The ABCs of Russia's post-transition growth: What went wrong?

Abstract

The study uses industry-level data to examine the drivers of Russia’s economic growth in 2000–2008, when the average annual growth rate was 6.45%, in comparison with 2010–2016, when it fell to 1.75%. We apply the stochastic frontier method to quantify input-driven, technology-driven, and efficiency-driven growth. The influence of the world oil price on Russia’s growth is estimated from the perspective of its effects on both expansion of inputs (extensive growth) and production efficiency (intensive growth). The oil price movements affected capital and labor growth, but the government used a rent management system to mitigate these effects. As a result, the rate of extensive growth in 2000–2008, when the oil price was rising, was about the same (around 3%) as in 2010–2016 when the oil price was falling. The intensive (TFP-driven) growth rate fell from an average of 2.7% per year in 2000–2008 to − 1% in 2010–2016 due to a substantial decline in production efficiency during the latter period. Although the world price of oil could be partly responsible for this trend, we found the evolution of Russia’s economic system from generally market-oriented to largely controlled by kleptocracy to be the main factor behind it. Despite some changes in the economy’s industrial structure that occurred during both periods, the structural transformation had a negligible effect on growth.