The ABCs of Russia’s post-transition growth: what went wrong?

Using a stochastic frontier model with industry-level data, the sources of Russian economic growth during the expansion (6.45% annual growth) of 2000–2008 and the stagnation (1.75% annual growth) of 2010–2016 are examined. Changes in industrial structure had almost no impact on growth in either period. Russia’s extended mining complex played a crucial role in economic growth, since it accounted for one-quarter of aggregate production and was at the core of the state’s natural resource rent management system (RMS). The elasticities of labour and capital inputs with respect to the world oil price were low overall and across industry groups. The RMS may mitigate the impact of fluctuations in world oil price on the economy and hamper productivity-driven growth. While technological advances and rising production efficiency accounted for half of the growth in the expansion period, slower technology-driven growth and falling efficiency were the main factors behind the stagnation. The transformation of the economy from a primarily market-driven system to one dominated by a kleptocratic state and crony corporations is likely behind the reversal of the efficiency trend.