Write 7 pages with APA style on To What Extent Is Russian Growth Predominant by High Oil Prices. As Russia is one of the world’s top suppliers of oil, most economists attribute the growth to high oil prices, which remain at all-time highs (in 2006 crude oil stood at $79 per barrel, up from $51 in 2005). In contrast, in 1998, oil prices were at an all-time low at $10 per barrel. However, as to how oil prices influenced Russia’s GDP growth, measures have to be limited to indicators with the share of the oil industry in the overall GDP, specifically on the value added of the sector as measured by trade margins, and finally extrapolate on how these influenced the other sectors that makeup Russia’.
Some manifestations of the Dutch disease, defined as the negative growth impact on domestic industries due to inflationary pressures on domestic spending brought by the high exchange rate of the Russian currency, have been observed in the 1990s. The ruble which traded on the average at about 540 rubles to the dollar in 2006, started to recover its value in 2004, reached just before 1998 when it traded 400 rubles to the dollar. In 1998, the ruble was devalued to 220 rubles to a dollar and economists observed that it influenced the high growth rates recorded in manufacturing industries, machinery, metallurgy, chemicals and textiles until 2001. The negative effects of the competitiveness of oil exports and the way it affected the ruble, has revealed the vulnerability of Russian industries which was just making its transition from being centrally planned and managed by the State to being market-led where the reflection of real prices and costs would have to take precedence. This vulnerability has in a way roused Russian authorities to make the necessary changes in its macroeconomic policies – not just in the energy sector which for better or for worse, would take a big part in the economic future of the country, but also in the field of fiscal policy and public spending, to attract the necessary investments and uplift the standard of living of citizens that would boost consumer spending.
One estimate of the actual contribution of the oil sector (which includes gas) was placed at a high of 18.9% in 2002, due to the sharp increase in oil prices and its volume of value added to exports. This is the largest increase since 1999 among the economic sectors. The value of total trade margins of oil and gas almost doubled by 2000 to 997.3 billion rubles from just 552.3 billion rubles in 1999. While it slowed by down to 942.7 billion rubles in 2001, trade margins of the sector again was up to 1.15 trillion rubles in 2002.
However one comprehensive study on the influence of high oil prices on Russia’s GDP growth by Shinichiro Tabata, analyzed the contribution of the oil and gas sector (under industry) included not just under goods production (manufacturing), but also under trade (already mentioned above in the analysis of trade margins) as well as under taxes (net taxes on products). He noted that during the period of the recovery from the financial crisis in 1998, the industrial sector’s contribution which includes oil and gas, “was remarkable”. . The trade sector has become the largest contributor to Russia’s GDP growth since 2002. Since some values on trade margins and taxes of oil and gas were not yet available for the years after 2002, the analysis of the contribution of oil and gas sectors would have to be confined only until the period of 2002.
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