The exchange rate, 'Dutch Disease' and de-industrialization in Russia

The purpose of this dissertation is to provide a contribution to the analysis of the phenomenon referred to as "Dutch Disease," which manifests itself through real exchange rate appreciation, reallocation of productive factors and de-industrialization caused by rapid price increases or discoveries in the natural resources. There are two main channels through which demand for goods and services can be stimulated. One channel is through expansion of credit when domestic demand is stimulated internally. The other is through investments in the export and import competing industries (manufacturing sector). In this regard I argue that after the 1998 currency crisis it was rather by the force of economic circumstances and not by design that the Russian government chose to rely on the credit policy for stabilization of prices and consequently exchange rate market. This choice would accommodate the main objective of the monetary policy: accumulation of foreign reserves. This policy inevitably was bound to stimulate consumption rather than investment in times of inadequate demand; it also transformed the Russian economy into one of high consumption and low investment. I also argue that the Russian Government did not need to create policy of neutralizing effects of the Dutch Disease because from 2000 to 2009 higher oil prices did not have strong impact on the real exchange appreciation.