Is Russia suffering from Dutch Disease? Cointegration with structural break

This paper examines whether Russia suffers from “Dutch Disease” by investigating the real appreciation of the Russian ruble and the relative de-industrialization in the post Soviet Union-era. According to UNDP Russia Report (2009) the Russian economy has indeed exhibited some typical symptoms of “Dutch Disease” in recent years as upward movements in oil prices are accompanied by a reduction in the share of manufacturing output and an increase in service prices. Furthermore, the report claims that these developments may trigger a recession in Russia in the future. Using Gregory and Hansen (1996a, 1996b) and Arai and Kurozumi (2007) structural break cointegration frameworks, our results indicate that the Russian economy exhibits some typical symptoms of “Dutch Disease”. Although the diagnosis is not certain, the risk is evident. Hence, policies that would make the Russian economy more robust to shocks in the oil price need to be carefully designed and implemented.