Rents and instability : the Russian
growth model tested again
Julien Vercueil, INALCO, Paris
Russia's double paradox
• Russia, a paradoxical emerging country
• Three decades of economic trajectoires : Russia’s record compared
BRICS: GDP Growth compared, 1992-2016
100: 1999
500.
China
375.
India
250.
Russia
South Africa
125.
0.
Brazil
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Explaining trajectories : productivity,
institutional changes and « growth models »
•
A Growth model (in the short to medium run) is a way of combining
productivity growth and institutional change :
• no « one best way », but several coherent combinations of institutions and
economic trajectories (Serra and Stiglitz, with Rodrik, 2008)
• Question n°1 that links productivity and the institutional framework : where
does productivity growth come from?
• Question n°2: how are productivity gains redistributed ?
• Each emerging economy provides its own answers to these questions
BRIC’s catching-up trajectories compared: some
clues of a rent-based growth trajectory
Which kind of catching-up ? Investment and
(2,1) : R&D/GDP
productivity
Current US $ per capita GDP in % of European Union
35
(2,1)
(2,08)
WORLD 2000
30
BRAZIL 2015
(1,17)
25
WORLD 2015
(2,0)
RUSSIA 2015
CHINA 2015
(1,15)
BRAZIL 2000
20
(1,0)
15
(1,16)
10
(0,97)
RUSSIA 2000
5
CHINA 2000
(0,81)
INDIA 2015
(0,73)
INDIA 2000
0
0
50
100
150
Gross capital formation in GDP in percent of European Union
200
250
From the Dutch Disease to the Rent based Disease
• Sources of productivity growth in Russia (Kudrin and Gurvitch,
2014) : +2,5 % /year directly coming from windfall gains
• Standard way to analyse this problem : « Dutch Disease » model
– a static model without institution
Russia: Labour Productivity Index
(Base 100:1992)
130.
120.
110.
100.
90.
80.
70.
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Source : Total Economy Database 2017, author’s elaboration
Main characteristics of a rent-based growth model
• Oil and gas rent : extra revenues obtained from the ownership of a
particular kind of asset (subsoil natural resources)
• Main challenges :
• Exogeneity [external shocks disconnected from productivity gains]
• Redistribution [multiple distorsions : monetary, fiscal, financial, by
sectors (Kudring and Gurvitch, 2014)]
• Instability [volatility of international prices]
Instability and Russia’s rent-based growth
model
• Financial instability :
•
Exchange rate and oil prices
•
Financial markets and oil prices, banking system and exchange rate
•
Buffers : Currency reserves of BCR – but limited
• Monetary instability :
•
Exchange rate crises and inflation (1998, 2008, 2015)
•
Buffers : Monetary policy and Interest rates – but limited
• Fiscal instability :
•
Oil prices and fiscal revenues (federal and local)
•
Buffers : Sovereign funds (Reserve fund and National welfare fund) –
but limited
Instability and Russia’s rent-based growth
model (continued)
• Growth instability (elasticity of GDP to oil prices)
• Institutional lock-in : Windfall gains seem to play a role in the
perpetuation of the low-quality of institutional framework in Russia
•
Low level of fiscal pressure on economic agents => paternalistic style of
government, low pressure from taxpayers for better quality of public
management
•
Weak « checks and balances » at all levels of government
•
Proximity between oil & gas major’s managers and the Government =>
economic and political goals can easily be confused
•
High level of corruption - more or less tolerated by the population
An illustration of the paternalistic style of
government in Russia
Conclusion : how to exit from the rent-based
growth model ?
• Contradiction between institutional lock in and the instability of
a rent-based growth model : how to solve it ?
• Long term solution : exit from the current growth model by
fostering industrial diversification
• Short term solutions : exchange rate flexibility is not enough =>
capital controls ?
Thank you !
•
References :
•
Kudrin A., Gurvich E. (2014) : « A new Growth Model for the Russian
Economy », Russian Journal of Economics 1 (2015), 30-54.
•
Serra N., Stiglitz J. (Eds) (2008) : « The Washington consensus
reconsidered. Toward a New Global Governance ». Oxford: Oxford
University Press.
•
Rodrik D. (2008) : « A practical approach to formulating growth
strategies », in Serra and Stiglitz (2008), 356-366.
•
Vercueil (2010:2015) : « Les pays émergents. Brésil-Russie-Inde-Chine :
mutations économiques, crises et nouveaux défis ». Paris : Bréal, 2015
(première édition 2010)
•
World Bank (2016) : « Russian Economic Report », n°36, November 2016.
A simple framework for analysing
emerging growth models
including
INSTITUTIONAL
ECONOMIC
FRAMEWORK
OPENING POLICIES
(and
macroeconomic
Rest of
policies)
INSTITUTIONAL CHANGE AND
POLICIES
including
National
territory
including
DEMAND-SIDE POLICY
SUPPLY-SIDE POLICY
the world
FOREIGN
ENTREPRISES
CREATION AND RESTRUCTURING
OF DOMESTIC FIRMS
INVESTMENT AND
INCOME
REDISTRIBUTION
PRODUCTIVITY
GROWTH
TYPE 2. DOMESTIC
DEMAND DRIVEN
GROWTH MODEL
SUPPLY
TYPE 1. EXTERNAL
DEMAND DRIVEN
GROWTH MODEL
DEMAND
EXTERNAL
DEMAND
DOMESTIC
DEMAND
TYPE 3. RENT BASED
GROWTH MODEL