Russia's Output Collapse and Recovery: Evidence from the Post-Soviet Transition

IMF Working Papers, April 1, 2010

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The health of the Russian economy still depends heavily on natural resource revenues.
The history of the economic collapse and recovery in 1970–2004 provides new evidence on the sources of Russian economic growth.
A survey of the economic literature suggests the Russian economy could be viewed as a weighted combination of virtual and normal forces.

Normal market-economy domination:
- Higher energy export receipts provide an opportunity for structural reforms while compensating for social costs.
- Under normal domination, the economy is less vulnerable to decline in world energy prices.
Virtual forces domination (value transfers from the energy sector to strategic enterprises):
- High world energy prices are masking an inefficient manufacturing sector.
- Under virtual domination, the Russian economy is highly vulnerable to energy price declines.

If normal market forces dominate:
- Use higher energy export receipts to finance structural reforms.
- Compensate for social costs while reducing vulnerability to energy price declines.
If virtual forces dominate:
- Prioritize reforms that address value transfers and the inefficiency in the manufacturing sector.
- Reduce reliance on energy rents to lower vulnerability to swings in world energy prices.

Eteri Kvintradze, "Russia's Output Collapse and Recovery: Evidence from the Post-Soviet Transition", IMF Working Paper.