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.
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.
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:
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:
(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.