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This study empirically analyzes the causation between GDP, unemployment rate, inflation and oil price in through analyzing Russian quarterly data from 2005:Q1 to 2014:Q3 and employing Vector Error Correction (VECM). The main findings of the paper are in line with general theory and are as follows: i) changes in oil prices in direct ratio affect the level of production, in other words increase in hydrocarbon cost pushes Russian economy up, ii) high oil price, among other things, causes the unemployment rate in Russia to decline, iii) in the short run, inflation favorably, but weakly influences the level of production as well as employment in Russia, iv) unemployment rate in Russia, as expected, has adverse impact on the total output level, v) in accordance with error correction terms GDP and unemployment rate needs about 3 quarters to return to the equilibrium level after the structural changes. Based on the results, some policy recommendations are presented
Russia ranks as the world’s second largest oil producer and exporter with the market shares of 12.6% and 12.9%, correspondingly. The importance of hydrocarbon sector for national economy is not questioned. Income from crude oil and refinery products export accounted for about 43% of Russian export revenue in 2016, while non-oil sector provided only 46%. Besides, oil and gas sector not only constitutes about 40% of Federal budget and almost 16% of Gross domestic product (GDP), but also supplies the significant share of investment demand.
Over the past 15 years Russian GDP has experienced upward tendency, namely from 2000 to 2015 it had increased by 76%, taking in account crisis of 2008-2009. This growth from the beginning of 2000s was accompanied by the high oil prices and constantly rising volumes of crude oil and refinery goods production (Figure 1). At the same time inflation rate along with unemployment rate demonstrated significant fall from almost 20% and 11% in 2000 to 6% and 5.5% in 2016, respectively.
This paper investigates the relationship between basic macroeconomic indicators of Russia and price for oil over the past 10 years employing the VECM and controlling for the economic shock of 2008-2009. The main findings of the study are significant and go in line with the general theory. To specify:
- Changes in oil prices in direct ratio affect the level of production, in other words increase in hydrocarbon cost pushes Russian economy up.
- High oil price, among other things, causes the unemployment rate in Russia to decline.
- In the short run, inflation favorably, but weakly influences the level of production as well as employment in Russia.
- Unemployment rate in Russia, as expected, has adverse impact on the total output level.
- In accordance with error correction terms GDP and unemployment rate needs about 3 quarters to return to the equilibrium level after the structural changes.
By results of the investigation, we can confirm the hypothesis that the stable economic growth of Russia and moderate unemployment rate from 2005 to 2015, among other things, was caused by the favorable oil price. Thereby this paper supports the findings of Melnikov R., (2010), Gostev A., (2016) and others.
The study analyzed only the interaction between three basic macroeconomics indicators and oil price, but the future direction of the research will be to expand the research area by including indicators like foreign direct investments, exchange rate, national export and import and etc. Such manipulation is expected to improve the quality of the investigation and enables to make more precise policy recommendations.
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