Summary: Integration with the global economy is essential in making the transition from plan to market. All 15 new independent states (NIS) established in the economic space of the former Soviet Union (FSU) suffered big declines in output and trade after their independence. This study summarizes cross-country experience on the role trade and payments policies played in the linked contraction of output and trade, based on the case studies of eight countries: Estonia, the Kyrgyz Republic, Latvia, Lithuania, Moldova, Russia, Ukraine, and Uzbekistan. Ineffective trade and payments policies have been at the root of the decline in trade, which has been linked to the contraction in output. Their heavy economic interdependence, its roots in the centralized state planning system of the FSU, has intensified the problem. Countries that have reformed slowly have often maintained that their strategy will reduce the high cost of transition. In the NIS, however, the slow adjustment strategy has typically backfired in its effort to reduce adjustment costs. The results of the case studies are reflected in a cross-country regression analysis, which shows that trade reform and reorientation of trade toward the rest of the world have done much to arrest the decline in output usually associated with the transformation from planning to market. Trade policy reform has usually been part of broader reforms aimed at liberalization, stabilization and systemic change. The report reviews the following: 1) trends in trade; 2) trade with the rest of the world; 3) interstate trade; 4) specific experiences of Estonia, Russia and Ukraine; 5) link between reform, exports and GDP; and 6) strategy for reform.
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