This paper shows how the Dutch Disease has affected the Russian economy since the start of the transition in the early 1990s. Four symptoms have been detected, namely: 1) a real exchange rate appreciation, 2) a temporary improved economic situation, 3) an output decline in the non-booming-sector, 4) an export reduction in the non-booming-sector. An extended version of the Balassa-Samuelson model has been implemented to test symptom 1. Our results suggest a positive long-run cointegration relationship between the real exchange rate and the oil price. A 7% real appreciation is caused by a 10% oil price shock. Moreover, a 10% increase in oil prices leads to a 2% GDP growth, while a 10% real appreciation is associated with a 2.1% output decline. The total effect on GDP growth, considering the Balassa-Samuelson effect, confirms symptom 2. Finally, the domestic industrial production drops and high-tech and textile exports are crowed out. This indicates that the Russian economy is also affected by symptoms 3 and 4. We conclude that Russia's government should invest the tax revenues collected from the resource sector such that the structure of the economy becomes more diversified and less vulnerable to exogenous shocks.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by University of Bonn, Center for Development Research (ZEF) in its series Discussion Papers with number
18721.