In a recent blog, our colleague Birgit Hansl adds her voice to the chorus of economists warning us of Russia’s coming deceleration. If she is right, this is especially bad news for Russia. If the recent past is an indicator of what may happen; this looming slump will have dramatic effects on the structure of the economy.
A slowdown in Russia means a wiping out of gains made during booms. Russia’s economy has experienced several booms and busts in the recent past. We found that young firms, even if they are efficient, were more likely to die off during a slump. Not so for incumbents. They had staying power independent of their relative efficiency. So much for the new blood that the economy needs to diversify!
Russia's economy is concentrated and dependent on the extraction of natural resources. Recent trends are not promising. Growth in Russia has been limited to a few sectors and to a few firms. Russia is much less diversified today than it was during the Soviet Era, both within and across sectors. The bottom quartile of the manufacturing sector, ranked by operating revenue, contributes 0.6 percent of total manufacturing output while the top quartile contributes 80 percent. In addition, the average share of output for the bottom quartile of firms (in terms of operating revenue) in a manufacturing sector is 0.06 percent while the share of the top quartile is 94.7 percent.