Impact of Resource Extraction and Demographic Issues on Russian Economic Growth

Modern Russia is a strong superpower, also it has the status of a developed country. However, its economy is fragile and depends on the energy sector. One of the reasons for this problem is the high attention of the Soviet Union to oil and gas production. The Russian energy sector was developed during the Soviet period and USSR was the biggest producer and second consumer of oil and gas in the world (Besedkina, Romashkova, and Tantsura 2019, 117). This process made a background for Russia’s “Dutch disease”. Although Russia is considered as the developed country and recognized as a superpower of the world, its Gross Domestic Product (GDP), high dependence on the energy sector and hard demographic state is not competitive with other developed countries.

Modern Russia is a contradictory country due to the fragile economic state and high dependence on the energy sector, while it is considered as one of the strongest countries of the world and has a status of the developed country. Russia is one of the biggest producers of oil gas in the world with market share 13 % and 80% of Russian export is consisted of exporting of raw materials. Therefore, the role of manufacturing in the economy is low. According to Besedkina, Romashkova, and Tantsura (2019, 117), ‘the energy intensity of gross domestic product is 1.9 times higher than worldwide average one, two times higher than the energy intensity of the USA and three times higher than the energy intensity of leading Europe countries’. Hence, the role of the oil and gas sector in the Russian economy is very high, and its GDP depends on the primary sector. During the period from 2000 to 2008 Russia’s GDP was growing for 7% each year, but in 2009 sharply decreased for 7,8% when oil prices collapsed (Mironov and Petronevich 2015, 97). One of the main dangers of Dutch Disease is deindustrialization, which means the decrease in manufacturing if oil prices increase. During the growth periods, most the investments are coming into the oil and gas extraction and processing. Research conducted by Algieri (2011, 261) found that oil prices stimulate GDP growth and decrease manufacturing output. In fact, the economic course of Russia economy's development relies on oil and gas export. The main evidence is the correlation between GDP growth and oil prices. Algieri argues, that ‘the Russian ‘‘economic miracle’’ has been mainly triggered by high oil prices’. The other correlation is the dependence of ruble from oil prices because it was found that increase in manufacturing does not lead to an appreciation of ruble, while a decrease in oil prices causes depreciation (Mironov and Petronevich 2015, 108). Considering all these facts, it could be assumed, that the Russian economy relies on the export of raw materials, and that domination of primary sector leads to stagnation of secondary and tertiary sectors, or industrialization process. Another problem is the instability of ruble, which is fixed to oil prices’ changes. These are the main evidences of Dutch disease signs in the economy of Russia. Thus the Russian economy is very vulnerable to oscillations of the global economy. Development of not-industrial and manufacturing sectors is essentially needed for Russia to become an economically strong country because diversification of economy will lead to more stable ruble and GDP growth.

Another huge problem in Russia is a demographic crisis. After the USSR decay, Russia experienced a strong demographic crisis. In the period 1992-2012, Russia lost 13,5 million of people. Iontsev and Subbotin (2018, 15) argue that this was happened due to low fertility, and as a consequence, it has lead to a high percentage of elderly people. The demographic crisis made a huge impact on the Russian population because the new problem appears. The higher percentage of older people means, that economy of Russia and young people, living there, will experience high economic load in the future. However, low fertility is not the only reason for that catastrophe. Shlapentokh (2005, 953) states that one of the main cause among men in Russia is alcohol, especially vodka, because ‘one-third of all deaths in the country, three-quarters of all murders and almost half of all external causes of death can be ascribed to alcohol’. These studies were made in the period of 1990s, but that time made a huge background for Russian demography state. The problem of alcoholism is still very problematic for Russia because it causes health care problems and high crime levels. All these factors have a huge impact on the Russian economy because results of that problems lie on the healthcare, manufacturing, and society. According to the research of Iontsev and Subbotin (2018, 8), in 2015, Russia still had a natural decline of population. Also in 2017, the fertility rate was 1,61 children for one woman. Thus, the demographic crisis continues. The only hope for Russia is immigration, because immigrants may change the situation significantly. It was estimated, that by 2035 the population of Russia will be 141,1 million people if immigrants’ inflow is not considered, while with immigrants the population of Russia will be 146,5 million people. As a result, the demographic situation of Russia is critical and the Russian government need to find solutions because the economy suffers.

In conclusion, after 28 years of independence Russia still has not recovered from USSR decay. Firstly, the economy became more orientated for raw materials’ export, thus worsening the ruble state, slowing down GDP growth and decreasing the manufacturing. These are all the signs of Dutch Disease, so the Russian government needs significant improvements to avoid the next energy crisis and prevent their influences. The crisis in 2008 and 2014 showed the world main weaknesses of the Russian economy. In addition, the economic state of Russia is worsened by the demographic crisis, which still continues, because fertility is low and the number of children is low, thus economically active population decreases. Social and economic problems will impede the development of Russia due to Dutch disease and demographic problems, so it needs solutions to become competitive and to prove the status of a developed country.

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