Article

 

The russian economy is facing a competitiveness and efficiency challenge (p.35-61)

by

Andrei Klepach, Development Center (Moscow, Russia)

Eric Brunat, Russian-European Centre for Economic Policy and University of Savoie (France)

Keywords : Transition economies, competitiveness, efficiency

JEL classification : O47, L52, P27

Abstract

The paper analyses the components of the competitiveness of Russian manufactured goods. This competitiveness started to decline after 1999, following the 1998 crisis and the strong devaluation of the Ruble. The decline in competitiveness has been clearly due to appreciation of the ruble and increasing labour costs. Nevertheless, the rate of real Ruble appreciation is currently not the major factor affecting changes in competitiveness of Russian goods. The key issues are whether factors of production and management are used efficiently, how good is the quality of the products and how new they are, and to what extent they meet modern international requirements. The pressure to be competitive is measured by competition intensity. Regression analysis shows it is mainly dependant on the number of the firms on a market. Apparent productivity growth did not improved competitiveness because it relies mainly on labour cuts. However at the end, it relies also on higher rate of use of production factors. Productivity gains benefited mainly to wages. This provides a blurred image of demand-pulled productivity increases instead of supply pushed productivity gains thanks to modernization. Analyzing the models of industrial policy or competitiveness and productivity enhancement policy, the authors argue that the modernizing the economy and the public sector as well as sustainable fast growth cannot be met with existing institutions and policies pursued. Liberalization of the economy should be complemented by active industrial policy aimed at development of competitive medium and high-tech production facilities.