Factors of Exports Dynamics and Import Substitution after the Sharp Exchange Rate Depreciation

Abstract

The article deals with the problem of finding out factors promoting high export growth rates and successful import substitution after the sharp real exchange rate depreciation, which took place in Russia. The share of domestically-produced goods and services in domestic demand based on current prices, as well as the growth rate of the domestic demand covered by domestic production, are used as indicators for import substitution. Following the results of cross-country panel regressions, it is demonstrated that Russia’s positive net foreign assets position is favourable for export growth after the depreciation. On the other hand, the share of imported components in Russian non-oil-and-gas exports is close to the world average, so it cannot be stated that Russia’s export structure is favourable from the viewpoint of the magnitude of the depreciation’s positive impact. The analysis of Russia’s non-oil-and-gas exports dynamics measured in constant prices, shows that in recent years, the growth rates undershot the modeled ones. According to the net exports dynamics, in 2014–2015, this discrepancy was offset by the fact that the import contraction rates were significantly higher than the modeled ones. In 2016, however, the contribution of “additional” (as compared to the model) net exports fell to zero. The analysis also demonstrates that in the medium term, low quality of the institutional environment in Russia hinders maintaining momentum for exports and import substitution associated with the depreciation. Thus, despite the significance of the currently in-progress measures promoting non-commodity exports and import substitution, they should be complemented by constant efforts aimed at reducing investment risks, enhancing quality of governance, and safeguarding competition.