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Dutch Disease Case Study of Russia

Russia experienced symptoms of Dutch disease after discovering new oil reserves in Eastern Siberia in 2005. This led to a rising dependency on oil exports, a lack of development in other sectors like manufacturing, and currency appreciation that squeezed profits in other industries. Corrupt institutions also developed as the government became less accountable without needing to tax citizens. Wage growth was higher in the oil sector, further weakening other parts of the economy. The large oil revenues encouraged more investment in oil over other industries, making Russia increasingly reliant on oil exports.

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Smiti Joshi
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67 views11 pages

Dutch Disease Case Study of Russia

Russia experienced symptoms of Dutch disease after discovering new oil reserves in Eastern Siberia in 2005. This led to a rising dependency on oil exports, a lack of development in other sectors like manufacturing, and currency appreciation that squeezed profits in other industries. Corrupt institutions also developed as the government became less accountable without needing to tax citizens. Wage growth was higher in the oil sector, further weakening other parts of the economy. The large oil revenues encouraged more investment in oil over other industries, making Russia increasingly reliant on oil exports.

Uploaded by

Smiti Joshi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Dutch Disease

Case Study of Russia


Introduction
- Dutch disease is an economic term that refers to the negative
consequences that can arise due to a spike in a nation's currency.
It’s primarily associated with the discovery of a new natural
resource.
- Russian authorities estimated that another 5 billion barrels of oil
reserves exist in Eastern Siberia in 2005.
- As a result of this discovery, the economy has proven to show
several symptoms of the disease.
Symptoms of Dutch Disease
1- Rising dependency on natural resource exports
2- Lack of development in other sectors
3- A vicious cycle of corrupt institutions.
4- Appreciation of currency
5- Growing wage differentials.
Rising dependency on natural resource exports

Fuel & Manufacturing exports as % of Merchandise Trade and GDP


Lopsided development
●As the profits in extractive sector increase, investments are done only
in this sector due to which industrial or manufacturing starts to lag
behind and makes dependency on the extractive sector more severe.
●Employment in the other sector like manufacturing is affected, which
further damages it’s ability to compete in the international market.
●It is not only the Manufacturing but also the business, innovation and
technology sector which is struggling in Russia.
Oil Production in US, Russia and Saudi
Vicious cycle of corrupt institutions
●Any country where a major source of the revenue for the government
comes not from the people, there is a high chance of the government
having 0 accountability to the people of the country. For Example:
Venezuela.
●If the institutions are not efficient it might lead to exploitation of the
resources and rapid deterioration. On the other hand, revenues generated
by these resource industries are so high (mostly) that the institutions are
rendered inefficient as the incentive to remain competitive reduces.
Currency volatility
- Between 2002 and 2010, there was a real appreciation of the Russian
ruble against the dollar of about 48%.

This real appreciation squeezed


the profits and employment from
the manufacturing sector, while
the energy sector rises as a result
of this appreciation.
Growing wage differentials
Bibliography
- (PDF) Manufacturing Industry in Russia: Problems, Status, Prospects
- https://www.economicshelp.org/blog/11977/oil/dutch-disease/
- https://www.worldbank.org/en/news/opinion/2018/09/17/russias-uphill-struggle-with-innovation
- https://www.economist.com/the-economist-explains/2014/11/05/what-dutch-disease-is-and-why-its-
bad
- https://mpra.ub.uni-muenchen.de/46670/1/MPRA_paper_46670.pdf
- https://www.forbes.com/sites/kenrapoza/2016/02/28/despite-weathering-sanction-storm-russias-dut
ch-disease-still-quite-nasty/#7a9a2ff6ceb0
- http://cepii.fr/PDF_PUB/wp/2009/wp2009-20.pdf

THANK YOU!

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