What We Know and What We Should Know about Economic Growth in Russia

|Date 20.08.20101

What We Know and What We Should Know about Economic Growth in Russia

Russia KLEMS Progress Report for the First Harvard World KLEMS Conference, August 19-20, 2010

Ilya Voskoboynikov (University of Groningen)

|Date 20.08.20102

What is “Russia KLEMS” ?•Started in 2007 (on the initiative of Dale Jorgenson)•Partners

•GGDC (University of Groningen)•State University - Higher School of Economics (Moscow)

•Supported by the Ministry of Economic Development of the Russian Federation

•In collaboration with the Federal State Statistics Service (Rosstat)

|Date 20.08.20103

Introduction: What are sources of growth in Russia in 1995-2006?

1995-2006

1995-1998

1999-2006

Real Value Added

4.57 -2.38 7.35

Labor 0.58 -2.33 1.11

Labor Productivity

3.99 -0.05 6.23

Real value added growth rates contributions (yearly av. growth rates, in percent. points)

Source: The Russia KLEMS database

•H0: Extensive growth story(inputs driven)

•Growth engines before transition

•Labor (till late 1950s)

•Capital (till late 1980s)

•Energy (1973-1985)

•Growth engines after transition

• Sectoral structure inertia

• Energy directly (low prices/energy inputs)

•Energy indirectly (investments)

•Exports (terms of trades)

|Date 20.08.20104


1995-2006

1995-1998

1999-2006

Real Value Added

4.57 -2.38 7.35

Labor 0.58 -2.33 1.11

Labor Productivity

3.99 -0.05 6.23



•H0: Extensive growth story(inputs driven)

•H1: Intensive growth story(productivity driven)


• Better inputs allocation (no “Price Fog” - ref. to Harberger 1998)

• No export rent (low oil prices in 1992-1999)

•Initial fall of MFP due to disorganization

|Date 20.08.20105


1995-2006

1995-1998

1999-2006

Real Value Added

4.57 -2.38 7.35

Labor 0.58 -2.33 1.11

Labor Productivity

3.99 -0.05 6.23



•H0: Extensive growth story


•Energy directly Energy directly (low prices/energy inputs)(low prices/energy inputs)

•Energy indirectly (investments)Energy indirectly (investments)

•H1: Intensive growth story


• Better inputs allocation Better inputs allocation (no “Price Fog”)(no “Price Fog”)

|Date 20.08.20106

Introduction: novelty and structure› Novelty

New dataset- 35 industries - in 1995-2006

Real Value Added based on Double Deflation

Labor productivity decomposition by industries

Influence of labor reallocation on labor productivity growth rates

Capital Services

› Structure Data (“What we know…”)

- Output & SUT’s- Labor- Capital

Methods- Double deflation- LP decomposition- Growth Accounting

Results/Discussion Project in progress

(“…should know”)- Statistics- Analysis

|Date 20.08.20107

Data: Output and Deflation

› Classification problem (old -> new in 2003-4)› Supply and Use Tables (SUT) in current and

constant prices, consistent with Russian NA Based on the benchmark tables of 1995; Final Demand and Gross Output data of 1995-

2006 Volume Indices of Gross output Detailed bridges btw the classifications

|Date 20.08.20108

Data: Labor and Capital

› Labor A number of workers Based on the Labor Force Survey (LFS) Firms-reported data is used for further

disaggregation› Capital (for the old classification only)

Investments in constant prices by types of assets

Benchmark is the net capital stock of 1990 Exogenous rate of return

|Date 20.08.20109

Methods1. Labor productivity decomposition,

total - within – between (OECD Prod. 2001):

j

jjL

jVA

j

QIj

jVA

QI LdssLPdsLPd lnlnln

2. Real Value Added based on Double Deflation (OECD Prod. 2001):

QIj

IIGO

QIjVA

GO

QIj IIdsGOd

sVAd j

jj

j

lnln1

ln

3. Growth Accounting (EU KLEMS Meth.; OECD Cap. Measur. 2009)

|Date 20.08.201010

Results by sectorsContribution to labor productivity growth (in percentage points)


Comments

•LPLP is a major source of economic growth of economic growth With VA gr. rates in

•1995-2006:4.574.57 pp

•1999-2006:7.357.35 pp

Sectors 1995-2006 1999-2006

Wth Btw Tot Wth Btw Tot

TOTALTOTAL 3.40 0.59 3.993.99 4.99 1.24 6.236.23

Market Services 2.10 0.36 2.46 2.62 0.75 3.37

Energy-intensive & exp. goods

0.44 0.02 0.46 1.07 0.08 1.15

Agriculture 0.43 0.05 0.48 0.74 0.25 0.98

Non-exp. Goods 0.37 -0.03 0.34 0.63 -0.06 0.57

N.-M. serv. 0.07 0.19 0.25 -0.06 0.21 0.16

|Date 20.08.201011



Comments

•LP is a major source of economic growth

•LP are driven by LP are driven by Market ServicesMarket Services

•The role of Energy-The role of Energy-intensive & exp. is intensive & exp. is relatively modestrelatively modest

Sectors 1995-2006 1999-2006


TOTAL 3.40 0.59 3.99 4.99 1.24 6.23

Market ServicesMarket Services 2.10 0.36 2.462.46 2.62 0.75 3.373.37


0.44 0.02 0.460.46 1.07 0.08 1.151.15

Agriculture 0.43 0.05 0.48 0.74 0.25 0.98

Non-exp. Goods 0.37 -0.03 0.34 0.63 -0.06 0.57

N.-M. serv. 0.07 0.19 0.25 -0.06 0.21 0.16

|Date 20.08.201012



Comments

•LP is a major source of economic growth

•LP are driven by Market Services

•The role of Energy-intensive & exp. is relatively modest

•Labor reallocation is Labor reallocation is a substantial source a substantial source of LP growthof LP growth

Sectors 1995-2006 1999-2006


TOTAL 3.40 0.590.59 3.99 4.99 1.241.24 6.23

Market Services 2.10 0.360.36 2.46 2.62 0.750.75 3.37


0.44 0.02 0.46 1.07 0.08 1.15

Agriculture 0.43 0.050.05 0.48 0.74 0.250.25 0.98

Non-exp. Goods 0.37 -0.03 0.34 0.63 -0.06 0.57

N.-M. serv. 0.07 0.190.19 0.25 -0.06 0.210.21 0.16

|Date 20.08.201013

Results by industries of M. ServicesContribution to labor productivity growth (in percentage points)


Comments

•Wholesale trade and Wholesale trade and Inland Transport Inland Transport dominates among M. dominates among M. ServicesServices

Sectors 1995-2006 1999-2006

Within Btw Total Within Btw Total

TOTAL 3.40 0.59 3.99 4.99 1.24 6.23

M. Services 2.10 0.36 2.462.46 2.62 0.75 3.373.37

W-sale tradeW-sale trade 0.36 0.30 0.670.67 1.01 0.65 1.671.67

Inl. transportInl. transport 0.56 -0.01 0.560.56 0.73 0.01 0.730.73

Construction 0.32 0.00 0.32 0.35 -0.03 0.32

Oth. M. Serv. 0.85 0.06 0.91 0.53 0.12 0.65

|Date 20.08.201014

Results by industries of the Energy-Intensive and Exp. Goods sector

Contribution to labor productivity growth (in percentage points)


Comments

•Basic Metals and Basic Metals and Mining & Quarrying are Mining & Quarrying are engines of this sectorengines of this sector

•However, a contribution of the sector is almost the same as of Agriculture

Sectors 1995-2006 1999-2006

Within Btw Total Within Btw Total

TOTAL 3.40 0.59 3.99 4.99 1.24 6.23

En.-intens & En.-intens & exp. Goodsexp. Goods

0.44 0.02 0.460.46 1.07 0.08 1.151.15

Basic metals 0.28 0.02 0.30 0.82 0.06 0.88

Min. & Quar. 0.36 0.00 0.36 0.58 0.01 0.59

Others -0.21 0.00 -0.20 -0.33 0.01 -0.32

Agriculture 0.43 0.05 0.48 0.74 0.25 0.98

|Date 20.08.2010

Results: Growth Accounting for Major Industries of the old classification (1999-2004)

15

LP and Hours worked contributions to VA growth rates

Capital Intensity and MFP contributions to VA growth rates

|Date 20.08.2010

Results: Growth Accounting for Major Industries of the old classification (1999-2004)

16

Capital Intensity and MFP contributions to VA growth rates

•MFP contribution dominates in most industries•Capital intensity is substantial for Communications and Trade

•NOTE: in the old classification•Manufacturing =

•Mining (C)•Manufacturing (D)•Energy distr.(E)

•Trade = •Wholesale trade•Retail trade•Other Services

|Date 20.08.201017

Conclusion: “What we know...”

•H0: Extensive growth story

•Energy directly (low prices/energy inputs)

• (-)(-) Mining and Energy-Intensive sectors do not provide major contribution to LP growth

• (+) (+) Substantial Role of Capital Intensity in Communications and Trade

•H1: Intensive growth story

•Better inputs allocation (no “Price Fog”)

• (+)(+) Substantial positive influence of labor reallocation on LP growth

|Date 20.08.201018

Conclusion: “...what we should know”•Data/Statistics (in collaboration with Rosstat)

•New detailed benchmark SUT’s (in progress; expected in 2012)

•Detailed Russian National Accounts in 2002-2009 (in progress; new release of 79 industries is expected in September of this year)

•Detailed National Accounts in the new classification in Retrospect since 1990

•Analysis

•Capital services and growth accounting in the new classification (in progress)

•Labor composition effects (in progress)

•Further decomposition of Market Services and Inland Transport

•What services are important for growth? (gas export or something else)

|Date 20.08.201019

Thank you!

Documents

What We Know and What We Should Know about Economic Growth in Russia