Trade interdependence between Russia vs. the European Union and China within the context of the competitiveness of the Russian economy

Abstract

Research background: The position of a country in the international division of labour is determined by the competitiveness of its trade, the structure of which may both reveal and perpetuate the comparative advantages possessed. This is particularly true for Dutch disease economies such as Russia. Recently, economic literature has seen a growing interest in the topic of Russia?s economic relations with the European Union and China. This article is aimed at being the Author?s contribution to this discussion.

Purposes of the article: (1) to discuss the existing trade interdependence between Russia and the EU28, and Russia and China; (2) to try to assess the extent to which the current structure of Russian trade with these two partners corresponds with the competitiveness of the Russian economy.

Methods: An in-depth analysis of Russia-EU28 and Russia-China trade interdependencies in 2007-2015 has been conducted, with emphasis on the categories of goods within the spectrum from low- to high-technology, according to the OECD classification. Furthermore, in order to analyse Russia?s competitive profile with regard to the same categories of goods, Balassa?s methodology of revealed comparative advantages has been applied.

Findings & Value added: In the recent years, a growing importance of China in Russian trade turnover can be observed, being the effect of dynamic growth of Chinese economy, cooling political relations between Moscow and Brussels and the drop in oil prices in international markets. The existing structure of Russian trade with the EU28 and China seems likely to preserve its traditional competitive advantages in the medium-low-technology goods and oil, which, in turn, will only further exacerbate the negative consequences of the so-called Dutch disease affecting the Russian economy.

Keywords

trade interdependence, competitiveness, competitive advantages, Russia, European Union, China

References

1. Balassa, B. (1965). Trade liberalization and ‘revealed’ comparative advantage. Manchester School of Economic and Social Studies, 33. DOI: https://doi.org/10.1111/j.1467-9957.1965.tb00050.x
   View in Google Scholar
2. Balassa, B. (1989). ‘Revealed’ comparative advantage revisited. In B. Balassa (Ed.). Comparative advantage, trade policy and economic development. New York: New York University Press.
   View in Google Scholar
3. Bond, I., Odendahl, C., & Rankin, J. (2015). Frozen: the politics and economics of sanctions against Russia. Centre for European Reform.
   View in Google Scholar
4. Costinot, A., Donaldson, D., & Komunjer, I. (2012). What goods do countries trade? A quantitative exploration of Ricardo’s ideas. Review of Economics Studies, 79(2). doi: 10.1093/restud/rdr033. DOI: https://doi.org/10.1093/restud/rdr033
   View in Google Scholar
5. Covi, G. (2014). Dutch disease and sustainability of the Russian political economy. Economics and Policy of Energy and the Environment, 2. doi: 10.3280/EFE20 14-002005. DOI: https://doi.org/10.3280/EFE2014-002005
   View in Google Scholar
6. Crozet, M., & Hinz, J. (2016). Friendly fire – the trade impact of the Russia sanctions and counter-sanctions. Kiel Working Paper, 2059.
   View in Google Scholar
7. Dalum, B., Laursen, K., & Villumsen, G. (1998). Structural change in OECD export specialization patterns: de-specialization and ‘stickiness’. International Review of Applied Economics, 12(3) doi: 10.1080/02692179800000017. DOI: https://doi.org/10.1080/02692179800000017
   View in Google Scholar
8. Dannreuther, R. (2016). EU-Russia energy relations in context. Geopolitics, 21(4). doi: 10.1080/14650045.2016.1222521. DOI: https://doi.org/10.1080/14650045.2016.1222521
   View in Google Scholar
9. Deb, K., & Hauk, W. R. (2017). RCA indices, multinational production and the Ricardian trade model. International Economics and Economic Policy, 14(1). doi: 10.1007/s10368-015-0317-z. DOI: https://doi.org/10.1007/s10368-015-0317-z
   View in Google Scholar
10. Dobrynskaya, V., & Turkisch, E. (2010). Economic diversification and Dutch disease in Russia. Post-Communist Economies, 22(3). doi: 10.1080/14631377. 2010.498680. DOI: https://doi.org/10.1080/14631377.2010.498680
    View in Google Scholar
11. Dragneva, R., & Wolczuk, K. (2012). Russia, the Eurasian customs union and the EU: cooperation, stagnation or rivalry? Chatham House Briefing Paper REP BP, 2012/01. doi: 10.2139/ssrn.2125913. DOI: https://doi.org/10.2139/ssrn.2125913
    View in Google Scholar
12. Dülger, F., Lopcu, K., Burgaç, A., & Ballı, E. (2013). Is Russia suffering from Dutch disease? Cointegration with structural break. Resources Policy, 38(4). doi: 10.1016/j.resourpol.2013.09.006. DOI: https://doi.org/10.1016/j.resourpol.2013.09.006
    View in Google Scholar
13. European Commission. (2014). European competitiveness report 2014 "Helping firms grow". Brussels: European Commission.
    View in Google Scholar
14. Falkowski, K. (2017). Long-term comparative advantages of the Eurasian Economic Union member states in international trade. International Journal of Management and Economics, 53(4). doi: 10.1515/ijme-2017–0024. DOI: https://doi.org/10.1515/ijme-2017-0024
    View in Google Scholar
15. Falkowski, K. (2018). Competitiveness of the Baltic States in international high‑technology goods trade. Comparative Economic Research, 21(1). doi: 10.2478/cer-2018-0002. DOI: https://doi.org/10.2478/cer-2018-0002
    View in Google Scholar
16. Gnidchenko, A. A., & Salnikov, V. A. (2015). Net comparative advantage index: overcoming the drawbacks of the existing indices. Higher School of Economics Research Paper, WP BRP 119/EC/2015. doi: 10.2139/ssrn.2709009. DOI: https://doi.org/10.2139/ssrn.2709009
    View in Google Scholar
17. Gregory, P. (2018). A reassessment of Putin's Russia: the economy. South Central Review, 35(1). doi: 10.1353/scr.2018.0009. DOI: https://doi.org/10.1353/scr.2018.0009
    View in Google Scholar
18. Harsem, O., & Claes, D. H. (2013). The interdependence of European-Russian energy relations. Energy Policy, 59. doi: 10.1016/j.enpol.2013.04.035. DOI: https://doi.org/10.1016/j.enpol.2013.04.035
    View in Google Scholar
19. Hatzichronoglou, T. (1997). Revision of the high technology sector and product classification. STI Working Papers 1997/2. DOI: https://doi.org/10.1787/050148678127
    View in Google Scholar
20. Herrero, A. G., & Xu J. (2016). The China-Russia trade relationship and its impact on Europe. Working Paper, 4. Retrieved from http://bruegel.org/wp-content/uploads/2016/07/WP-2016_04-180716.pdf.
    View in Google Scholar
21. Hinloopen, J., & Van Marrewijk, C. (2001). On the empirical distribution of the Balassa index. Weltwirtschaftliches Archiv, 137. doi: 10.1007/BF02707598. DOI: https://doi.org/10.1007/BF02707598
    View in Google Scholar
22. Hoen, A. R., & Oosterhaven, J. (2006). On the measurement of comparative advantage. Annals of Regional Science, 40(3). doi: 10.1007/s00168-006-0076-4. DOI: https://doi.org/10.1007/s00168-006-0076-4
    View in Google Scholar
23. Huasheng, Z. (2016). Sino-Russian economic cooperation in the Far East and Central Asia since 2012. Eurasia Border Review, 6(1). doi: 10.14943/ebr.6.1.103.
    View in Google Scholar
24. Iapadre, P. L. (2001). Measuring international specialization. International Advances in Economic Research, 7(2). doi: 10.1007/BF02296007. DOI: https://doi.org/10.1007/BF02296007
    View in Google Scholar
25. Ito, K. (2017). Dutch disease and Russia. International Economics, 151. doi: 10.1016/j.inteco.2017.04.001. DOI: https://doi.org/10.1016/j.inteco.2017.04.001
    View in Google Scholar
26. Ivanter, V. V. (2018). Prospects of economic development in Russia. Studies on Russian Economic Development, 29(3). doi: 10.1134/S1075700718030061. DOI: https://doi.org/10.1134/S1075700718030061
    View in Google Scholar
27. Laursen, K. (2015). Revealed comparative advantage and the alternatives as measures of international specialization. Eurasian Business Review, 5(1). doi: 10.1007/s40821-015-0017-1. DOI: https://doi.org/10.1007/s40821-015-0017-1
    View in Google Scholar
28. Lavrov, S. (2013). State of the Union Russia-EU: prospects for partnership in the changing world. Journal of Common Market Studies, 51. doi: 10.1111/jcms. 12047. DOI: https://doi.org/10.1111/jcms.12047
    View in Google Scholar
29. Liuhto, K. (2015). The economic dependence of EU member states on Russia. In A. Pabriks & A. Kudors (Eds.). The war in Ukraine: lessons for Europe. Riga: University of Latvia Press.
    View in Google Scholar
30. Locatelli, C., Abbas, M., & Rossiaud S. (2017). The emerging hydrocarbon interdependence between Russia and China: institutional and systemic implications. Europe-Asia Studies, 69(1). doi: 10.1080/09668136.2016.1274020. DOI: https://doi.org/10.1080/09668136.2016.1274020
    View in Google Scholar
31. Lukin, A. (2013). Russian-Chinese relations. ISPI Analysis, 167.
    View in Google Scholar
32. Miller, Ch. (2018). Putinomics. Power and money in resurgent Russia. Chapel Hill: The University of North Carolina Press. DOI: https://doi.org/10.5149/northcarolina/9781469640662.001.0001
    View in Google Scholar
33. Mironov, V. V., & Petronevich, A. V. (2015). Discovering the signs of Dutch disease in Russia. Resources Policy, 46(2). doi: 10.1016/j.resourpol.2015 .09.007. DOI: https://doi.org/10.1016/j.resourpol.2015.09.007
    View in Google Scholar
34. Nevskaya, A. (2016). Russia-EU economic relations: assessing two years of sanctions. Retrieved form http://www.russia-direct.org/analysis/russia-eu-economic-relations-assessing-two-years-sanctions.
    View in Google Scholar
35. Organisation for Economic Co-operation and Development (2011). ISIC Rev. 3 Technology intensity definition. Classification of manufacturing industries into categories based on R&D intensities. Retrieved from http://www.oecd.org/sti/ind/48350231.pdf.
    View in Google Scholar
36. Popkova, E. G., & Sukhodolov, Y. A. (2017). Foreign trade as a factor of economic growth. Russian-Chinese foreign trade cooperation. Springer International Publishing. DOI: https://doi.org/10.1007/978-3-319-45985-1
    View in Google Scholar
37. Priede, J., & Pereira E. T. (2015). European Union’s competitiveness and export performance in context of EU-Russia political and economic sanctions. Procedia – Social and Behavioral Sciences, 207. doi: 10.1016/j.sbspro.2015.10.138. DOI: https://doi.org/10.1016/j.sbspro.2015.10.138
    View in Google Scholar
38. Rautava, J. (2011). Russia's economic policy and Russia-China economic relations. In A. Moshes & M. Nojonen (Eds.). Russia-China relations. Current state, alternative futures, and implications for the West. Helsinki: The Finnish Institute of International Affairs.
    View in Google Scholar
39. Romanova, T. (2014). Russian energy in the EU market: bolstered institutions and their effects. Energy Policy, 74. doi: 10.1016/j.enpol.2014.07.019. DOI: https://doi.org/10.1016/j.enpol.2014.07.019
    View in Google Scholar
40. Rutland, P. (2014). The impact of sanctions on Russia. Russian Analytical Digest, 157.
    View in Google Scholar
41. Sidorenko, T. (2014). The scope of economic cooperation between Russia and China and future prospects. Problemas del desarrollo, 45(176). DOI: https://doi.org/10.1016/S0301-7036(14)70849-1
    View in Google Scholar
42. Siggel, E. (2006). International competitiveness and comparative advantage: a survey and a proposal for measurement. Journal of Industry, Competitiveness and Trade, 6(2). doi: 10.1007/s10842-006-8430-x. DOI: https://doi.org/10.1007/s10842-006-8430-x
    View in Google Scholar
43. Simola, H. (2016). Economic relations between Russia and China – increasing inter-dependency? BOFIT Policy Brief, 6.
    View in Google Scholar
44. Startiene, G., & Remeikiene, R. (2014). Evaluation of revealed comparative advantage of Lithuanian industry in global markets. Procedia – Social and Behavioral Sciences, 110. doi: 10.1016/j.sbspro.2013.12.887. DOI: https://doi.org/10.1016/j.sbspro.2013.12.887
    View in Google Scholar
45. Tabata, S. (2012). Observations on Russian exposure to the Dutch disease. Eurasian Geography and Economics, 53(2). doi: 10.2747/1539-7216.53.2.231. DOI: https://doi.org/10.2747/1539-7216.53.2.231
    View in Google Scholar
46. Tuzova, Y., & Qayum, F. (2016). Global oil glut and sanctions: the impact on Putin’s Russia. Energy Policy, 90. doi: 10.1016/j.enpol.2015.12.008. DOI: https://doi.org/10.1016/j.enpol.2015.12.008
    View in Google Scholar
47. UN Comtrade (2017). United Nations Commodity Trade Statistics Database. Retrieved from https://comtrade.un.org/.
    View in Google Scholar
48. Unnikrishnan, N., & Purushothaman, U. (2015). Trends in Russia-China relations. New Delhi: Observer Research Foundation.
    View in Google Scholar
49. Vollrath, T. (1991). A theoretical evaluation of alternative trade intensity measures of revealed comparative advantage. Weltwirtschaftliches Archiv, 127(2). doi: 10.1007/BF02707986. DOI: https://doi.org/10.1007/BF02707986
    View in Google Scholar
50. Wilson, J. L. (2015). Strategic partners: Russian-Chinese relations in the post-Soviet era. New York: Routledge. DOI: https://doi.org/10.4324/9781315700601
    View in Google Scholar
51. Wilson, J. L. (2016). The Eurasian Economic Union and China’s silk road: implications for the Russian–Chinese relationship. European Politics and Society, 17(1). doi: 10.1080/23745118.2016.1171288. DOI: https://doi.org/10.1080/23745118.2016.1171288
    View in Google Scholar
52. Yu, R., Cai, J., & Leung, P. (2009). The normalized revealed comparative advantage index. Annals of Regional Science, 43(1). doi: 10.1007/s00168-008-0213-3. DOI: https://doi.org/10.1007/s00168-008-0213-3
    View in Google Scholar