It’S Not the Economy Stupid! Is Russia-Us Trade Really Underdeveloped? A Test Using Gravity Models

Politicians, pundits and experts in both Russia and the US frequently bemoan the “underdevelopment” of US-Russia trade, arguing that political factors have inhibited the development of economic ties. It is also often argued that political relations between the two countries would also be more cooperative and less conflictual if these ties developed up to their full potential. The paper seeks to test the conventional wisdom that the US-Russia trade is underdeveloped by employing a standard gravity model to measure where trade between the two countries “should” be. We find no evidence that the US-Russia trade is underdeveloped. In terms of its ability to live up to the predictions of the model, trade between the two countries is predicted by the standard determinants of trade, suggesting that there is nothing erratic about the US-Russia trade and it behaves like any average country pair. These findings suggest that US-Russia trade relations actually live up to their economic potential and that the commonly held idea that political relations between Russia and the US can be dramatically improved by tapping into the “unfulfilled” promise of improved trade relations is unfounded. Moreover, our analysis demonstrates that the sectorial structure of the two economies, factor endowments and comparative advantages do not seem to indicate that there is significant potential for increased trade, as the conventional wisdom would suggest. The conventional view argues that poor political relations have impeded the development of economic relations between the two states. But, in fact, the opposite may be true: relations between the US and Russia are characterized by rivalry and conflict because there is little solid economic grounds for more pacific relations