International Oil Price Fluctuations Of Russia's Economic Growth Impact Study

Thanks to the rising oil prices, Russia’s economy finally recovered and had significant growth after year2000. Thus the relationship between oil prices and the growth of Russia’s economy receives more and more attention. Study on oil prices’ contribution to Russia’s economy helps us understand the achievements of Russian economic transition and the importance of oil industry. It is also of great significance for China when expanding the sources of oil and gas from Russia.This paper investigates the impact of oil prices on Russia’s economy both theoretically and empirically. Theoretical analysis, which mainly discusses the transmission mechanism, shows that on the one hand, oil prices can stimulate economic growth by increasing the income and purchasing power as well. Meanwhile, the establishment of Stabilization Fund of Russia plays an important role in implementing the government’s economic policy and also preventing the risk of decreasing oil prices. On the other hand, the rising oil prices also have some negative effects which threaten the long-term growth of Russia’s economy. These threats includes:1) The increasing oil prices of factors and goods may lead to inflation.2) The rising oil prices will cause adjustment cost, since expansion of oil industry and flow of labor and capital cannot be finished in no time.3) It will also lead to the appreciation of Ruble and the decline of manufacturing industry’s competitiveness.4) Remarkable profit of oil industry also results in the proliferation of rent-seeking activities and corruption. Net influence of oil prices on Russia’s economy depends on the size of both positive and negative effects. It is found that the growth of Russia’s economy is positively related to oil price shocks, as long as it exports enough oil.Granger causality tests show that oil prices Granger cause Russia’s real GDP growth, but no Granger causality is found from growth of Russia’s economy to oil prices. Thus it can be concluded that Russia’s economy heavily depends on the high oil prices. Although Russia is the world’s second largest oil exporter, its growth rate has negligible influence on oil prices. Impulse response function shows that Russia’s real GDP and its components respond positively to the oil price shock to the largest extent in the second quarter, which makes sense since usually time lag of3to4months exists from changes in oil prices to changes in prices of oil futures contracts, and then to the growth of macroeconomics. What’s more, variance decomposition results indicate that oil prices account for13.2%variance of real GDP, which further proves that Russia’s high dependence on external oil prices.