布鲁盖尔-Factors-determining-Russia-s-long_26页_1mb

Summary of "Factors determining Russia's long-term growth rate"

Core Content

This paper analyzes the long-term growth factors of the Russian economy, focusing on demographic trends, investment levels, and productivity. It argues that while the slowdown in growth is partly unavoidable due to demographic challenges, it is also exacerbated by structural and institutional issues. The paper also discusses the impact of geopolitical tensions and the role of macroeconomic policies in shaping Russia's economic trajectory.

Main Views

• Demographic Trends:
  Russia's population has been declining since the early 1990s, with the working-age population shrinking significantly since the 2010s. This trend is expected to continue, reducing the labor supply and increasing the old-age dependency ratio.

  • The shrinking labor force and aging population negatively affect economic growth and fiscal sustainability.
  • The retirement age has been gradually increased to mitigate the labor shortage, but this alone cannot fully counteract the adverse demographic effects.
  • The low unemployment rate indicates that the labor force is already largely utilized, making it difficult to return to previous growth rates.

• Investment:

  • Russia has maintained a relatively high investment rate, exceeding 20% of GDP, which places it in the middle of large emerging-market economies (EMDEs).
  • However, the effectiveness of investment is low, as the investment climate is poor, leading to inefficient capital allocation.
  • High levels of gross national saving (which exceed investment) are attributed to the presence of oil and gas rents and the lack of attractive investment opportunities.

• Productivity:

  • Total factor productivity (TFP) growth has stagnated since the mid-2000s, significantly limiting Russia's potential for economic expansion.
  • The decline in TFP is linked to institutional inefficiencies, a lack of diversification from the hydrocarbon sector, and deteriorating international relations that hinder trade and innovation.
  • The paper suggests that structural and institutional reforms are essential to improving productivity and growth prospects.

Key Information

Institutional Factors

• State Ownership:

  • The Russian economy has experienced a trend of renationalization, particularly in strategic sectors such as energy, transportation, and mining.
  • State-owned enterprises (SOEs) are less efficient and dynamic than private firms, and they are often politicized and opaque.
  • The dominance of SOEs has led to higher sectoral concentration and lower competitiveness.

• Business and Investment Climate:

  • The World Bank Doing Business (WBDB) 2020 survey ranked Russia 28th out of 190 countries, with a score of 78.2.
  • Russia performs well in areas like "Getting electricity" and "Starting a business," but poorly in "Protecting minority investors" and "Resolving insolvency."
  • The Heritage Foundation Index of Economic Freedom (HFIEF) ranked Russia 98th in 2019, indicating a "mostly unfree" economic environment.
  • The Transparency International Corruption Perception Index (TICPI) 2018 placed Russia at 138th with a score of 28, highlighting significant corruption concerns.

• Governance Issues:

  • The Russian political system is characterized as a "consolidated authoritarian regime," with a declining democracy score over the past two decades.
  • The World Bank's Worldwide Governance Indicators (WBWGI) show that Russia has consistently scored poorly in governance variables such as "Voice and accountability," "Rule of law," and "Control of corruption."
  • Despite some improvements in "Government effectiveness" in the 2010s, the overall governance system remains flawed and inefficient.

• Property Rights:

  • Insecure property rights and state "racketeering" contribute to a poor business environment.
  • These issues are not fully captured by international surveys and continue to undermine private investment and economic activity.

Structural Challenges

• Dependence on Hydrocarbons:

  • The Russian economy remains heavily reliant on oil and natural gas production and exports.
  • Although the hydrocarbon sector's share in GDP has fluctuated, it still constitutes over 70% of exports and 40–45% of federal budget revenue.
  • This dependency makes Russia vulnerable to global price fluctuations and limits its ability to diversify.

• Dutch Disease:

  • High hydrocarbon prices have led to an appreciation of the ruble, reducing the competitiveness of non-hydrocarbon industries.
  • The Russian government has attempted to counteract this through fiscal surpluses in sovereign wealth funds and a new budgetary rule introduced in 2017.

• Sectoral Structure:

  • The share of "high-technology and science-intensive" sectors in GDP has remained stable at around 21–22% since 2013.
  • There is little evidence of significant structural diversification or growth in non-hydrocarbon sectors, despite periods of devaluation that theoretically should have encouraged domestic manufacturing.

Policy Recommendations

• Comprehensive Reforms:

  • The paper emphasizes the need for comprehensive economic and institutional reforms to enhance productivity and growth.
  • These reforms should include improving the business climate, reducing corruption, and enhancing governance.
  • Structural diversification from hydrocarbon dependence is also critical for long-term growth.

• Political Reforms:

  • Political reforms are necessary to create a more stable and predictable environment for investment and innovation.
  • Improved relations with the US, EU, and neighboring countries are essential for expanding trade and investment opportunities.

• Macro-economic Management:

  • Prudent macroeconomic policies, including better fiscal and monetary management, are needed to support growth and address the challenges posed by the shrinking labor force and low productivity.