Dutch Disease and Sustainability of the Russian Political Economy

Abstract

The paper aims at investigating the dependency of the Russian economy on natural resources, underlining the causes and the possible consequences of this growth strategy. The analysis tries to evaluate if the Russian manufacturing has contracted the Dutch Disease, that is, if a boom in the oil and gas industry has led to a process of de-industrialization, directly through the resource movement effect and indirectly through the spending effect. In this investigation it will be emphasized the role played by the learning curves as a crucial factor in determining the comparative advantages of a country, and why an excessive reliance on exports of a single product may reduce the welfare of a nation in the long run. The research underlines how the structure of the Russian economy has been built to favor the energy industry instead of the manufacturing one. This strategy has strengthened the comparative advantage that Russia enjoyed in natural resources, so as to reduce the return on investment in the manufacturing sector, which has had to struggle also with the constant appreciation of the exchange rate. This, in the end, has produced the so called de-industrialization process, which has transformed Russia into a service-based economy. The problem resulting from this is that, when a shock happens, the economy is no more able to soften its effects. To absorb the shock, it is necessary a higher government’s expenditure or switching to a higher level of unemployment, producing instability and uncertainty in the country.