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Microeconomics of Russian Import Substitution

Author

Listed:
  • Volchkova, N.

    (New Economic School, Center for Economic and Financial Research, Moscow, Russia)

  • Turdyeva, N.

    (Center for Economic and Financial Research, Moscow, Russia)

Abstract

This paper discusses the economic mechanisms triggered by import substitution policies. With full employment economy, the growth of production in protected areas is possible only by dragging resources from industries, which are not covered by import substitution policies. Globally competitive Russian industries will be forced out due to import substitution policies, which favor ineffective industries. The inevitable result of this policy will be a decrease in the efficiency of the domestic economy. Numerical estimations of potential effects of current Russian import substitution policies indicate a decline in GDP, decrease in outputs of non protected sectors and welfare losses of consumers. The paper also discusses a role of import as a vehicle for competitiveness improvement and alternative modes of trade policies. The decline in imports of protected areas by 10% of the initial level corresponds to an increase in the output of protected sectors by 3.8% and decrease in output of all other sectors of the economy by 2.3%. At the same time GDP decreased by 0.05%, while the consumer price index rises by 1%. The paper also discusses the role of imports in enhancing the competitiveness of the Russian economy and alternative trade policy measures. Economic research clearly indicates that firms importing intermediate goods are more productive than those, which do not import. Over 60% of Russian imports account for intermediate goods, and it must be borne in mind that the decline in imports will turn into decline in productivity of Russian companies, which are importing components and equipment, and will adversely impact their competitiveness in the global market.

Suggested Citation

  • Volchkova, N. & Turdyeva, N., 2016. "Microeconomics of Russian Import Substitution," Journal of the New Economic Association, New Economic Association, vol. 32(4), pages 140-146.
  • Handle: RePEc:nea:journl:y:2016:i:32:p:140-146
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    References listed on IDEAS

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    1. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 245-276.
    2. Feenstra, Robert C & Markusen, James R, 1994. "Accounting for Growth with New Inputs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 429-447, May.
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    4. Pinelopi Koujianou Goldberg & Amit Kumar Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 125(4), pages 1727-1767.
    5. Feenstra, Robert C & Markusen, James R & Zeile, William, 1992. "Accounting for Growth with New Inputs: Theory and Evidence," American Economic Review, American Economic Association, vol. 82(2), pages 415-421, May.
    6. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2012. "The Empirics of Firm Heterogeneity and International Trade," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 283-313, July.
    7. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 97(5), pages 1611-1638, December.
    8. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
    9. Vousden,Neil, 1990. "The Economics of Trade Protection," Cambridge Books, Cambridge University Press, number 9780521346696.
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    Cited by:

    1. V.Yu. Chernova & Z.G. Golodova & E.A. Degtereva & A.M. Zobov & V.S. Starostin, 2018. "Russian Industry in Global Value-Added Chains," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 165-178.

    More about this item

    Keywords

    international trade policy; import substitution; computable general equilibrium model;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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