The aims of this study are twofold: (1) one is to estimate the size of the second economy in the Soviet Union as a whole and in each republic from 1969 to 1988, based on household budget surveys which belong to the collection of the Central Statistical Directorate (f. 1562) of the Russian State Archive of Economy, (2) and the other is to compare the results of this estimation among union republics in terms of their size, dynamics, and component structure. Although a number of attempts have been made to estimate the size of the second economy, they have suffered either methodological deficiency or limitations in the scope of time and regions mainly because of data unavailability. Even Kim Byung-Yeon’s recent pioneering work on regional variation in informal household economic activities confines its research period to the year of 1989.
In order to tackle these unresolved problems, we reconstruct our own statistical database of household incomes, expenditures, and items traded by the republics, using declassified archival materials on household budget surveys. Based on these data, we estimate the size of the second economy with specified structural components. On the income side, the second economy consists of three components, namely, (i) income in kind from private plots, (ii) sales of privately produced goods and services to the state sector, and (iii) the so-called parallel “market,” that is, retail turnover outside the state and cooperative sectors. The latter two components are distinguished by the price setting mechanism. While the prices of sales to the state are set and mainly fixed by the state, parallel market prices are assumed to be set according to the demand and supply of the goods. On the expenditure side, the consumption of self-produced goods and the parallel market are two components of the second economy. A structural analysis of the second economy is quite important from the viewpoint of forced savings and repressed inflation.
For a comparative analysis of the second economy of the union republics, cluster analysis allows each of them to be classified into one of three groups. The first group consists of Russia, Kazakhstan, Latvia, and Estonia; the second group – Ukraine, Belarus, Lithuania, and Moldova; and the third – Uzbekistan, Georgia, Azerbaijan, Kirgizstan, Tajikistan, Armenia, and Turkmenistan. This classification makes variance among groups clearer. The main findings of this study are as follows.
First of all, the size of the second economy is unevenly distributed across the republics. The size of the third group, that is, the share of the second economy income out of total household income, is 25.1% on average during the period investigated. This figure is almost twice that of the first group with 14.6%. The second group also holds a substantial size of the second economy with 24.5%. A similar situation can be seen on the expenditure side: the first group holds 16.6% and the third – 34.2%.