Macroeconomic consequences of large environmental impacts, the case of the Chernobyl accident in the Soviet economic

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Yevdokimov, Yuri V.
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Based upon intensive literature review, major environmental consequences of the Chernobyl accident are identified as well as macroeconomic consequences as they were presented by Soviet officials and economists. In order to study macroeconomic consequences of the accident in dynamics, a disequilibrium growth model of the Soviet economy is derived. The major assumptions behind the model are extensive economic growth and fixed prices set below equilibrium level. Extensive economic growth implies relatively constant technology and explicit treatment of natural resources as complement to conventional factors of production--capital and labour. Further the derived model is approximated by linear stochastic difference equation which we call the basic dynamic equation. Stability of the basic dynamic equation is investigated and conclusion is reached about structural change in the Soviet economy in 1960 based upon econometric testing. The Chernobyl accident represents an adverse supply shock in the Soviet disequilibrium economy. Direct impact from the shock is derived based on simulation using Vector Autoregression analysis. Dynamic properties of the shock are studied with the help from Impulse Response Function. It appears that the shock has permanent effect for the structure of the Soviet economy because this economy is described by non-stationary dynamic process at the time of the accident. Aggregate value of the shock is derived quantitatively as a loss of potential real GNP over time. In doing so, two impacts--from restructuring of the Soviet economy since 1985 and the Chernobyl accident of 1986--are separated. In the end, strengths and limitations of the thesis are discussed and conclusion is reached about further research in this area.