Oil dependency of the Russian economy: An econometric analysis

A macro econometric model of the Russian economy is tailored to analyze the effects of changes in the oil price and alternative fiscal policies. Model simulations indicate that the Russian economy is vulnerable to large fluctuations in the oil price, but we also find evidence of significant economic growth capabilities in the absence of oil price growth. A higher oil price not only leads to higher economic growth and savings in the sovereign wealth fund, but also induces a rupture in the Russian economy. Public spending and household spending increase while the traditional export industries suffer from real appreciation, in line with the Dutch disease hypothesis. We also show that alternative policies for spending of the petroleum income may have considerable consequences for economic growth, the degree of crowding out of traditional export industries and wealth accumulation in the fund.

► A macro econometric model of the Russian economy is developed. ► Simulations indicate vulnerability to large fluctuations in the oil price. ► Evidence of significant growth capabilities in the absence of high oil prices ► Traditional export industries suffer from high oil prices. ► Fiscal policy is important for growth, industrial structure and public savings.