1971-81; (2) those that switched from soft to hard
currency clearing during the decade; and (3) countries
that traded on a hard currency basis throughout the
decade. (See appendix C for a list of the USSR's hard
and soft currency trading partners.)
The soft currency country group included four nations
that comprise the major LDC markets for Soviet
petroleum exports: Afghanistan, India, Turkey, and
Morocco. The group also included Egypt and Somalia
' The USSR maintains special agreements with selected LDCs that
permit the bilateral trade between the two countries to be settled in
the nonconvertible local currency of the LDC partner. Trade is
transacted through clearing accounts that are expected to be
balanced at the end of a given period, usually a year. Thus, the
USSR essentially barters its exports for imports from its trade
partner. Trade with all other LDCs is, for the most part, settled in
freely convertible currencies, such as US dollars, deutsche marks,
whose political and economic relations with the USSR
deteriorated sharply in the 1970s. Real exports to this
soft currency group declined in the first half of the
1970s and have remained consistent with the overall
growth of Soviet real "civilian" exports to the LDCs
since 1975. The growth of Soviet real imports from
the group, however, has lagged the overall average.
Soviet terms of trade with the group improved slightly
in the first half of the 1970s and also improved as a
whole during 1971-81.
Real exports to and imports from the group of
countries, which switched from soft to hard currency
clearing in the 1970s, have declined markedly in
recent years, raising the question of whether this
decline in trade was influenced by or contributed to
the termination of earlier soft currency payments
arrangements. Two of these countries, Ghana and
Mali, have been characterized by Soviet writers as
having deviated from or abandoned their earlier "so-
cialist orientation."
Soviet reported trade has flourished most with hard
currency trading partners. Real Soviet exports to
these countries have developed at an above-average
pace, and real Soviet imports from this group doubled
from 1979 to 1981, largely as the result of massive
grain and food imports. Soviet terms of trade with this
group deteriorated from 1971 to 1975, improved from
1976 to 1978, and have tended to deteriorate since
1978.
Trade Concentration
The degree of Soviet trade concentration among
major trade partners has declined over the past 20
years, but not at a remarkable rate. Soviet trade still
remains highly concentrated among its top partners,
although the largest partners tend to change over time
and can differ depending upon whether exports or
imports are being considered. In 1981, 59 percent of
Soviet exports to the LDCs went to just five countries,
with 79 percent going to 10 LDCs. Largely because of
the large increase in grain imports from Argentina in
1980 and 1981, 65 percent of all Soviet imports from
the developing countries in 1981 originated in five
countries, and 82 percent originated in just 10 LDCs.
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The Soviet share of the "civilian" exports and imports
of 85 developing countries were calculated for 1970-
72 and 1979-81, using LDC statistics compiled by the
IMF. These calculations suggest some degree of
deconcentration of LDC trade with the USSR during
the 1970s. Shares of trade with the USSR tended to
decline for Moscow's more important trade partners
and to increase for a number of other LDCs. Al-
though these calculations could not be made for all
LDC trade partners, very few developing countries
depend heavily on the Soviet Union as a trade partner.
The Soviet share of reported LDC imports declined
for twice as many countries as it increased in the
1970s. This trend, in conjunction with the concentra-
tion of Soviet import growth in the primary product
group, suggests that the economic interdependence of
the Soviet and LDC economies probably has in-
creased more slowly over the past 10 years than is
often perceived in the West.and claimed by the
Soviets (see table 4).
Determinants of Soviet-LDC Trade
The determinants of LDC trade with the Soviet
Union were examined in an econometric analysis of
the data developed in the first stage of the contract
research. Insufficient data, however, prevented de-
tailed estimations of supply-and-demand functions
and, therefore, the analysis was confined to a cross
section of LDC trade with the USSR in 1975. Other
things being equal, it was assumed that a given LDC
would trade more with the USSR: (1) the more it
trades with the world as a whole (a scale factor); (2)
.the more complementary its export/import structure
is with the import/export structure of the USSR; (3)
the closer it is geographically to the Soviet Union
(because of lower transaction costs and a greater
Soviet geopolitical interest); (4) if it is "socialist
oriented"; and (5) if it has a soft currency clearing
arrangement with the Soviet Union. Also, given the
Soviet stress on machinery and equipment exports in
aid agreements, it was further assumed that reported
exports might be negatively related to per capita GNP
in the developing countries.
Various functional formats incorporating the above
factors were used to construct a profile of Soviet
exports to and imports from two samples of develop-
ing countries in 1975: (1) all developing countries that
reported trade with the USSR, using IMF statistics
and (2) all LDCs with which the USSR reported trade
in 1975, using Soviet statistics.
The level of Soviet exports to individual LDCs was
found to be positively related to a country's total
imports, whether it had a "socialist orientation, " and
whether it had a soft currency clearing agreement
with the USSR. Soviet exports were also found to be
negatively related to distance from the USSR and to
the trading partner's per capita GNP. Curiously,
Soviet exports were also negatively but weakly related
to an index of complementarity.
On the import side, Soviet trade was found to be a
positive function of (1) complementarity; (2) the trade
partner's total exports; and (3) whether there was a
soft. currency clearing agreement between the two
countries. Soviet imports were negatively related to
distance and unrelated to either "socialist orienta-
tion" or per capita GNP level.
For both exports and imports, the differences in these
explanatory variables across countries explained in
each case from 60 to 80 percent of the total variation
in trade levels. The import and export equations tend
to confirm that even the pattern of civilian exports to
LDCs is more heavily influenced by political fac-
tors-as shown in the correlations with "socialist
orientation" and per capita income and the lack of
correlation with the complementarity index-than is
the pattern of Soviet imports from the developing
world. (See appendix D for more detailed information
on the methodology and statistical results.)
Price Discrimination in Soviet Trade
With the Developing Countries
Price discrimination by the USSR in its trade with
the developing countries is plausible for two basic
reasons. First, the Soviets might offer preferential
prices to selected LDCs considered to be political
and/or military allies. The existence of such price
discrimination is supported by the finding of Marrese
and Various that the pattern of implicit trade subsi-
dies in Soviet trade with the European CEMA mem-
bers correlates somewhat with their evaluation of the
political-strategic importance of these countries to the
Soviet Union.' Soviet concern with the "economic
'Marrese, M. and Vanous, J., Soviet Subsidization of Trade With
Eastern Europe, Berkley: Institute of International Studies, Uni-
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Table 4
Unweighted Average Soviet Share
of Individual Developing Country Exports
and Imports, 1970-72 and 1979-81
Soviet Share Soviet Share
of LDC Exports of LDC Imports
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Table 4
Unweighted Average Soviet Share
of Individual Developing Country Exports
and Imports, 1970-72 and 1979-81 (continued)
Soviet Share Soviet Share
of LDC Exports of LDC Imports
Mali
Malta
Virgin Islands
a 1972 only.
b Percentage shares are probably understated because the IMF
extrapolates data when information is incomplete.
c Reported as NA ("Not Available") here because available figure
is clearly of the wrong order of magnitude.
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burden" of Moscow's "extended empire" in the Third
World, including Cuba, Vietnam, Ethiopia, and Af-
ghanistan, is based in part on the presumption of price
calculating separate price discrimination indexes for:
(1) all commodities; (2) all commodities except petro-
leum and petroleum products; and (3) all commodities
except petroleum, petroleum products, and machinery
discrimination in favor of these countries.
A second basis for Soviet price discrimination is the
existence of bilateral clearing agreements with LDCs
that account for roughly one-half of identified Soviet
trade with the "nonsocialist" developing world. Al-
though the number of developing countries with
which the USSR trades predominantly on a soft
currency basis has declined in recent years, many of
its main LDC trade partners still deal with the Soviets
in this way. The monopoly power conferred to the
USSR and other large state-trading countries, which
gives them potential power to exercise price discrimi-
nation against smaller partners, was pointed out 40
years ago by such prominent international trade
theorists as Jacob Viner and Howard Ellis. The
USSR, however, might also use such agreements to
trade with certain countries at prices more favorable
to them than the prices obtainable on the world
market. This might explain why some LDCs have
clung tenaciously to these agreements while others
have let them lapse.
Data and Methodology
Significant data and methodological problems were
encountered in examining the issue of price discrimi-
nation. The proportion of trade for which quantities
are reported and for which unit values can be calcu-
lated fell sharply after 1975.
A second problem common to any study that relies on
reported foreign trade values and quantities to calcu-
late unit values is the possibility-and indeed the
probability-that the commodities traded with differ-
ent countries under a given commodity position, such
as a Communist Trade Nomenclature (CTN) number,
are not homogeneous. Much of Soviet trade with the
LDCs consists of primary products and intermediates,
however, and Soviet trade in consumer manufactures
with the LDCs is unlikely to feature significant
heterogeneity within commodity groups across coun-
tries. Consequently, there is little problem of hetero-
geneity within product groups CTN 2 to 9, with the
exception of CTN 21 and 22-trade in petroleum and
petroleum products. CTN 1 covers machinery and
equipment. The study addressed this problem by
and equipment.
A third problem stressed by Marrese and Vanous is
the tendency to focus simply on export and import
prices. The full measure of the importance of price
discrimination, in terms of the net implicit trade
subsidy involved, is obtained by weighting each price
differential by the quantities actually traded. There-
fore, the study took into account both prices and
quantities for both exports and imports.
Finally, there is the issue of benchmark prices. The
measurement of the implicit trade subsidy requires a
search for some common opportunity cost basis. Mar-
rese and Vanous used actual, or in many cases
"constructed," East-West trade prices as their mea-
sure of the alternative prices that the Soviet Union
could receive for its exports or that it would have to
pay for its imports. A different measure of price
discrimination was developed because: (1) there is
general skepticism of such constructed prices, espe-
cially for machinery and equipment; (2) much of
Soviet-LDC trade may be even less homogeneous
than is Soviet/East European trade relative to Soviet
trade with the West; and (3) interest centers primarily
on the pattern of possible Soviet price discrimination
among the developing countries.
Specifically, Soviet price discrimination was exam-
ined among the group of LDCs that includes the three
non-European members of CEMA (Cuba, Mongolia,
and Vietnam) and three other LDCs classified as
"socialist" in Soviet foreign trade statistics (China,
Laos, and North Korea). The benchmark used was the
weighted average price at which each commodity is
traded in Soviet-LDC trade. The resulting net relative
measure of implicit trade subsidies that is calculated
for each Soviet LDC trade partner has the theoreti-
cally appealing property that the sum of all such
country subsidies is equal to zero. These implicit trade
subsidies were calculated for each LDC for 1970,
1975, and 1980. (See appendix E for a more detailed
description of the methodology used to calculate price
discrimination.)
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Results
Only three somewhat consistent patterns of Soviet
relative price discrimination emerged in the study.
First, relative price discrimination in favor of the
three LDC members of CEMA was apparent in 1980
in terms of trade-normalized relative trade subsidies
and for all three years-1970, 1975, and 1980-when
these relative subsidies were measured against trading
partners' population or GNP. Second, relative price
discrimination against soft currency clearing agree-
ment trade partners was apparent in 1970 and 1975,
particularly in terms of trade-normalized relative
subsidies. Third, countries with a "socialist orienta-
tion" appeared to be systematically discriminated
against in 1975 on the basis of trade-normalized
relative trade subsidies.
This evidence of relative price discrimination in favor
of CEMA members and against socialist-oriented and
soft currency trade partners may be provisionally
interpreted as follows. The Soviet Union would appear
to be price discriminating in favor of LDC members
of CEMA, perhaps increasingly over time. This dis-
crimination probably results from a combination of
political factors and the inertia built into the intra-
CEMA foreign trade price system. It conforms both
to anecdotal accounts and to conventional calculations
of trade subsidies to Cuba in sugar and oil and also is
consistent with the Marrese and Vanous perception of
massive absolute implicit trade subsidies in Soviet
trade with the European members of CEMA.
In the past the Soviet Union may have systematically
discriminated against the socialist-oriented and soft
currency countries. Given the presumed "socialist
orientation" of the first group and the close Soviet
political relationship with members of the second
group-for example, Afghanistan, India, and Syria-
it is difficult to believe that this discrimination was
the conscious result of political factors. A more
plausible explanation might be that historically these
countries have encountered greater difficulties, for a
variety of reasons, in gaining access to world markets
at favorable prices than have the oil-exporting coun-
tries or "all other" developing countries. (The latter
group is composed mainly of Southeast Asian newly
industrialized countries [NICs] and a number of Latin
American and African exporters of minerals and
foodstuffs.) The Soviets may be forced to trade pri-
marily at world market prices with the NICs. Soviet
trade with the socialist-oriented and soft currency
countries, on the other hand, may systematically
enable the USSR to command higher export and
lower import prices. In effect, the USSR may have
considerable bilateral bargaining power with these
countries, and this may be reinforced by the strongly
bilateral nature of their trading relationships. F_
If indeed the Soviets have tended to discriminate
against their soft currency clearing partners, one may
wonder why these countries might continue to press
the USSR to maintain these agreements, as Soviet
analysts claim. Two qualifications should be noted,
however, to the findings. First, there is no econometric
evidence that either the socialist-oriented or the soft
currency countries were still being systematically
discriminated against in 1980. Second, soft currency
agreements have been terminated with several LDCs
since 1975. This could have represented LDC re-
sponse to perceived price discrimination against them.
On balance, the pattern of Soviet relative price dis-
crimination that emerged in identified trade was not
always clear and not particularly consistent across
the three years examined. Furthermore, an economet-
ric analysis of the determinants of the pattern of,
relative subsidization across countries was not very
successful. One possible reason for this lack of success
may be that the proxies for political and economic
explanatory factors, usually in the form of country
group dummy variables, were simply not precise
enough and failed to differentiate adequately among
individual developing countries.
Another possibility is that, despite efforts to achieve
commodity homogeneity across countries, significant
heterogeneity remains. Large measured price differ-
entials may have been simply the result of such
heterogeneity and not price discrimination. Differ-
ences in timing of Soviet imports in the course of a
given year could also explain many observed price
differentials across countries, particularly in the case
of primary products such as sugar. Both product
heterogeneity and timing differences could be seen as
significant random elements that may have negated
most of the impact of political and market-structure
determinants on Soviet price discrimination.
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Growth and Stability of Soviet
Imports of Primary Products
The Soviets have long claimed that the USSR, and
the "socialist" countries more generally, represent
relatively fast-growing and stable markets for the
primary product exports of the developing countries.
This was a common assertion in Soviet writings of the
1950s and 1960s, and it was frequently voiced in the
United Nations Conference on Trade and Develop-
ment (UNCTAD) forums in the 1970s.
Previous Investigations
In terms of methodology and product coverage, the
contract research replicates earlier work of Egon
Neuberger, who examined these issues for 1955-61,
and of Philip Hanson, whose study focused on 1960-
68.8 Soviet imports during 1960-81 were examined, as
well as in the two subperiods, 1960-70 and 1971-81.
Comparing the Soviet Union with a group of Western
countries for the late 1950s, Neuberger found that the
USSR was a relatively small market for LDC exports
of primary products. Perhaps for that very reason, the
Soviet Union was a relatively rapidly growing market
as well as a relatively unstable one in terms of annual
fluctuations of unit values and LDC export revenue.
Hanson found that, during 1960-70, the USSR was
still a relatively fast-growing market for LDC exports
compared with certain Western countries but that its
"margin of superiority" in this respect was "not very
great." Soviet imports, in terms of both volume and
value, were still relatively unstable, but Hanson ar-
gued that the instability was not significant. Hanson
concluded that the evidence "hardly seems to support
the view that there is a substantial and interesting
difference between the two kinds of economic systems
(Soviet type versus market type) as importers of
primary products in the stability of their import flows,
as conventionally measured."
'Neuberger, Egon, "Is the USSR Superior to the West as a Market
for Primary Products?", Review of Economics and Statistics, vol.
46, 1964. Hanson, Philip, "The Size, Growth, and Stability of the
Soviet Market for Primary Products," Jahrbuch der Wirtscha t
Data and Procedures
The so-called core commodities included in the
UNCTAD Integrated Program for Commodities were
used as the basis for product selection. The stabiliza-
tion of sales of these commodities is of particular
interest to the developing countries. The commodity
coverage of this study is compared with the
UNCTAD list and those of the earlier Neuberger and
Hanson studies.
Consistent and comprehensive 1960-81 trade data for
the Soviet Union and the three main Western trading
nations-West Germany, Japan, and the United
States-were available in trade statistics published by
the Food and Agriculture Organization of the United
Nations (FAO) for seven of the 10 UNCTAD "core"
commodities: raw sugar, coffee, cocoa beans, tea,
natural rubber, raw cotton, and jute. Also analyzed
were rice and tobacco, two other commodities origi-
nally examined by Neuberger and for which consis-
tent and comprehensive FAO data were available.
Developing countries account for a majority of world
exports in most of these products and for more than
95 percent of world exports in four of the commod-
ities.
Results
The Soviet Union accounted for only 16.7 percent of
combined four-country-United States, West Germa-
ny, Japan, USSR-imports of the nine sampled pri-
mary products during 1960-70. In terms of the sum of
individual size-of-market rankings by product, the
USSR ranked third after the United States and West
Germany. During 1971-81, however, Soviet imports
amounted to 23.2 percent of combined imports, and
the USSR was tied for first place with the United
States in terms of the sum of individual size-of-
market rankings by product.
The study found that the Soviet Union ranked second
among the four countries examined in terms of real
growth of primary product imports over the entire
period. In the 1970s the USSR narrowed the lead of
first-place Japan in this regard, and, for that decade
as well as the entire 1960-81 period, the Soviet
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Table 5
Estimated. Average Annual Growth Rates
of Selected Real Raw Material
Imports From Developing Countries, 1960-81
United States
West Germany
Japan
Soviet Union
1960-70
1971-81
1960-70
1971-81
1960-70
1971-81
1960-70
1971-81
-25.9
12.0
Sum of rankings
28.0
27.0
26.5
23.5
14.0
19.0
21.5
20.5
Overall ranking
4.0
4.0
3.0
3.0
1.0
1.0
2.0
2.0
a Estimated growth rates are only shown if they are statistically
significantly different from zero at least at the 20-percent level.
market grew more rapidly than that of the median
Western country. As shown in table 5, during this
period Soviet real imports grew at relatively high
rates for rice (particularly in the 1970s), sugar (1970s),
cocoa beans (1960s), and jute (1960s and 1970s).0
Weak evidence was found suggesting that Soviet real
imports of primary products were relatively variable
compared with those of median Western importing
.countries in 1960-81.9 Although the USSR ranked
last in terms of variability of real imports in the
1970s, the differences in this case were not great
enough to be statistically significant. Soviet imports
became absolutely less variable in terms of the meas-
ured stability indexes for six of the nine products
during the 1960s and 1970s.
' The measure for stability of the volume imports, unit values, and
total import values in the study was the modified coefficient of
variation index used in the Neuberger and Hanson studies. The
coefficient of variation was modified so that the standard deviation
was calculated with respect to the estimated trend, rather than the
mean value of import volume, unit value, and total import value,
respectively. The rankings and statistical significance of the results
were essentially the same regardless of whether linear or nonlinear
estimating techniques were used or the rankings were weighted by
The slightly reduced relative variability of Soviet unit
values in the 1970s appears to explain the diminished
relative variability of Soviet total import values in this
decade. Soviet import values were significantly more
variable than those of the median Western country in
the 1960s, but since then they have not been signifi-
cantly more variable than the Western median.
No systematic relationship was found between stabil-
ity indexes and the average values of import volumes,
unit values, or total trade values, respectively. The
empirical results, therefore, suggest that the explana-
tion for any apparent Soviet variability probably lays
in differences in the Soviet foreign trade system
and/or Soviet foreign trade policies and not in market
size differences.
In sum, examination of more than 20 years of Soviet
imports of primary products suggests some slight
relative improvement in the stability of the prices the
USSR pays for LDC exports, although it still must
be considered as essentially no different from that of
the Western market economies. The volumes of Soviet
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imports of these products continue to be a bit more
variable than those of the median Western country,
but they are relatively less variable than before. In the
1970s Soviet import volumes could not be considered
to be more variable than the real imports of the
median market economy. The net result of these
trends in relative variability of Soviet real imports and
import prices has been to reduce the variability of
Soviet import values from clearly above average in the
1960s to essentially average levels in the past decade.
Thus, the stability of Soviet import behavior (prices,
volume, and value) with respect to primary products is
now more similar to that of the major Western
trading countries than it was in the 1960s.
The Role of Bilateral
Clearing Agreements
The importance of bilateral clearing agreements in
explaining Soviet trade patterns with developing
countries was also assessed. This is comparable to
asking whether bilateral clearing agreements serve a
useful purpose, because such agreements presumably
are valued at least partly for the effect that they are
perceived to have on trade.
Sample
The sample distinguished between the USSR's soft
currency (SC) and hard currency (HC) developing
country trade partners. The distinction referred to the
difference between hard and soft currency LDC trade
partners of the USSR. Although the soft currency
trade partners maintain bilateral clearing agreements
with the Soviet Union, it was neither assumed that all
Soviet trade with these countries was transacted
through the formal clearing mechanisms, nor that all
trade with supposedly HC trade partners was settled
in convertible currencies.
The SC trade partners considered in this study are the
same as those identified previously. As mentioned in
that discussion, the number of SC partners has de-
clined since the early 1970s. For the most part,
therefore, the study focused on the 10 "core" nonso-
cialist (Soviet definition) SC countries, namely those
developing countries that apparently still maintained
bilateral clearing agreements with the Soviet Union
as of 1980.10 According to Soviet sources, by 1983 this
core group had been further reduced to just six
countries: Afghanistan, India, Iran, Pakistan, Syria,
and Egypt." The study does not include the six
"socialist" LDC trade partners-Cuba, Mongolia,
Vietnam, Laos, North Korea, and China-each of
which is commonly believed to do business with the
USSR on the basis of bilateral clearing agreements.
These countries were excluded to isolate the marginal
effect of bilateral clearing agreements on Soviet trade
with countries that do not have centrally planned
economies.
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The report was organized around six plausible expla-
nations, none mutually exclusive, for the existence of
bilateral clearing agreements between certain devel-
oping countries and the Soviet Union. In all but one
case, these explanations were tested and the empirical
results used as a basis for judging the relative persua-
siveness of these different arguments. While the im-
pact of bilateral clearing agreements per se on Soviet-
LDC trade flows could not be isolated, it was possible
to demonstrate that Soviet trade with countries hav- 25X1
ing bilateral clearing agreements with the USSR is
different in some fundamental respects from Soviet
trade with other developing countries.
The first explanation explored was the traditional
rationale for bilateral clearing agreements: they rep-
resent a second-best way for countries with exchange
controls to push trade, and presumably economic
welfare, above the levels that would be possible if all
trade were conducted on a convertible currency basis.
The cross-section regressions for 1975 from the report
indicated that LDC trade levels with the Soviet Union
were higher for SC trading partners. Whether the
clearing agreements were responsible for the higher
levels of trade, however, was not clear. Furthermore,
although roughly half of the HC exporters to the
Soviet Union in 1980 were reported by the IMF as
Egypt, Guinea, and Morocco.
" The Annual Report on Exchange Restrictions for 1983, published
by the International Monetary Fund, indicates that Bangladesh
continues to maintain a bilateral clearing account with the USSR.
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maintaining "restrictions on payments for current
transactions," all of the SC trade partners of the
Soviet Union were so designated.
The finding for the SC countries is consistent with the
trade expansion argument, but the question remains
why the other exchange control countries did not have
bilateral clearing agreements with the Soviet Union.
Moreover, the countries that no longer had clearing
agreements with the USSR during 1970-83 were not
reported by the IMF as having eliminated the ex-
change controls. It should be noted, however, that the
IMF designations are very rough and probably cannot
be used to measure precisely the relative severity of
exchange controls across countries.
An implicit assumption that often seems to underlie
the second-best argument for bilateral clearing agree-
ments is that the signatory countries have a range of
exportables that fall into the category of "soft goods"
in Soviet-East European parlance. Considering ma-
chinery and equipment and manufactured consumer
goods to be the preeminent soft goods, in 1980 the SC
trade partners of the USSR had an above-average
proportion of "soft goods" in their exports to the
Soviet Union. Taken together, these rather crude
empirical measures do provide some support for the
trade expansion argument, but the evidence is certain-
ly nothing more than indicative.
A related argument would be that bilateral clearing
agreements facilitate LDC export diversification,
which might be a policy objective of some developing
countries. By two measures of export diversification,
SC exports to the Soviet Union in 1980 were signifi-
cantly more diversified than those of equally large HC
exporters to the USSR. It could not be shown that the
clearing agreements encouraged this greater diversifi-
cation, but the correlation is very suggestive. Relative
export diversification does not appear to be a good
predictor, however, of whether clearing agreements
will be allowed to lapse.
Another attraction of bilateral clearing agreements to
developing countries might be the perception that
LDC exports to the Soviet market will grow more
rapidly if they are paid for on a soft currency clearing
basis. Neither overall trends in Soviet imports in the
latter half of the 1970s, however, nor detailed com-
parisons for 1965-77 for individual countries yield any
evidence that clearing agreements facilitate the
growth in exports to the USSR.
The possibility that developing countries having bilat-
eral clearing agreements with the Soviet Union might
obtain better terms of trade was also examined. The
SC trading partners as a group actually suffered a
deterioration in their terms of trade with the USSR in
the 1970s, and the HC group's terms of trade im-
proved. Price trends in Soviet petroleum trade obvi-
ously played a big role in this divergence, while
clearing agreements probably had little influence.F-
As discussed earlier, no evidence could be found of
Soviet price discrimination in favor of the SC coun-
tries. On the contrary, some weak evidence was found
of price discrimination against this group of countries
in 1970 and 1975 but not in 1980. This finding of
possible relative price discrimination against the SC
countries does not rule out the possibility that: (1) the
USSR provided absolute Soviet implicit trade subsi-
dies to these countries, using average world market
prices as a benchmark; (2) the SC group might have
obtained better prices in trade with the Soviets than
they could actually get on the world market for their
marginal deliveries (purchases); or (3) prices in trade
with the USSR are more predictable, if not actually
more favorable on average, in the context of bilateral
trade agreements than those available on the world
market.
The Soviet Union might have used its bilateral mo-
nopoly power with clearing agreement partners to
obtain favorable prices for itself, while the partners
received benefits in terms of trade expansion, diversi-
fication, and stability. As noted previously, however,
any systematic relative price discrimination against
SC countries may have had less to do with the
clearing agreements than with the greater difficulty
that these countries have had in gaining access to
world markets, compared with oil-exporting countries,
the NICs, and various Latin American and African
exporters of minerals and foodstuffs.
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Finally, the argument that clearing agreements foster
stability in LDC exports was investigated. As it
turned out, the SC countries as a group experienced
about the same degree of instability in export unit
values and in the volume and value of trade with the
USSR during 1975-81 as did the HC group in the
aggregate. "
A more refined test of instability was made for 1965-
77 using calculated "fluctuation indexes" for individ-
ual SC and HC country exports, respectively, to the
Soviet and world markets. The results of this test
point to the stabilizing benefits of clearing agree-
ments. The mean fluctuation indexes for the two
country groups for nominal exports to the world
market were virtually identical. HC exports to the
Soviet market were more than twice as unstable,
according to this index, than were HC country exports
to the world. This is not surprising, given the much
greater size of overall exports of these countries to the
world at large. More surprising was that SC exports
to the Soviet market were less than half as unstable as
SC exports to the larger world market. In both of
these two comparisons, the mean fluctuation indexes
were statistically significantly different.
Summary
Strong evidence was found that, when compared with
LDCs that do not have bilateral clearing agreements
with the USSR, those LDCs that do have such
agreements: (1) are more likely to have exchange
controls; (2) trade more with the Soviets; (3) have a
relatively high proportion of "soft goods" in their
exports to the USSR; (4) have more diverse export
structures in trade with the Soviet Union; and (5) have
a record of greater stability of exports to the Soviet
market, both compared with the HC group's exports
to the USSR and, more importantly, compared with
SC exports to the larger world market.
The first three findings tend to support the conven-
tional trade expansion explanation for clearing agree-
ments as a second-best policy of promoting economic
welfare through expanded trade in the presence of
exchange controls. The next two, which deal with the
diversity and stability of LDC exports to the USSR,
may be related and provide plausible and empirically
persuasive reasons for these countries to have entered
into and/or to have clung to bilateral clearing agree-
ments with the Soviets.
No evidence has been found: (1) that LDCs with
bilateral clearing agreements with the USSR have
received preferential prices in trade with the Soviet
Union compared with the prices available to the
USSR's HC trade partners among the LDCs; or (2)
that the clearing agreements have facilitated faster
growth of LDC exports to the Soviet Union. Unfortu-
nately, no relatively low-cost way could be found to
test the trade predictability argument for clearing
agreements. Although there are positive correlations
between the existence of bilateral clearing agreements
and the volume of LDC exports to the USSR, the
diversity and stability of these exports, and the pro-
portion of soft goods in the exports, we cannot be
certain that the existence of bilateral clearing agree-
ments explains these results in every case. Moreover,
we have not found a correlation between changes in
these measures and the termination of clearing agree-
ments with the Soviet Union.
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Appendix A
Methodology for Calculating
Price and Quantity Indexes
Paasche unit value (hereafter referred to as "price")
indexes for Soviet trade with the developing countries
were chosen for two reasons. First, there was an
overriding need to select indexes that were method-
ologically congruent with the quantity indexes em-
ployed in official Soviet foreign trade statistical publi-
cations. This would permit the use of results in
conjunction with Soviet-produced indexes for certain
analytical purposes.
Second, although ideally the construction of both
Paasche and Laspeyres indexes would be desirable for
purposes of delimiting export and import prices and
real trade trends, the highly labor-intensive nature of
the project precluded calculation of both types of
index-that is, all data had to be extracted from
statistical publications, and disaggregated price index
calculations were done by hand. While using just one
index may give biased estimates of price and real
trade movements, this problem is probably only poten-
tially significant for the 1971-75 subperiod.
Overall Paasche price indexes were calculated for
both exports and imports. The overall index for period
t relative to some base period, o, is defined as:
; 2 Phi hi
hi
Pt(o) - P?. Qt
h j h' h'
where P {,o, is the Paasche price index for commodity
group i traded with country j, X . is the value weight
for commodity group i in total trade with j in period t,
Xi is the value weight for country j in total Soviet trade
with LDCs in period t, and 1 / ~(X i/P'>+(o) ) would be
the Paasche price index for total trade with country j
in period t, or P{(.).
Individual nonresidual commodity group Paasche
price indexes for each country were first aggregated
into a single country index according to expression (3):
Pi t(o) -
t(o)
t(o)
Only if the utilized unit value sample for CTN 3 to 9
accounted for more than 25 percent of a country's
total identified CTN 3-9 exports (imports) were com-
modities in this group included in this aggregation
stage. Except for 1975/71 index, the exclusion of
some countries' CTN 3 to 9 trade on this criterion had
little impact on the aggregate value of "utilized"
trade. For both exports and imports the total value of
utilized,trade always exceeded 96 percent of the total
value of identified trade after 1975.
The second aggregation stage involved aggregating
these country indexes in accordance with expression
(2). For exports, two aggregate price indexes were
derived: one for "identified" exports (I), constructed
as above, and one for residual exports (R). The overall
export price index was then calculated according to
expression (4):
where Pt(o) is the overall Paasche price index, Phi, and
Qhl refers to the unit value and quantity, respectively,
of the hth commodity traded with the jth country, and
superscripts t and o refer to the current and base
periods, respectively. Expression (1) may be rewritten
as:
Pt(o)
Xjt 2; nll
j i Pt(o)
(2) o nl E J + PR
to t(o)
(4)
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where Al and AR are the value weights for total
identified and total residual exports, respectively, and
P R o,. is the assumed price index for residual exports.
Derivation of Laspeyres
Quantity Indexes and
the Terms of Trade
The Laspeyres, or base-year weighted quantity index,
is equal to the value index (Vt,o)) divided by the
Paasche price index:
2; 2; PhjQhj
V0,
and where it is positive if the product is a Soviet
importable and RS; j