Accounting for Russia's Post-Crisis Growth

Abstract

This paper provides an in depth analysis of Russia's recent growth, with a view to understanding the prospects for its continuation. It examines in detail the main drivers of growth, as well as the main developments and policies that have been underlying it. A key finding is that the role of the oil sector, and particularly privately owned oil companies, has been vastly more important in driving economic growth since 2001 than most analyses have recognised. The oil sector's contribution to growth has hitherto been severely underestimated as official data do not account for transfer pricing and thus fail to reflect fully the importance of the hydrocarbon sector in the Russian economy. The paper further argues that prudent post-crisis fiscal policy, by balancing the federal budget over the oil-price cycle, has also been essential for creating a macroeconomic environment conducive to strong growth. Looking forward, it is argued that given its economic structure Russia is bound to remain a heavily resource dependent economy for some time to come. This reality largely defines the most important challenges facing Russian policy-makers as they seek to create a framework for sustained growth, with respect to both managing a resource-based economy successfully and facilitating economic diversification over time.

Keywords: Russia, transition, economic growth, fiscal policy, monetary policy, real exchange rate, capital flight, natural resources, dutch disease, resource curse, oil, gas, property rights, diversification

JEL Classification: E6, O1, O52, P2, Q43