International Journal of Management and Economics Fundamental
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VOLUME
Vol.05 Issue 06 2025
PAGE NO.
129-150
10.37547/ijmef/Volume05Issue06-27
Economic Performance of Kazakhstan And Uzbekistan
Since Independence: Impacts Of Selected Economic
Policies And Institutions
Gafurov Khurshid
Senior lecturer at Kokand University, Uzbekistan
Received:
30 April 2025;
Accepted:
28 May 2025;
Published:
30 June 2025
Abstract:
The article examines factors impacting countries' economic performance, focusing on Kazakhstan and
Uzbekistan. Despite shared culture and region, Kazakhstan's superior economic growth is attributed to divergent
economic policies and institutions following independence. Kazakhstan embraced radical transition, liberalizing
its economy, trade, and currency for increased FDI and private sector involvement. In contrast, Uzbekistan
adopted a neutral strategy with controlled policies and institutions, hindering FDI and private sector growth.
Correlation analysis confirms a positive link between Kazakhstan's GDP growth and the quality of economic
institutions and a negative link for Uzbekistan.
Keywords:
Economic development, Uzbekistan, Kazakhstan, economic policy, institutions.
Introduction:
The End of the Cold War, which lasted
almost four decades, defined a critical point for the
Central Asian region. With the total collapse of the
communist regime, several independent states
emerged in Central Asia’s political map. Although the
region has a long history of statehood, the Soviet legacy
had an enormous impact on the political and economic
structure of the region.
This article will specifically focus on the economic
transition and the subsequent economic performance
of the two neighboring countries, Kazakhstan, and
Uzbekistan.
Kazakhstan and Uzbekistan are two “big” powers of
Central Asia, which have been the most politically and
socially stable countries of the region for the last 28
years.
Notably,
although
countries
became
independent almost simultaneously, they had quite
different economic performances. They both claim
hegemony in the region yet regarding economic
development, Uzbekistan is far behind its regional rival.
What are the main causes of the comparatively low
economic performance of Uzbekistan? Were the
different transition approaches the main cause of
different economic performances? Why have
governments of newly independent states chosen a
different approach to economic development?
This article argues that the comparatively poor
economic performance of Uzbekistan was due to the
economic institutions and economic policies that the
government has chosen. The article also argues that
the governments chose different paths mainly because
of different political and economic conditions in the
initial years of independence.
The primary aim of the research is to analyze the effect
of policies and economic institutions on the economic
performance of Uzbekistan and Kazakhstan and to
explain the adoption of different economic institutions
and policies by the governments.
THEORIES AND LITERATURE
Generally, four leading theories in the political
economy attempt to explain factors influencing
countries’ economic development: Culture theories,
Geography theories, Policy theories, and Institutional
theories.
Scholars are long aware of the impacts of these factors
on economic growth. A pioneer in the study of
economic growth, Moses Abramowitz stated that
economic development “is a social process that cannot
be completed unless the state creates economic
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
institutions, fosters social behavior, and pursues
policies favorable to economic development” (Gilpin
2001: 332).
Uzbekistan and Kazakhstan generally share similar
history, culture, and geographical location. Thus,
neither cultural nor geography theories are suitable to
explain differences in economic performance between
the countries.
The policy theories of sustainable economic growth
were paradigms in the field of economic development.
Also, the policy theories of economic development are
the most researched, debated, and controversial
theories
among
the
theories
of
economic
development. Robert M. Solow whose work has been a
starting point for other more recent neoclassical
economists, conducted prominent studies on policy
effects of economic growth (Solow 1956).
Generally, there are three economic models on strong
policy effects: the neoclassical model, increasing
returns to scale, and constant returns to scale (Easterly
2005). Overall, economic models assert that to
stimulate growth a government should cut the tax rate,
which in turn will raise saving, and investment in capital
and vice versa.
There is a separate field of transition economics, which
studies the economic performance and the policies of
the countries that are in the transitional phase to the
market economy. The scholars of this field distinguish
two main types of transition strategies: radical and
gradual.
Although some articles asserted that there is no clear
evidence that Central Asian countries have strictly
applied one of the models during the transition (Hoen
2010) and Uzbekistan’s approach even could be
described as neutral (Iwasaki and Suzuki 2015), this
article argues that the countries’ transition strategies
are indeed quite different.
In addition, there are contrasting arguments about the
policy effects of the economic performance of the
countries and an insignificantly small number of papers
have tried to investigate the countries’ performance
through the prism of the transition models after 2000.
Therefore, this article attempts to reveal the effects of
chosen transition models and economic policies on the
economic performance of the countries.
The next in the review is the theoretical approaches of
institutional academics.
Institutional theories try to explain different rates of
economic
development
by
the
institutional
arrangement of society. They assert that the structure
of economic and political institutions of society defines
the future of the economy in the first place. The idea is
not recent and goes far back to Adam Smith.
Almost all scholars in the field of economic
development unanimously agree that institutions
matter for growth. Without a proper institutional
arrangement, no market-type economy could operate.
Interestingly, there are scholarly works within the
transition debate, which emphasize the role of
institutions. Institutional gradualism emphasizes the
establishment of market institutions such as property
rights and the rule of law. Similarly, with Acemoglu and
Robinson (2012), the proponents of the approach
assert that no policy change (particularly price
liberalization and privatization) could be made unless
those institutions have been built. In addition, the
pioneer scholars in the field stated that in the transition
process, former socialist countries should focus on
property rights and law enforcement. Other scholars
mentioned a strong central state to promote reforms,
and strong institutions to mitigate the side effects of
the liberalization process. For them, consistency among
different institutions is more important than reform
speed for a successful economic transition (Iwasaki and
Suzuki 2015).
Popov (2001) presented quite a different approach to
the transition process. He asserted that the debate
between shock therapists and gradualists is largely
“misfocused”. The debate neglected the role of strong
state institutions, which were crucial in explaining the
economic performance of the transition countries until
2001. The article argues that differences in the
economic performance of the transition countries were
due to different institutional strengths rather than the
rate and speed of liberalization. Thus, the debate about
rapid and gradual transition is not quite right.
Irrespective of the rapid or gradual transition
strategies, the state institutions should be strong
enough to enforce the rule of law, secure property
rights, etc.
Irnazarov (2009) has written another paper on the
influence of economic institutions on economic
growth. After mentioning the initial years and
“prominent” causes of d
ifferent performances, the
author switched to the performance in the second
decade and argued that the political elites of
Kazakhstan and Uzbekistan had pursued different
economic institutions, which were one of the primary
causes of the entirely different economic outcome.
However, existing institutional approaches to the
transition process failed to provide a more precise
analysis of institutions. They merely divided them into
formal and informal institutions (Popov 2001, Popov
2009) while institutional theories clearly distinguish the
economic institutions that affect economic growth
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such as property rights, rule of law or contract
enforcement, labor market institutions, institutions of
corruption control, and so forth. Thus, it is an agenda
to combine the works of the institutionalists and
transitional institutionalists for more accurately
analyzing the economic performance of the transition
economies and to reveal the crucial factors that affect
economic performance.
THEORETICAL FRAMEWORK
The main analytical conjecture for policy factors is that
chosen transition strategies affected countries’
economic policies which in turn affected the economic
performance (or economic growth) of the countries
through the rate of productivity of the private sector.
Selected policy variables are Industrial, Trade, and
Currency Exchange policies. I selected these policies
among other policies because they sufficiently
represent policies, which are listed in “Washington
Consensus” reco
mmendations (Williamson 1993).
The selected institutional variables are Private Property
Rights, Labor Market Institutions, the Institutions of
Corruption Control, and Rule of Law. These institutional
factors are essential in building a business-friendly
environment in a society. Proper institutional
arrangement of a society affects economic
performance by boosting productivity in the private
sector.
There are various definitions of economic institutions.
However, this article defines economic institutions as
institutions or institutional arrangements that aim to
create a favorable environment for business in an
economy. Thus, components that represent economic
institutions are as follows: Private Property Rights,
Labor Freedom, Control of Corruption, and Rule of Law.
METHODOLOGY
To explain the major causes of the low economic
performance of Uzbekistan paper conducted a
comparative analysis. In this case, Uzbekistan and
Kazakhstan are the countries that share a similar
culture, history, and location. In addition, at the time of
independence, both countries faced almost identical
cultural and geographical impediments to economic
development. Therefore, it is appropriate to compare
countries’ institutional and policy patterns during the
investigated period.
Among the five states of Central Asia, Kazakhstan and
Uzbekistan were selected because they have been the
most politically stable countries in the region for 26
years of independence. Only those countries could
carry out the market reforms since independence.
Other states, namely Tajikistan and Kyrgyzstan,
suffered from political and social chaos for several
years, which were the apparent impediments to
economic reform and growth, while Turkmenistan has
not accomplished significant reforms at all. The recent
notable GDP growth of Turkmenistan is rather the
result of exploiting and exporting the vast natural gas
resources than the outcome of economic reforms. The
presence of political stability, in the selected countries,
will help to limit factors influencing the process of
economic reforms and economic growth.
All relevant data has been obtained from the internet
resources of well-known international organizations,
regional intergovernmental organizations, government
websites, related articles, and magazines. Mainly, the
article relies on data from EBRD’s Transition Report
(EBRD 1994-2016), The Worldwide Governance
Indicators (World Bank 2018) and the Index of
Economic Freedom by the Heritage Foundation (The
Heritage Foundation 2019). It is worth noting that only
specific measures that related to the topic were taken
from the reports. In addition, data from various
websites was used.
To examine which, factor or factors affected the
economic performance of the countries, the Most
Similar Systems Design was applied. The logic of the
method is “based on selecting countries that share
many important characteristics but differ in one crucial
respect” (Halperin and Heath 2012: 210). In our case,
the countries share similar culture, history, and
geography but differ in chosen policies and economic
institutions, which presumably caused different rates
of economic development. It must be confusing for the
reader that instead of one factor the article will analyze
differences in two factors. However, if take into
account
that the countries are “countries in transition”
to a market economy, it is appropriate to consider
those factors as “two sides of one coin”. Neither
policies are effective without proper market
institutions nor will institutions alone (without proper
policies) cause economic growth. To succeed, countries
should have both market-friendly policies and
sufficient market institutions.
The arguments of the paper derive from institutional
and policy theories, thus related institutions and
economic policies of the countries were compared.
Particularly, the institutions of Private Property Rights,
Labor Market, Rule of Law, and Corruption Control
have chosen to conduct a comparative analysis. These
institutions have been chosen because they got equal
attention from scholars of economic institutionalism
and market transition. Although other economic
institutions like institutions of banking and finance are
also important for market-based economies, the
institutions listed above have been selected because
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they are economic institutions that are required to
build a market economy in the first place.
To measure the Private Property Rights conditions, the
article uses the Property Rights component of the Index
of Economic Freedom from the Heritage Foundation
(2019). Data has been aggregated for the period from
1998 to 2016. The component includes the
measurement of physical property rights, intellectual
property rights, the strength of investors’ protection
against the risk of expropriation, and the quality of land
administration. To put it another way, the Private
Property Rights variable measures to what extent the
private property is secured from confiscation and illegal
seizure by the state. Countries’ performance is
assessed by a 100-point system. The better the private
property rights protection in a country, the higher the
country’s score will be, and vice versa.
Next, the Labor Freedom component of the Index of
Economic Freedom from the Heritage Foundation
(2019) is a quantitative measure that considers various
aspects of the legal and regulatory framework of a
country’s
labor
market,
including
regulations
concerning minimum wages, laws inhibiting layoffs,
severance requirements, and measurable regulatory
restraints on hiring and hours worked, plus the labor
force participation rate as an indicative measure of
employment opportunities in the labor market. The
Labor Freedom component of the index represents the
average score (between 0 to 100) of a country on the
following sub-factors: The ratio of the minimum wage
to the average value added per worker, a hindrance to
hiring additional workers, the rigidity of hours, difficulty
of firing redundant employees, legally mandated notice
period, mandatory severance pays, and labor force
participation rate. Data has been aggregated for the
period from 2005 to 2016.
The third index, the Control of Corruption index, relies
on the World Bank’s (2018) “The Worldwide
Governance Indicators”. Data has been aggregated for
the period from 1996 to 2016. The Control of
Corruption Inde
x measures to what extent “public
power is exercised for private gain, including both petty
and grand forms of corruption, as well as “capture” of
the state by elites and private interests” (World Bank
2018). In addition, unlike previous components, this
index reflects real aggregated evidence about the
presence or absence of corruption in a country.
Similarly, the last index, the Rule of Law index, relies on
the Worldwide Governance Indicators. Data has been
aggregated for the period from 1996 to 2016. The Rule
of Law index “reflects perceptions of the extent to
1
Here, x and y refer to the variables, while
x
and
y
which agents have confidence in and abide by the rules
of society and in particular the quality of contract
enforcement, property rights, the police, and the
courts, as well as the likelihood of cr
ime and violence”
(World Bank 2018).
It is necessary to note that the Control of Corruption
and Rule of Law indexes were estimated differently and
ranged from -2.5 (weak) to 2.5 (strong) performance
(World Bank 2018).
Furthermore, to estimate the correlation between GDP
growth and institutional quality, the article used the
Pearson Correlation analysis. The Pearson correlation
coefficient measures the degree and the direction of
the linear relationship between two variables
(Gravetter and Wallnau 2014). The general formula to
estimate the Pearson Correlation Coefficient is next:
𝑟 =
𝑆𝑃
√𝑠𝑠
𝑥
𝑠𝑠
𝑦
Or more simply
1
,
𝑟 =
∑
((𝑥 − 𝑥) (𝑦 − 𝑦))
√∑
(𝑥 − 𝑥)
2
∑
(𝑦 − 𝑦)
2
The scale of the correlation in Pearson’s Correlation
Analysis ranges from 0 to 1.00 (ibid.). The further the
correlation coefficient (r) from zero, the stronger the
correlation. The correlation coefficient equal to zero
means that there is no correlation between variables. If
the correlation coefficient has a minus (-) sign, the
correlation is negative. If the correlation has a positive
sign (+), the correlation is positive. There are no clear
definitions of which correlation coefficient means
weak, or moderate, or significant relationship.
However, Gravetter and Wallnau (2014) estimated
r=0.5 as a moderate and r=0.8 a strong correlation.
Based on this estimate, I treated the correlation results
as follows: if r<0.5 the correlation is insignificant; if
r≤0.5 correlation is significant, if r≥0.8 correlation is
strong.
Regarding the components of the policy variables, the
chosen policies for comparison are countries’ Industrial
Policies, Trade, and Exchange Rate Policies, as well as
Investment Policies. Countries have chosen very
different policies namely in the industrial and trade
sector. The policymakers adjusted the exchange rate
policies and investment policies to support the
industrial and trade sectors. To investigate differences
in chosen policies, I applied the systematic literature
review method.
refers to the average means of x and y.
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The article investigates the period from 1991 to 2016.
It is important to include the early 1990s because the
choice of transition strategy and economic reforms in
the initial years of independence were the determinant
factors that affected countries’ economic performance
for the whole period. I excluded the period from 2017
to 2019 because in 2016 Uzbekistan elected a new
president after the death of Islam Karimov who had
ruled the country since 1989.
Overall Pace and Sequence of Policy Implementation
The reform tracks of Uzbekistan and Kazakhstan are
quite different, especially in the initial phase of
transition. Kazakhstan chose a more radical strategy, in
terms of time pace than Uzbekistan. In addition,
concerning policy sequence, Kazakhstan had a more
consistent and systematic approach, while Uzbekistan
demonstrated inconsistency in policy implementation.
Thus, Kazakhstan’s transition strategy has features of
the holistic model and could be considered as “shock
therapy”, though in a relative term. Meanwhile, the
government of Uzbekistan had its views on the
transition process, which could not be attributed to any
transition model identified in the literature.
Political and Economic Roots of the Adoption of
Different Transitional Strategies
The adoption of a radical approach to economic
transition is a political decision that requires favorable
social and economic conditions. In the case of
Kazakhstan, the close ties with Russia and the relative
stability of the economy allowed for the successful
implementation of shock therapy. However, in
Uzbekistan, the unstable social and political situation,
ethnic conflicts, and the rise of political Islam made
rapid reforms impractical. Additionally, Uzbekistan's
lower level of economic development and high
unemployment further hindered the adoption of a
radical transition strategy.
Kazakhstan
Among other governments of the Central Asian region,
the government of Kazakhstan faced the most
challenging political conditions in the early years of
independence. Apparently, in the last years of the USSR
and early independence years, the impact of Russia was
substantial.
First, Russia had been a ruling center for the republic
for many years, and some areas of Kazakhstan were
strategically important for Russia. For instance, the
Baikonur Cosmodrome is located in the South-West
(far from Russia). It was from here that the first artificial
satellite, Sputnik 1, launched into orbit in 1957. The
Cosmodrome was not only the launching center for
Soviet spacecraft but also a storehouse for the strategic
and tactical nuclear arms of the Soviet Republic. More
than 700 hundred nuclear tests had been held in this
polygon between 1943 and 1989. In 1992, several years
after the dissolution of the USSR, Kazakhstan had “the
four
th largest nuclear arsenal in the world” (Hiro 2009:
248). Thus, Russia could not easily be refused entry to
important and strategic areas of Kazakhstan. Indeed,
when Boris Yeltsin (the first president of Russia) won
the elections in 1993, his government’s
policy classified
the Central Asian countries as “Near Abroad” which
showed Russia’s desire to hold a significant political
impact on the region.
Second, the presence of a large population with Slavic
ethnicity (mostly Russians) in the north of the country
also enhanced the role of Russia in domestic politics. It
also shaped the political choices and the institutional
development of Kazakhstan (Ahrens and Stark 2012). In
1991, Kazakhstan had the “highest proportion” of
Europeans - 48 percent of the total population, mostly
Russian and Germans, among the Muslim-majority
republics (Hiro 2009). The Slavic majority of Kazakhstan
had significant social and political influence in the early
years, especially in Northern Kazakhstan - the parts of
the country adjacent to Russia.
At that time, Slavic people, along with the Germans,
represented the most skilled labor force in Kazakhstan.
Slavs owned large enterprises, and lucrative industries
in the North. They were the wealthiest and most
influential part of the population. Thus, when
unsurprising tensions between Slavic and Kazakh
people arose, the government of Nursultan Nazarbayev
(the first president of Kazakhstan) had no choice but to
be tolerant of Slav's demands, at least until the mid-
1990s. For example, in July 1992, during a meeting in
Almaty, the delegation of Russian settlers demanded
“amending the draft constitution to prohibit
discrimination against non-
Kazakh speakers”. In
addition, in 1993, the adopted constitution recognized
the Russian language as the lingua franca, making
“Kazakh
-
speaking Slavs eligible” to run for the
presidency (Hiro 2009: 253).
What is more, in the early 1990s, Russian people
occupied most of the government posts in Kazakhstan.
Notably, the second most important government
official was Russian. Sergey Tereshenko served as the
Prime Minister of Kazakhstan between 1991 and 1994.
Tereshenko oversaw the implementation of economic
reforms in the country. In addition, Nazarbayev himself
“took on board” Grigoriy Yavlinskiy who was one
of the
radical economists of Gorbachev’s government in the
late 1980s (Hiro 2009). Briefly, Russians had a crucial
influence on Nazarbayev’s early government.
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Under the Soviet rule, Kazakhstan was the richest
country in the Central Asian region. “Li
ving standards
and human-
capital endowments” were high in the
country (Ahrens and Stark 2012: 10). In 1990,
Kazakhstan’s GDP rate was the highest in the region,
and particularly twice that of Uzbekistan. Meanwhile,
the GDP per capita of the country was almost three
times bigger than Uzbekistan’s (World Bank 2019).
Unlike its counterparts, Kazakhstan had achieved self-
sufficiency in food products long before the 1990s.
Moreover, Kazakhstan had been the main exporter of
cereals within the Soviet Union and was not dependent
on food imports (Hiro 2009, Trushin and Trushin 2000).
Thus, when the country became independent
shortages in food products were not as severe as in
other countries.
In addition, unlike other countries in the region,
Kazakhstan’s economy wa
s more industrialized and
closely integrated into the Soviet economy (Ahrens and
Stark 2012). For instance, in the 1980s Kazakhstan was
responsible for 10 percent of coal production and 5
percent of oil production of the Soviet Union. Heavy
industries like metallurgy and the production of ferrous
and nonferrous metals were largely developed.
Kazakhstan’s first President, Nursultan Nazarbayev,
started his career as a worker at the Temirtau steel
plant in Kazakhstan (Hiro 2009).
Moreover, the integration into the Soviet economy was
so significant that after the independence Kazakhstan
was not able to freely export oil from its main Tengiz oil
field. After independence, the oil field was sold to
Chevron and Exxon Mobile, two US-based companies.
Under the new owners, oil production started in 1993
but they could not export the product because the
pipeline leading to the Black Sea port of Novorossiysk
was owned by Russia. Russia demanded 20 percent “of
Kazakhstan’s taking from the deal” and preferences for
Russia
n petroleum companies to enter “into the
Chevron-
led consortium” (Hiro 2009: 255).
Uzbekistan
Political conditions in early Uzbekistan were quite
different from Kazakhstan. The former was more prone
to social and political instability, just before
independence. A tense social and political atmosphere
in the republic was due to the strained relationship
between ethnic groups and the rising popularity of
political Islam.
At the time of independence, Uzbekistan had a largely
homogenous population, as 70 percent of the
inhabitants were Uzbeks. Other representatives of
large ethnic groups were Tajiks, Kazakhs, and Russians
(O’ZSTAT 2017b). Ethnicity was rarely a political issue
after independence, but just a couple of years prior to
independence several clashes had shaken the stability
in the country. For instance, in July 1991, the Tajik
police in Samarkand city beat up dozens of Uzbek
revelers who were later hospitalized. Considering that,
at the time, a great number of Uzbeks were living in
Tajikistan, any tensions between those groups might
have transformed to the national level (Hiro 2009).
However, albeit significant, the Samarkand event was
merely a dim blink of what happened two years before,
in Fergana Valley. The ethnic clashes between Uzbeks
and Meskhetian Turks left 200 people dead and more
than 160, 000 people homeless. The unprecedented
cruelty and “bloodshed of events shook the minorities,
including Russians” (Hiro 2009: 136). Islam Karimov, at
the time first secretary of the Uzbek SSR, immediately
banned the public meetings on the grounds of
preserving stability in the republic. Karimov later
explained that the clashes between ethnic groups could
be more widespread without the government’s firm
actions.
Apart from ethnicity issues, there was another issue
that could undermine political and social stability in the
country in the late 1980s and early 1990s - political
Islam. In 1991, when Karimov, the first president of
Uzbekistan, announced independence, there were two
political camps in the country. On the one hand, there
was the government (de facto political power) formed
by old communist party members, intellectuals, and
local intelligence. On the other hand, there was an
opposition including Islamists and movements with
pan-Turk ideology.
Karimov’s government faced strong opposition from
political movements with Islamist and pan-Turk
ideologies. The most prominent representatives of
such kinds of movements were Wahhabism, Akramism,
Adalat, IRP (Islamist Renaissance Party), Birlik and Erk
parties. It should be noted that, although the
movements attracted people for religious beliefs, Islam
had more political inclination than pure spiritual.
Wahhabism had Saudi roots while Birlik and Erk rely on
connections with Turkey (Hiro 2009).
The Islamist political movements and other movements
with similar ideologies reemerged and got popularity
mainly because of repressive political actions of the
central Communist apparatus against Uzbeks, in the
late 1980s. As a result of so-
called “Uzbek affairs”,
thousands of Uzbeks were convicted and imprisoned.
This led to the growing discontent and nationalist mood
among most of the population, who later joined
Islamist movements.
In 1992, Islamists made their first big “move”. A group
of people in Namangan, a strategic city in the Fergana
Valley, rallied demonstration with thousands of local
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people who were continuously shouting “Allahu Akbar”
(Allah the Great). They demanded the establishment of
the religious state in Uzbekistan with the norms of
Shariah- Islamic legislature. Karimov first tried to
negotiate with demonstrators and offered to run a
referendum on this issue. However, later, he changed
his mind. Obviously, he saw those groups as a threat to
peace and order in the newly emerged country. In
March of 1992, police arrested leading Adalat and IRP
members, allegedly initiators of the move. More than
seventy people had been arrested (Hiro 2009).
Old communist party members, intellectuals and most
importantly KGB, the intelligence service, backed
Karimov
’s government because of his “discipline and
order” ideology. The local intellectuals feared that
openness and democracy might lead to the rise of
nationalism or political Islam (Hiro 2009).
What is more, the unstable political situation in
neighboring Tajikistan and Afghanistan also threatened
to cross borders and spread into other countries in the
region. In 1992, in neighboring Tajikistan, radical
Islamists rose against the constitutional government,
which led to the six years of bloody civil war in the
country, and the resignation of President Nabiyev (Hiro
2009). Peace was restored only after providing some
ministerial posts to the Islamists and promises of free
elections. In Afghanistan, after an almost ten-year war,
Soviet troops left the country in 1989. This gave way to
another civil war in the region from 1992-1996. The
Taliban, another fundamentalist organization, emerged
in the aftermath of the Afghan Civil War. In a nutshell,
Afghanistan has always been a war-prone country
associated with political chaos.
Despite its potential, Uzbekistan was among the
poorest Republics of the Soviet Union in terms of
economic development “with the second highest
poverty rate” (Pomfret 2000: 4). By one estimate, the
poverty rate stood at 24 percent (headcount index)
compared to Kazakhstan’s 5 percent. GNP per capita
for 1989 was 2,740 US dollars compared to
Kazakhstan’s 5,130 US dollars (Alam and Banerji 2000).
In addition, Uzbekistan had one of the lowest standards
of living and the highest rates of unemployment among
the Soviets republics (Trushin and Trushin 2000).
The high poverty rate and relatively lower level of
incomes were associated with economic structure
inherited from the Soviet Union. Uzbekistan, as almost
all Central Asian countries, was simply a source of
cheap raw materials for the central Communist regime.
The leading sector of the economy was agriculture,
where the central hub was cotton production. Other
leading sectors were the mining of gold and uranium.
Approximately 40 percent of the workforce was
employed in the agricultural sector (Pomfret 2000),
especially in picking cotton.
Uzbekistan was the leading republic in the Soviet Union
in terms of cotton production where most of the
harvest had been picked by hand. By one estimate,
Uzbekistan had been producing eight million tons of
the “white gold” (cotton) by the mid
-1970s, which
“accounted for two
-
thirds of the Soviet Union’s cotton
production” (Hiro 2009:131). Between the 1970s and
1980s, Uzbekistan was the biggest exporter of cotton in
the world with a market share of 25 percent
(MacDonald 2012). In 1990, 62.4 percent of all cotton
harvest in Central Asia was cultivated in the country,
but only 7 percent of the harvest was processed
domestically (Зияева and Исроилова 2016).
Apart from the cotton industry, the economy included
relatively advanced gold mining, machinery industry,
and the production of chemicals. However, although
Uzbekistan “had a more diversified economy” than
Kazakhstan (Alam and Banerji 2000:16), diversification
in general command economy structure virtually
meant nothing. By 1992, right after independence, a
considerable part of imports (43 percent of total) were
food products (Popov 2013). Although agricultural land
in Uzbekistan was favorable to cultivate different crops,
it was mainly associated with growing cotton. As a
result, the country was unable to provide food
sufficiency. The food products therefore had been
imported from Russia, Kazakhstan, and the USA. Under
the Soviet regime, Uzbekistan could provide only 25
percent of domestic wheat demand. The country
became self-sufficient in wheat 10 years after
independence (Зияева and Исроилова 2016).
Uzbekistan’s economy was associated with a low level
of
industrialization
coupled
with
insignificant
integration to the general structure of the Soviet
Economy. In 1990, the share of industry constituted 33
percent of GDP while the shares of agriculture and
services reached 31 and 36 percent respectively. The
heavy concentration of economic resources around
cotton production gave some independence from the
central authority. In the case of independence, it would
easily rely on revenues from cotton export, which was
the case in fact.
Comparative analysis of impacts of the government
policies on the economic performance
Kazakhstan's successful shock therapy implementation
was facilitated by its close ties with Russia, stable
economy, and ability to navigate the political influence
of Russia. Uzbekistan, on the other hand, faced
challenges such as instability, ethnic conflicts, and
lower economic development. Kazakhstan's early
privatization of industry, liberal trade policy, free
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currency exchange policy, and more open investment
policy were major factors in its economic growth
compared to Uzbekistan. However, the impacts of
transition strategies on economic performance are not
absolute, and overall economic performance also
reflects general economic management.
Industrial Policy
Kazakhstan
The industrial output of Kazakhstan increased
significantly, especially after the mid-1990s, when the
recession phase of transition had passed. It was due to
two factors: early privatization of existing industries
and the re-direction of resources from the oil industry,
through national funds, to diversify industrial output
and develop private non-oil sector. The private sector
was the major locomotive of industrial production.
Kazakhstan’s authorities did not attempt to “jump over
its head” in the initial years, and “got prices right” by
privatizing existed industrial sectors in which the
country had a comparative advantage. After 2000, the
government effectively managed to diversify its
industrial products through effective industrial policies.
Although the government increased its involvement in
strategic sectors in recent years, the corporate
governance and decision making of private firms have
been largely free of government intervention during
this period.
Uzbekistan
In contrast to Kazakhstan, Uzbekista
n’s government
demonstrated reluctance to the privatization of large
enterprises since gaining independence and allowed
direct foreign investment mainly to establish new
production in the manufacturing sector. Besides, under
the policies deriving from the so-
called “Uzbek Model”
of development, the government played an active role
in industrial enterprise decision making, pursued
industrial policies that favored sectors at the expense
of others, and attempted to implement the strategy of
import substitution of industry and manufacturing.
Concisely, the state-ownership of the industry was an
obvious pattern of Uzbekistan’s economy throughout
the period. The state provided limited access to foreign
investment in the industrial sectors, which it has
considered as a strategic. In addition, the authorities
prioritized a large number of production sectors as
important due to the overall inward-oriented strategy
of the country. Also, the government deeply involved in
the decision-making and management of not only the
state-owned enterprises but also private firms.
Consequently, the government’s involvement in every
industrial sector posed huge obstacles to the country’s
economic growth.
Trade Policy
In the Soviet Union, trade was extremely restricted, and
the Central Asian countries were closed to external
trade. The central apparatus of the Soviet republics
controlled domestic as well as foreign trade of the
republics, including Kazakhstan and Uzbekistan.
Therefore, at the time of independence, both countries
had a highly controlled trade regime with the
government’s tariffs on exports and imports.
However, like in other sectors, Kazakhstan promptly
liberalized its trade regime until the 2000s (Irnazarov
2009), while Uzbekistan time after time applied
draconian measures to limit domestic and foreign
trade. Kazakhstan has shown the intention to arrange
regional trade agreements and integrate into the global
trade whereas Uzbekistan has attempted to organize
trade regime mainly in such a way that it protects
selected producers from international competition and
gives the government total control over the revenues
from the export of the main commodities.
As a result of the open trade regime, the amount of
Kazakhstan’s imports and exports rose substantially
(Figure 4). Particularly, after 1995, following the
establishment of Customs Union with Russia and
Belarus, and easing control over foreign trade, the
volume of trade began to increase rapidly. In its peak
during the period, the volume of Kazakhstan’s exports
had reached 65.5 billion US dollars while the volume of
imported goods and services reached 44.2 billion US
dollars.
Uzbekistan
With a few exceptional years, Uzbekistan’s trade
regime for the whole period could be characterized as
“closed” with high tariff and n
on-tariff barriers for
many products. The state had strict control over the
main export and import items such as cotton, gold, and
gas. The trade regime has been organized to support
the overall strategy of the economy - the import
substitution (Pomfret 2000).
As a consequence of the illiberal trade regime and
restrictive foreign trade policies, the volume of
Uzbekistan’s exports and imports has been quite small.
For instance, in 2010, when Kazakhstan's export
volume reached its all-
time high, Uzbekistan’s
exports
barely exceeded 10 billion US dollars. In the same year,
the volume of imported goods almost reached 20
billion US dollars.
Currency Exchange Policy
Probably, the most contrasting economic policy
between Kazakhstan and Uzbekistan was the currency
exchange policy. The currency exchange policies
mirrored the general economic approach of the
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countries. On the one hand, Kazakhstan’s fast
liberalization of the currency exchange rate aimed to
attract foreign investors to the strategic sectors. On the
other hand, Uzbekistan applied quite an inconsistent
exchange rate policy because of the frequent failures of
the regime in providing foreign currency. Notably, the
countries began the period of independence with the
same large black-market exchange rate premia (Alam
and Banerji 2000).
To conclude, once Kazakhstan liberalized its currency
regime in 1996, the authorities have never returned to
strict currency controls. Foreign currencies could be
freely traded in foreign exchange auction where all
major Banks were allowed. The liberal exchange rate of
Kazakh tenge attracted a vast amount of FDI into the
Kazakh economy. Early liberalization of the currency
regime helped to attract foreign investors and issue
Eurobonds, which provided the government with
additional financial resources. After 2008, in order to
reduce the negative effects of currency appreciation,
the government pegged tenge to US dollars and
allowed tenge to fluctuate in a fixed currency corridor.
Recently, the foreign exchange rate against the US
dollar is freely determined in the stock exchange. The
exchange rates of other currencies are calculated
through cross rates.
Uzbekistan
During the whole period under study, the Uzbek
authorities had kept the currency exchange regime and
the conditions of currency convertibility strictly
regulated and distorted. Frequent and direct
interventionist policies of the government to the
currency market implied managing the currency regime
in such a way that it matches the overall inward-
oriented development strategy of the country. Also,
the government had tried to be self-sufficient in foreign
currency and sometimes applied draconian measures
to restrict foreign currency outflow, especially US
dollars, from the economy. Thus, in almost all cases
when the government faced the dollar shortage,
instead of liberalizing currency regime, it used
restrictive measures, such as multiple and weekly fixed
foreign exchange rates or compulsory export
concessions for firms.
The decline of the cotton yield in 1996 and the drop in
cotton price by 15 percent in international markets,
which at a time represented almost half of the
country’s foreign exchange earnings, caused economic
turmoil (Kotz 2004). In addition to the decline of the
hard currency supply, the gap between the official
exchange rate and the black-market rate almost
doubled (EBRD 1994-2016). Policymakers reacted with
the establishment of the regime with multiple
exchange rates in 1997.
The world financial crisis in 2007-2008 severely hit the
Russian economy, which was a significant source of
foreign currency (US dollars) for Uzbekistan. Several
years prior to the crisis, a significant part of foreign
currency earnings had been coming from the export of
passenger cars to Russia and from remittance of Uzbek
migrant workers there. However, starting in 2009, both
the volume of the exports of cars (60 percent) and
remittance began to decline (EBRD 1994-2016). This
urged the government to apply restrictive foreign
currency policies. Currency convertibility again became
limited, and the authorities reintroduced multiple
exchange rate regime.
What is more, by Presidential decree № 1914 from 30
of January 2013, commercial banks banned to sell cash
currency to the individuals. As a result, the black-
market rate of the US dollar began to increase rapidly.
Uzbekistan’s exchange rate policy was one of the main
impediments to the FDI inflows into the country.
Comparative analysis of economic institutions and its
influence on the countries’ economic performance
Private Property Rights
In the early years of independence, both Kazakhstan
and Uzbekistan had rigid private property laws
inherited from the Soviet Union. However,
Kazakhstan's legal framework for property rights
improved over time, reaching its highest score in 2012.
In contrast, Uzbekistan's private property rights
deteriorated, reaching its lowest level in 2011.
Kazakhstan's property rights condition was significantly
better than Uzbekistan's throughout this period.
Figure 1: Private Property Rights
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Source: The Index of Economic Freedom. The Heritage Foundation, 2019.
To summarize, as the graph clearly illustrates, the
condition of private property rights in both countries is
clearly repressed. Because of the devastating effect of
colonial experience under the Soviet’ regime, the laws
that had to secure private property were unsurprisingly
weak. Relative to advanced economies, countries’ acts
on private property are still inadequate. However, from
2008, Kazakhstan has shown signs of improvement in
the conditions of private property security, whereas in
Uzbekistan, private property rights are still
tremendously weak.
Labor Market
In contrast, the labor market is more liberalized than
property rights in both countries. As figure 10 visibly
displays, the labor freedom score was above 50, which
mean labor market conditions have not been repressed
at all.
Nevertheless, even in this index, Uzbekistan could not
outperform Kazakhstan. For instance, from the
beginning of the period until 2016, Uzbekistan’s labor
freedom index had been fluctuating between 60-70
points. While Kazakhstan started period for 10 points
higher than Uzbekistan and ended the period at
approximately the same point ranging between 80-90
points, it is worth noting that countries’ labor market
conditions were significantly different between 2011
and 2013 when Kazakhstan almost had reached perfect
conditions of labor freedom, while Uzbekistan reached
its worst score ever.
Figure 2 : Labor Freedom
Source: The Index of Economic Freedom. The Heritage Foundation, 2019
Briefly, the Heritage Foundation has measured labor
market conditions since 2005. The data for twelve years
reveals that the situation in the labor market was
relatively healthy both in Uzbekistan and in Kazakhstan.
However, Kazakhstan’s labor market conditions were
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substantially better than Uzbekistan’s and showed,
during the best period, a result 30 points higher.
Control of Corruption
Fortunately, data for the most critical indicator of our
analysis is almost entirely available from a reliable
source. Figure 11 perfectly illustrates the situation
regarding corruption in countries.
Kazakhstan made significant progress in reducing
corruption over time, while Uzbekistan struggled to
effectively address the issue. The graph also indicates
that the gap between the two countries widened
during the period from 2008 to 2016, indicating a more
pronounced difference in corruption levels. Overall, the
data supports the assertion that Kazakhstan had better
conditions regarding corruption compared to
Uzbekistan.
Figure 3: Control of Corruption
Source: The Worldwide Governance Report (1996-2016). World Bank,2019
To sum up, although both countries demonstrate
results far below the perfect case, Kazakhstan achieved
superior results to Uzbekistan in corruption control. For
instance, it steadily improves its degree of corruption
presence by 0.30 points.
Rule of Law
Institutions of the Rule of Law, along with the Property
Rights institutions, are one of the few institutions that
got attention of not only institutional scholars but also
scholars who specialize in transitional economies.
Scholars of both fields agree that the Rule of Law is
indispensable.
Briefly speaking, Kazakhstan’s rule of law index has
upward trend, and did not experience sharp declines,
which indicates that conditions of the rule of law have
only improved over the period (figure 12). In addition,
the country’s index improved for mor
e than half a point
from below -1.00 point until above -0.50 point, which is
significant improvement.
Figure 4: Rule of Law
Source: The Worldwide Governance Report (1996-2016). World Bank,2019
Meanwhile, data for Uzbekistan illustrates that the
country’s index fluctuates between
-1.50 and -1.00
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points, never passing the latter point. Uzbekistan’s
results show that the conditions of the rule of law in the
country have not ameliorated. In addition, Uzbekistan’s
index has almost the same starting and ending point.
Relationship between Economic Performance and
Economic Institutions
To estimate the relationship between GDP change and
conditions of economic institutions, the article applied
the Pearson Correlation analysis (Tables 3 and 4 below).
The first pair of variables is GDP change and the
conditions of private property rights. The period of the
analysis is 1998-2016. The second pair of variables
consists of GDP change and the variations in the labor
market institutions. The period of analysis for this pair
is 2005-2016. The third pair of variables is the
countries’ GDP change and the countries’ control of
corruption performance. The last pair of variables is
GDP variations and the conditions of the rule of law.
The period of analysis for the two last pairs is 1996-
2016.
The results of the analysis for the first pair of variables
show that there is no significant correlation between
Kazakhstan’s GDP changes and the conditions of the
country’s private property rights. In contrast, the
Pearson Correlation coefficient for Uzbekistan is -
0.946, which indicates almost perfect negative
correlation between GDP changes and the conditions
of property rights.
Estimation of the correlation coefficient for the second
pair reveals a significant correlation between variables
for both countries. The correlation coefficient for
Kazakhstan is significantly positive, 0.741, while the
estimated correlation coefficient for Uzbekistan is -
0.751, significantly negative.
Turning to the results of the third and fourth pairs of
variables, it should be noted that the estimated
correlation coefficients of Kazakhstan are strongly
positive, while in the cases of Uzbekistan the picture is
quite different. For instance, the Pearson Correlation
coefficients of the third and fourth pairs for Kazakhstan
are 0.801 and 0.869, respectively. In the case of
Uzbekistan, the estimated coefficient for the third pair
is significantly negative, -0.625 and for the fourth pair
the coefficient is positive but insignificant, 0.445.
Table 3: Pearson Correlation analysis-Kazakhstan
1
st
pair of variables
GDP
Private Property
Rights
GDP
Pearson Correl.
1
,367
Sig (2tailed)
,122
N
19
19
Private
Property
Rights
Pearson Correl.
,367
1
Sig (2tailed)
,122
N
19
19
2
nd
pair of variables
GDP
Labor Market
GDP
Pearson Correl.
1
,741
**
Sig (2tailed)
,006
N
12
12
Labor
Market
Pearson Correl.
,741
**
1
Sig (2tailed)
,006
N
12
12
3
rd
pair of variables
GDP
Control of Corruption
GDP
Pearson Correl.
1
,801
**
Sig (2tailed)
,000
N
21
21
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Control
of
Corruptio
n
Pearson Correl.
,801
**
1
Sig (2tailed)
,000
N
21
21
4
th
pair of variables
GDP
Rule of Law
GDP
Pearson Correl.
1
,869
**
Sig (2tailed)
,000
N
21
21
Rule of
Law
Pearson Correl.
,869
**
1
Sig (2tailed)
,000
N
21
21
**. Correlation is significant at 0,01 level (2 tailed).
Table 4: Pearson Correlation analysis-Uzbekistan
1
st
pair of variables
GDP
Private Property
Rights
GDP
Pearson Correl.
Correlation
1
-,946
**
Sig (2tailed)
,000
N
19
19
Private
Property
Rights
Pearson Correl.
-,946
**
1
Sig (2tailed)
,000
N
19
19
2
nd
pair of variables
GDP
Labor Market
GDP
Pearson Correl.
1
-,751
**
Sig (2tailed)
,005
N
12
12
Labor
Market
Pearson Correl.
-,751
**
1
Sig (2tailed)
,005
N
12
12
3
rd
pair of variables
GDP
Control of Corruption
GDP
Pearson Correl.
1
-,625
**
Sig (2tailed)
,002
N
21
21
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Control
of
Corruptio
n
Pearson Correl.
-,625
**
1
Sig (2tailed)
,002
N
21
21
4
th
pair of variables
GDP
Rule of Law
GDP
Pearson Correl.
1
,445
*
Sig (2tailed)
,043
N
21
21
Rule of
Law
Pearson Correl.
,445
*
1
Sig (2tailed)
,043
N
21
21
*. Correlation is significant at 0,05 level (2 tailed).
**. Correlation is significant at 0,01 level (2 tailed).
What does all of this mean?
In the case of Kazakhstan, the dynamics of the GDP
have a positive relationship with changes in economic
institutions, though the relationship with private
property institutions is insignificant. The positive
relationship between variables could be the sign of
either effect of GDP growth on economic institutions or
vice versa. However, taking into account that private
sector share of the GDP had upward trend for most of
the period, reaching at the best the seventy percent-
point, we can conclude that improvement in the
conditions of economic institutions had positively
affected the rate of economic growth in Kazakhstan.
Regarding the analysis of Uzbekistan, the results of
three out of four estimations are negative. In addition,
the value of the positive relationship is poor. Growth in
the volume of GDP is largely the result of an increase in
output in the public sector rather than private sector.
Moreover, the almost perfect negative relationship
between GDP growth and the conditions of private
property institutions reveals tha
t Uzbekistan’s
economy resembles the Soviet Union’s command
economy. In other words, Uzbekistan’s economy lacks
sufficient liberalization and remains strictly regulated
by the government. Accordingly, the private sector
share of GDP was significantly lower in Uzbekistan than
in Kazakhstan. At the highest point, the private sector
in Uzbekistan was responsible for the forty-five percent
of the total output, which is significantly lower
compared to Kazakhstan.
CONCLUSION AND FINDINGS
In 2016, the Central Asian countries celebrated 25 years
of independence from the Soviet rule. Kazakhstan and
Uzbekistan were among those countries. Both
countries were classified as countries in transition- the
transition from the centrally planned economic system
to the market economy. Today, we can adequately
assess and compare the economic performance of the
countries.
This article attempted to investigate the countries’
economic performance through the lens of policy and
institutional theories since the countries share a similar
cultural background and geographical location.
Kazakhstan applied a quite radical pace of economic
reforms with the consistent sequence of the policy
implementation, which resulted in the liberal economic
system
and
economic
institutions.
Whereas
Uzbekistan, after the initial phase of transitional
reforms, slowed down the pace of reforms and showed
inconsistency in the adoption of market-friendly
policies and institutions. The authorities referred to the
neutral “Uzbek” model of transition to the mar
ket
economy, which supposedly shares similarities with
East Asian countries' development strategy.
Authorities, because of different political and economic
conditions, chose different approaches to the
transition (Shock therapy and “Uzbek” model) in the
early 1990s. Kazakhstan had favorable preconditions
such as a stable social, economic, and political situation
within its borders, to implement the rapid transition.
The per capita income and the rate of industrialization
were higher in Kazakhstan than in any other CIS
country. Another influential factor that affected the
choice of transition strategy was the immense impact
of Russia and Russian people in the economy and
politics. In the case of Uzbekistan, the authorities could
not resort to the “shock therapy” because of several
factors. Among the CIS countries, Uzbekistan had a
comparatively low level of economic development and
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high rates of poverty. The political situation was
unstable due to the presence of Radical Islam within its
borders as well as in neighboring countries.
Additionally, Uzbekistan had liquid commodities such
as gold and cotton, the exporting revenue of which
could give authorities immediate economic power to
oppose rapid reforms.
As a result of the selected pace and sequence of
reforms, Kazakhstan and Uzbekistan had completely
different industrial, trade and currency exchange
policies which affected the subsequent economic
performance of the two countries and caused different
economic performance through the private sector.
Kazakhstan has chosen liberal policies in all three
sectors which attracted a substantial amount of the
FDI, and which gave an incentive to the private sector
to engage in economic activity. Uzbekistan has pursued
illiberal policies in all these sectors, which prevented
private investment from entering the economy.
In Kazakhstan, the opening of industry for privatization,
liberal trade and floating exchange rates created the
favorable environment for the private sector
(especially foreign business) to thrive and provided the
Kazakh economy with needed financial resources.
Later, this helped to diversify the economy and
increase productivity in the non-oil sector. In
Uzbekistan, the government’s reluctance to privatize
large industrial complexes, the illiberal trade regime
with tariff as well as non-tariff barriers to trade and the
extremely distorted currency exchange rates negatively
affected productivity in the private sector and impeded
GDP growth.
To be specific, Kazakhstan privatized its industry early
in the 1990s, which contributed to the inflow of
financial resources to the sector and boosted industrial
output after 2000. Later, the Kazakh government
implemented successful industrial policies through a
national fund (Samruk Kazyna) to diversify production.
In contrast, Uzbekistan’s industrial sector for the en
tire
period can be characterized as state dominated. Except
for a few cases, the government retained general
control over the main industries. Even in the
management of less important productions, the
influence of the government was crucial. The inward-
looking industrial policies, aimed to fulfill demands for
imports with domestic production, have proven to be
inefficient in the long run.
Apart from a quite short period in the early 1990s,
Uzbekistan’s economic performance has always been
poor compared to Kazakhstan. Although Uzbekistan
also has had steady rates of GDP growth, Kazakhstan’s
rate of GDP growth and the volume of GDP were more
substantial than that of in its neighbor. Likely, the
volume of Kazakhstan’s industrial output, trade, and
the FDI were considerably higher than in Uzbekistan.
Furthermore, Kazakhstan’s trade policies throughout
the period can be assessed as liberal. Export quotas and
licensing requirements have been abolished quite
earlier. Restrictive practices of foreign trade with tariff
and non-tariff barriers have been insignificant; thus,
the volume of foreign trade was substantial. By
contrast, in Uzbekistan, export and import contracts
had to be registered with authorized banks, and a
considerable number of export practices had to be
licensed. Also in Uzbekistan, tariff as well as non-tariff
barriers for imported goods were quite severe.
Lastly, in Kazakhstan, the government has not managed
currency exchange regime heavily and exchange rates
have been largely determined freely by the market.
This practice eliminated uncertainties and gave a
positive signal to foreign investors to invest heavily in
the Kazakh economy. Meanwhile, the general currency
exchange policies of Uzbekistan could be described as
heavily managed and restricted. The presence of
multiple exchange rates in Uzbekistan raised
uncertainties for foreign investors and inhibited them
from confidently investing in the Uzbek economy.
With regard to the institutional arrangement of the
countries, the Kazakh government has established
more adequate economic institutions than Uzbek
authorities to stimulate the productivity of the private
sector. A descriptive comparison of the countries’ main
economic institutions, such as institutions of private
property rights, labor market institutions, institutions
of control of corruption and the rule of law, revealed
that Kazakhstan’s institutions were of better quality
than those of Uzbekistan.
The article also analyzed the relationship between
countries' GDP growth and the quality of economic
institutions using Pearson Correlation analysis. The
analysis revealed a significant positive interrelation
between Kazakhstan’s GDP performance and the
quality of the economic institutions. Pearson
Correlation coefficient of all pairs of variables is
positive, and the correlation of 3 out of 4 pairs is
significantly positive which indicates that Kazakhstan’s
GDP growth was associated with an improvement in
the quality of economic institutions. Meanwhile, the
correlation between Uzbekistan’s GDP ch
ange and the
quality of economic institutions is almost perfectly
negative. Pearson Correlation coefficient of 3 out of 4
variables is significantly negative. Although the
correlation coefficient of the first pair of variables is
positive, the correlation is insignificant. Results show
that Uzbekistan’s GDP growth has no association with
the changes in the quality of economic institutions.
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Concisely, the results of the analysis indicate that
Kazakhstan’s liberal economic policies and economic
institutions have boosted production by providing a
business-friendly environment for the private business,
while Uzbekistan’s illiberal economic policies and
economic institutions inhibited large-scale growth by
creating barriers for the private business in the country.
In the end, I would like to add some points for future
research. This research revealed that, in the case of
Uzbekistan, the "binding constraint" is the lack of
market liberalization. The state had crucial coercive
power and the capacity to implement policies.
However, the state capacity without appropriate
market institutions could not foster sustainable
economic growth. In the case of Kazakhstan, the
research detected positive effects of market
liberalization
coupled
with
moderate
state
involvement. The future agenda is to investigate
whether Kazakhstan would have done better
performance with more state involvement in the
economy (and less liberal markets) or not.
Every approach has its side effects, and so does the
neoliberal approach to economic development. The
possible drawbacks of the neoliberal approach for
Kazakhstan may be the chronic threat of the “Dutch
disease” and possible rent
-seeking behavior of state
officials since neoliberal policies attracted immense
resources to the extractive sector. The task of the
policymakers is to find “golden mean” which will put
into use all available resources of a country with
maximum efficiency for the benefit of a broad range of
population and not only a narrow circle of elites.
Declaration of Generative AI and AI assisted
technologies in the writing process.
During the preparation of this work the author used
Chatgpt 3.5 in order to improve readability and
language of dome parts of the article. After using this
tool, the author reviewed and edited the content as
needed and takes full responsibility for the content of
the publication.
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
APPENDIX (A)
Figure A.1: GDP Growth after Independence
Source: World Bank, World Development Indicators 2019
Figure A.2: GDP Structure of Kazakhstan
Source: World Bank, World Development Indicators 2019
Figure A.3: GDP Structure of Uzbekistan
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
Source: World Bank, World Development Indicators 2019
Figure A.4: Volume of Exports and Imports
Source: World Bank, World Development Indicators 2019
Figure A.5: Volume of Foreign Direct Investment
Source: World Bank, World Development Indicators 2019
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Figure A.6: Private Business in Kazakhstan
Source: Ministry of National Economy of the Republic of Kazakhstan Statistics committee, 2019.
Figure A.7: Private Business in Uzbekistan
Source: The State Committee of the Republic of Uzbekistan on Statistics (O’ZSTAT), 2017
Furthermore, concerning the GDP share of the private sector, the graph below indicates the percentage of
private business in the Gross Domestic Product.
Figure A.8: Share of Private Firms in GDP
Source: EBRD Transition Report (1994-2016)
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APPENDIX (B)
Country Level Transition Indicators from 1994 to 2016-Uzbekistan
Ye
ars
Large-
Scale
Privatiz
ation
Small-
Scale
Privatiz
ation
Enterpri
se
restruct
uring
Price
Liberalizat
ion
and
Competiti
on
Trade
and
Foreign
Exchang
e
System
Competiti
on Policy
Bankin
g
Reform
Securities markets
and non-bank
financial institutions
Infrastruct
ure reform
19
94
2
3
1
3
2
1
19
95
3
3
2
3
2
2
2
2
19
96
3
3
2
3
2
2
2
2
19
97
3-
3
2
3-
2-
2
2-
2
19
98
3-
3
2
2
2-
2
2-
2
19
99
3-
3
2
2
1
2
2-
2
20
00
3-
3
2-
2
1
2
2-
2
20
01
3-
3
2-
2
2-
2
2-
2
20
02
3-
3
2-
2
2-
2
2-
2
2-
20
03
3-
3
2-
2-
3-
2-
2-
2
2-
20
04
3-
3
2-
3-
2-
2-
2-
2
2-
20
05
3-
3
2-
3-
2
2-
2-
2
2-
20
06
3-
3+
2-
2-
3-
2
2-
2
2-
20
07
3-
3+
2-
3-
2
2-
2-
2
2-
20
08
3-
3+
2-
3-
2
2-
2-
2
2-
20
09
3-
3+
2
3-
2
2-
2-
2
2-
20
10
3-
3+
2-
3-
2
2-
2-
2
2-
20
11
3-
3+
2-
3-
2-
2-
1
2-
2-
20
12
3-
3+
2-
3-
2-
2-
1
2-
2-
20
13
3-
3+
2-
3-
2-
2-
1
2-
2-
20
14
3-
3+
2-
3-
2-
2-
1
2-
2-
20
15
1
2-
2-
20
16
1
2-
2-
EBRD, Transition Reports (1994-2016); adjusted by author. Note: The transition indicators range from 1 to 4+,
with 1 representing little or no change relative to a rigid centrally planned economy and 4+ representing the
standards of an industrialized market economy.
International Journal of Management and Economics Fundamental
150
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
APPENDIX (B)
Country Level Transition Indicators from 1994 to 2016- Kazakhstan
Year
s
Large-
Scale
Privatiz
ation
Small-
Scale
Privatiz
ation
Enterprise
restructuri
ng
Price
Liberalizati
on
and
Competitio
n
Trade
and
Foreign
Exchan
ge
System
Competit
ion
Policy
Banking
Reform
and
Interest
Rate
Liberalizati
on
Securities
markets and
non-bank
financial
institutions
Infrastruc
ture
reform
1994
2
2
1
2
2
1
1995
2
2
1
3
3
2
2
2
1996
3
3
2
3
4
2
2
2
1997
3
3+
2
3
4
2
2+
2
1998
3
4
2
3
4
2
2+
2
1999
3
4
2
3
3
2
2+
2
2000
3
4
2
3
3+
2
2+
2+
2001
3
4
2
3
3+
2
3-
2+
2002
3
4
2
3
3+
2
3-
2+
2
2003
3
4
2
4
3+
2
3
2+
2+
2004
3
4
2
4
3+
2
3
2+
2
2005
3
4
2
4
3+
2
3
2+
2+
2006
3
4
2
4
4-
2
3
3-
3-
2007
3
4
2
4
4-
2
3
3-
3-
2008
3
4
2
4
4-
2
3
3-
3-
2009
3
4
2
4
4-
2
3-
3-
3-
2010
3
4
2
4
4-
2
3-
3-
3-
2011
3
4
2
4-
4-
2
3-
3-
3-
2012
3
4
2
4-
4-
2
3-
2+
2+
2013
3
4
2
4-
4-
2
3-
2+
3-
2014
3
4
2
4-
4-
2
2
2
3-
2015
2+
2
3-
2016
2+
2
3-
EBRD, Transition Reports (1994-2016); adjusted by author. Note: The transition indicators range from 1 to 4+,
with 1 representing little or no change relative to a rigid centrally planned economy and 4+ representing the
standards of an industrialized market economy.
