The purpose of this study is to shed some light on structural changes in the manufacturing industry of Russia and eight other transition countries during the last decade. The export performance of countries in one and the same market can under certain conditions be used to compare the state of the art in national industries. On the basis of full and comparable trade data from Eurostat, we perform comparative analysis of the development of manufacturing exports to the European Union by Russia and eight other transition countries over the period 1993–2000. The transition countries selected for comparison are Hungary, the Czech Republic, Poland, Romania, Bulgaria, Estonia, Latvia, and Ukraine. For all these countries, as well as for Russia, the European Union is the most important trade partner. The paper provides a comparative analysis of the breakdown of manufacturing exports by factor intensities, export concentration and specialisation, and relative price positions in the European market. All these approaches give a rather unfavourable picture of Russia’s performance. We observe a relative shrinking in exports of labour–intensive, specialised–supplier and science–based sectors. At the same time the role of the sector based on natural resources, which was traditionally predominant in Russia’s exports, is strengthening further. We also observe an alarmingly high level of concentration in Russia’s manufacturing exports and their growing specialisation in base metals, together with an intense de–specialisation in engineering products.

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A special case of dollarization is analyzed: quotation of prices in dollars. The proposed explanation is price stickiness: when price adjustment is costly, firms prefer to fix their prices in a stable foreign currency in order to avoid frequent price changes. The proposed model demonstrates that there are often two Nash equilibria in an economy populated by symmetric firms: an equilibrium with uniform domestic currency pricing and one with uniform dollar pricing. Hence, foreign currency pricing may exhibit hysteresis. The model also demonstrates that the degree of competition in the economy is important in determining the pricing currency.

AbstractWhat characteristics of firms give them the confidence to invest in settings rife with expropriation by local officials? Empirically, firms in the developing world often face the threat of expropriation from local agents of the state rather than a centralized autocrat. Because policing local officials is costly, the state cannot easily credibly commit to doing so. This has negative consequences for investment. We argue that one solution is to allow firms to approach the state directly to ask for intervention. Not all firms are equally able to successfully get the attention of the state, however, so this mechanism only works for some. We develop an argument about the firm-level characteristics – large-scale employment, political connections, foreign ownership, and business association membership – that should make the central state more attentive to calls for help. Because firm with these characteristics are more likely to secure intervention against predatory bureaucrats, the latter are less likely to try to expropriate them. These firms' investment decisions should be less sensitive to local expropriation than other firms. We test this argument using data on cases of decentralized expropriation across Russia's regions and firm-level data from a cross-regional, large scale survey of Russian firms.

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.