Evaluating Russia’s trade patterns

Abstract

This article offers empirical evidence on the major trends in the nature of Russia’s trade and on the determinants of the different types of trade: horizontal intra-industry trade (HIIT), vertical intra-industry trade (VIIT) and inter-industry trade (INT). The estimation results of gravity-type log-linear models suggest that the combined economic size of Russia and the trading partner has a positive effect, while the distance between the two countries has a negative effect for all types of trade. They also suggest that FDI has a significant effect on all types of trade; however, the effect varies according to whether the partner country is a member of the CIS/CU or not, and whether the FDI is outward or inward.

Keywords:

• Horizontal and vertical intra-industry trade
• foreign direct investment
• gravity model
• Russia

Jel Classifications:

• F14
• F21
• P33

Acknowledgements

The views expressed in this article are those of the author and do not necessarily reflect those of Mizuho Research Institute Ltd. An earlier version of this article was presented at the first World Congress of Comparative Economics, Rome, Italy, 26 June 2015, and at the IX World Congress of ICCEES, Makuhari, Japan, 5 August 2015. The author wishes to thank Philip Hanson and Iikka Korhonen for comments on that draft.

Notes

1. The SITC Rev. 3 has the basic 10-section structure at the one-digit level (SITC 0–9). The sections are subdivided into 67 divisions at the two-digit level, 261 groups at the three-digit level, 1033 groups at the four-digit level, and 3121 headings at the five-digit level. The goods subject to the analysis of this article are those falling into nine sections of SITC at the one-digit level (SITC 0–8) because SITC 9: commodities and transactions not classified elsewhere in the SITC, is omitted from the analysis.

2. According to the database, in 2000–2013, the values of Russia’s exports and imports to/from the eight countries as a share of Russia’s total exports and imports averaged 35.4% and 54.1%, respectively. It should be noted however, that data on Russia in the database have the following two shortcomings. Firstly, they lack data reported by Russia on trade with Belarus in 2000–2011 and with Kazakhstan in 2010–2011. These omitted data are substituted by data reported by the trading partners. Secondly, Russia’s export of natural gas in the gaseous state (SITC 3432) to Germany and Italy are not reported in the database.

3. The annual average growth rate for each type of trade was more pronounced in 2000–2008 (INT: 23.0%, VIIT: 15.6%, HIIT: 16.1%), while it slowed down in 2008–2013 (INT: 2.4%, VIIT: 2.4%, HIIT: –0.8%).

4. Kandogan (2003) suggests that more than half of trade in the manufacturing and the machinery sectors is IIT at the end of the 1990s.

5. According to the Russian government, in Kazakhstan, import tariff rates on around half (45%) of the number of goods (tariff lines) were hiked while the rates on 10% of tariff lines were reduced at the time of introducing the CET. In Belarus, the rates on 18% of tariff lines were hiked and those on 7% of lines were reduced. In Russia, relatively few tariff lines changed since the CET was mainly based on the Russian duties – import tariff rates on only 4% of tariff lines were hiked and 14% were reduced.