Growth Diagnostics in Russia (2): Introduction to Russia

Russia’s per capita output equals about 45% of the US output. Russia also had a successful decade of high growth in the 2000s, but right now has a recession. This growth diagnostics series starts with understanding what was behind the recent decades and what should be the baseline expectation for GDP growth. I focus on two benchmarks.

The Long-Term Trend

The long-term trend reflects fundamental factors. But big changes rarely happen, so in many countries output just gravitates around this line. For this benchmark, I use 1.9% per year in 1885–2011, calculated from Andrei Markevich’s data.

rus_gdppc_1885

The Reference Group of Countries

The Russian economy can also be compared with the countries resting at the same stage of development. I take the mean of annual real GDP per capita (GDPPC) growth in countries that share a GDPPC decile with Russia (that is, the composition of Russia’s decile changes by year). Calculated from PWT 8.1.

gdc_decile_ts

The History of Growth

Ok, the last chart. Why did Russia outperform the peers before 2008?

(1) The economic recovery after the post-1991 structural changes. The dissolution of the Soviet Union was followed by a Great Depression in all former Soviet republics:

gdc_fsu_ts

So one part of the story is accelerated comeback to the point where the country had already been in 1990. You can see how the economy re-employs the capital put aside in the 1990:

gdc_rkna2emp_rkna

(2) Oil prices in the 2000s. Kudrin and Gurvich (2014) estimate the contribution of high oil prices to Russia’s GDP at 9.4% annually.

Undoubtedly, there’re more factors, but these two sources of growth have faded in the recent years and this should be reflected in our expectations. Anyway, since the last 25 years looked like a roller coaster, the suitable baseline for growth diagnostics is 2% annual growth of the long-term trend.

The Next Posts

The ongoing recession in Russia doesn’t affect a lot of what I’m going to write in the next posts. Smoothing macro fluctuations is important, but developing countries must also think about reforms that change their long-term growth trends. A loss of 4.5% of GDP in a recession costs more that $150 billion to the Russian citizens. But having only 1/2 of the US per capita output implies an opportunity cost of the entire Russian GDP, that is, $3,700 billion each year. This motivates thinking about fundamentals.

References

  • GDPPC (modern): PWT 8.1, World Bank (2014)
  • GDPPC (historical): Maddison (2013)

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