Real Effective Exchange Rate of Rouble and Competitiveness of Russian Agrarian Producers

20 Pages·2016·1.35 MB·English

Maitah, Mansoor; Kuzmenko, Elena; Smutka, Lubos
Article
Real effective exchange rate of rouble and
competitiveness of Russian agrarian producers
Economies
Provided in Cooperation with:
MDPI – Multidisciplinary Digital Publishing Institute, Basel
Suggested Citation: Maitah, Mansoor; Kuzmenko, Elena; Smutka, Lubos (2016) : Real effective
exchange rate of rouble and competitiveness of Russian agrarian producers, Economies, ISSN
2227-7099, MDPI, Basel, Vol. 4, Iss. 3, pp. 1-19,
https://doi.org/10.3390/economies4030012
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economies
Article
Real Effective Exchange Rate of Rouble and
Competitiveness of Russian Agrarian Producers
MansoorMaitah*,ElenaKuzmenkoandLubosSmutka
DepartmentofEconomics,FacultyofEconomicsandManagement,CzechUniversityofLifeSciences,
Prague16521,CzechRepublic;[email protected](E.K.);[email protected](L.S.)
* Correspondence:[email protected];Tel.:[phone]
AcademicEditor:RalfFendel
Received:3March2016;Accepted:15June2016;Published:27June2016
Abstract: AnumberofdevelopmentprojectswerelaunchedinRussiatosupportagro-producers,
emphasizing increasing potential and perspective significance of Agrarian sector in the Russian
economy. In light of this, it becomes interesting to investigate the position of agro-producers
both in comparison to producers from other domestic sectors and relatively to its main foreign
competitors. Ananalysisoftherecentdynamics(from2000to2014)oftherealeffectiveexchange
rateofRussianroubleservesinthepresentstudyasanindicatorofpricecompetitiveness,which
determinesrelativepositionofdomesticproducersinexternalmarkets. Theactualcompetitivestate
of Russian agro-producers is analyzed by the means of revealed comparative advantage indices
proposedbyBalassa,VollrathandLafay. Thecalculationshaveshownthattheentireanalyzedperiod
canbegenerallycharacterizedastheperiodofsignificantrealappreciationoftheRussianroubleand
thereasonbehindthisisthedifferenceininflationratesinRussiaanditsmainforeigntradepartners.
Thispredeterminedtherelativelylowpricecompetitivenessofagro-producers,whichwasmostly
confirmedbycalculatedvaluesofBalassaRevealedComparativeAdvantage(RCA)index,Vollrath
RevealedCompetitivenessindex(VRC)andLafayTradeSpecializationindex(LFI).Theshort-term
realdepreciationsoftheroubledidnothaveanyexpectedsubstantiallypositiveimpactsontheir
competitiveposition.
Keywords: real effective exchange rate; agrarian producers; economic sectors; competitiveness;
Balassaindex;Vollrathindex;Lafayindex;Russia
JELClassification: F31;Q17
1. Introduction
TheRussiangovernment’sactivityaimedatregulationandsupportofagriculturehasincreased
recently. Thenecessityofreceivingbyagricultureastatesupport,includingfinancialsupport,aimed
at stimulation of its efficiency growth, is determined by the characteristics of the agrarian sector.
Among these characteristics can be listed the following ones: the impact of climatic factors that
determinethecreationanddevelopmentoftheinsurancesystemwiththedirectparticipationofthe
state;pricevolatility,whichdependsonmarketconditionsandischaracterizedbylowelasticityof
demandforagriculturalproducts;alowdegreeofmonopolizationofagriculturalproductioncompared
withothersectorsoftheeconomy;andlackofcapitalinflowsintointensiveagriculture,whichcannot
haveareturnoninvestmentgreaterthaninotherareas(Shkarupa,2010[1];Batmanovaetal.,2014[2]).
ProminentAmericanspecialistontheRussianeconomyCliffordGaddypointsoutthatRussia’soiland
gassectorwillcontinue,forthepredictablefuture,tobethekeytothecountry’seconomicdevelopment
(Gaddy,2004[3]). Nevertheless,therecentpolicydirectionforreformingRussia’sindustrialstructure
shouldalsobenoted. Asitisknown,theRussiangovernmenthasadoptedapolicytotargeteconomic
Economies2016,4,12;doi:10.3390/economies4030012 www.mdpi.com/journal/economies
Economies2016,4,12 2of19
developmentawayfromheavydependenceonoilandgas(Kuboniwa,2011[4]). Themostimportant
events in agricultural policy during the years selected for the analysis in the present paper (from
2000to2014)werethenationalproject“TheDevelopmentofAgriculturalComplex”(2006–2007),the
FoodSecurityDoctrineoftheRussianFederation(2010),andRussia’saccessiontotheWorldTrade
Organization(2012). Theadoptionofthesedocumentshasestablishedanewformalframeworkfor
agricultural business, and created a space for emerging possibilities to change the situation in the
country’s agriculture (Barsukova, 2013 [5]). Within the frameworks of these directives, a number
ofdevelopmentprojectswerelaunchedtosupportagrarianproducers,whichemphasizesthefact
ofincreasingpotentialandperspectivesignificanceoftheAgrariansectorintheRussianeconomy
(Shkarupa, 2010[1]). Inlightofthis, itbecomesinterestingtoinvestigatethecompetitiveposition
of Russian Agrarian producers both in comparison to domestic producers from other sectors and
inrelationtoitsmainforeigncompetitors. (MaitahandSmutka,2016[6]),(Smutkaetal.,2015[7]),
(Maitahetal.,2016[8]).
Economists employ the notion of “competitiveness” in various ways. One is exclusively
macroeconomic: theabsenceofcompetitivenessisconsideredasarealexchangerateposer,whena
countryatfullemploymentexperiences“apersistent(andunwelcome)currentaccountdeficitwhich
wouldinduecourserequireadjustment,usuallyviaamixtureofdeflationanddepreciation”(Boltho,
1996[9]). Themeasureofcompetitivenesshereis“relativepriceand/orcostindicesexpressedinsome
commoncurrency”(Boltho,1996[9]). Thisapproachimpliesthat“underlyingstructuralfactorsare
constant(orirrelevant)andfocusesonthekindsofshort-termmacroeconomicmanagementthataffect
relativepriceofnationalgoodsandservicesrelativetoothercountries”(Lall,2001[10]). Accordingto
economictheory,oneofsuchmacroeconomictoolsenablingmonitoringandtheadjustmentofprice
competitivenessofdomesticproducersistherealeffectiveexchangerate(Klvacˇová,2005[11]). Itis
important that the real effective exchange rate does not deviate steadily and too much from its
equilibriumlevelgivenbyeconomicfundamentalssothatrelativepriceskeepneartotheequilibrium
overtimeallowingacountry’sexternalpositionbesustainable(Ajevskisetal.,2014[12]).
BothfundamentalcharacteristicsoftheRussianeconomyandexternalenvironmentplayaleading
roleinshapingtherealeffectiveexchangerateinRussia. Theobservedchangesintherealeffective
exchangeratearelargelycausedbyfluctuationsinworldcommodityprices,andmainlycrudeoil
prices. At the sametime, the monetaryauthorities may to a certainextent influence the exchange
rate. TheformerMinisterofFinanceintheRussianFederationAlekseyKudrin(2006)[13]assertsthat
ahighgrowthrateofnationalcurrencyappreciationisdangerousforanyeconomy,andgenerally
governmentsavoidthepolicyof“strong”nationalcurrencies. Thestrongestnegativeimpactofthe
rapidappreciationoftheroubleisperceivedbybusiness,sincetheinternalcostsstarttoexceedthe
costsofsimilarproducts’producinginothercountries. Theinfluenceoftheexternalenvironment
ontheexchangerateoftheRussianroublewasmitigatedbyappropriatemeasuresoftheRussian
Federation’sCentralBank. ThemaintoolforsolvingthisproblemistheBankofRussia’sintervention
inthecurrencymarket. Whenthetermsoftradeimprovesuchinterventionsleadtoanincreasein
foreignexchangereserves,whileduringtheperiodsofdecliningexportpricestheBankofRussia’s
interventionsresultindeclineinforeignexchangereserves. Inconductingtheexchangeratepolicy,
The Bank of Russia takes into account its impact on the competitiveness of Russian goods in the
domestic and foreign markets. Adhering to the policy of maintaining an undervalued currency,
governmentstherebyseektoprotecttheireconomiesfromforeigncompetition.
One of the strongest propositions of classical trade theory is that the pattern of international
trade,whichreflectsacountry’sexternalposition,isdeterminedbycomparativeadvantage. Inother
words,acountrywiththecomparativeadvantageinagivencommodityexports,andtheotherwith
thecomparativedisadvantage—imports(Sanidas,2010[14]). Traditionally,RevealedComparative
Advantage (RCA) indices have been used as measures, which can be interpreted in three ways.
“First,theycanprovideademarcationregardingwhetherornotagivencountryenjoysacomparative
advantage on a given commodity (dichotomous measure); second, they can provide rankings of
Economies2016,4,12 3of19
sectorswithinagivencountryincross-sectoranalysis,andrankingsofcountrieswithrespecttoa
givencommodityincross-countryanalysis(ordinalmeasure); lastly, theycanquantifythedegree
ofcomparativeadvantageenjoyedbyagivencountrywithrespecttoagivencommodity(cardinal
measure)”(Ballanceetal.,1987[15]).Accordingly,afewwaysofusingtheRCAindicesexistinorderto
analyzeacountry’stradeperformance.Themostcommonwayisto“makeacomparisonacrosssectors
withinagivencountryoracrosscountrieswithrespecttoagivensectorsbyusingrankingsinorder
ofthecalculatedindexvaluesortoexaminehowmuchofcomparativeadvantageordisadvantagea
givencountrygainedduringtheperiodofinterestbydirectlycomparingthecalculatedindexvalues”
(Sanidas,2010[14]). “Themainaimofcompetitivenessstrategyistohelpcountriestorealizeorbuild
dynamiccomparativeadvantage ... whatassumesthatstaticadvantagesbasedonexistingfactor
endowmentsarealreadyfullyrealized”(Lall,2001[10]). Theimportantquestionthatthenarisesis
whattheconditionsareunderinwhichsuchstrategiescanbeestablishedsuccessfully. Inordertotry
toanswerthisquestion,oneneedsfirsttoanalyzethecurrentstateofaffairsinthatfieldinacountry
reflectedbythefollowing(amongothers)macroeconomicindicators: realeffectiveexchangerateof
localcurrencyunit(LCU),andRCAindices,whichtakeintoaccountbothexportandimportflowsof
differentcommoditygroups.
Everythingmentionedabovepredeterminedthemainaimofthepresentpaper: toanalyzethe
recent dynamics (from 2000 to 2014) of the real effective exchange rate of the Russian rouble and
compareitsevolutionwiththepositionofRussianAgrarianproducers(alongwithotherproducers
ofselectedcommoditygroups)incorrespondinginternalandexternalmarkets. Theinternalmarket
positionisrepresentedinthepresentstudybymarketshareofRussianproducersindomesticmarkets.
ThepositionofdomesticproducersincorrespondingexternalmarketsisreflectedbyBalassa,Vollrath
andLafayindicesofthekeycommoditygroupsoftheRussianFederation’sforeigntradeflows.
2. Methodology
Themethodologyofthepresentstudy, beingbasedonthemainpropositionsoftheClassical
trade theory and Keynesian theory of exchange rate, employs correspondingly both foreign trade
performanceindicatorsandrealeffectiveexchangerateindex. Thus, inordertoachievethemain
goalofthepresentpaper,i.e.,toanalyzetherecentdynamics(from2000to2014)oftherealeffective
exchangerateofRussianrouble(REER)andcompareitsevolutionwiththedynamicsofcompetitive
positionofRussianagrarianproducers(alongwithotherselectedsectors’producers)incorresponding
internalandexternalmarkets,theresearchwillconsistofthefollowingthreemainsections:
1. ThecalculationoftherealeffectiveexchangerateofRussianrouble.
2. TheanalysisofRussianagro-producers’competitivenessininternalmarkets.Thissection,inturn,
consistsoftwosubsections:
- the calculation of average annual growth rates of industrial manufacturing (selected
commodity groups) in Russia and average annual growth rates of corresponding
Russianimports;
- thecalculationofdomesticproducers’(selectedcommoditygroups)marketshare.
3. TheanalysisofRussianagro-producers’competitivenessinexternalmarkets.
ThissectiondealswithcalculationofBalassaRevealedComparativeAdvantageIndex,Vollrath
RevealedCompetitivenessIndexandLafaytradespecializationindex. Thesethreemethodological
partsaredescribedinmoredetailbelow.
2.1. ThecalculationoftheRealEffectiveExchangeRateofRussianRouble
According to the methodology of the Russian Federation’s Central Bank, when constructing
the real effective exchange rate index to a basket of foreign currencies, currencies of those foreign
trade-partnershavetobetakenintoaccount,theweightofwhichintotalforeigntradeturnoverisnot
Economies2016,4,12 4of19
lessthan0.5%. Thenumberofthesecountriesovertheperiodunderanalysiswasaround30andtheir
sharecountedforslightlymorethan85%intotalRussia’sforeigntradeturnover. SomeofRussia’s
mostimportantforeigntradepartnersarelistedintheTableA1(seeAppendixA).Selectedcountries
aregroupedaccordingtotheirmembershipinaparticulareconomic/regionalblock.
However,thevastmajorityofthesecountries’currenciesaccountsforaveryinsignificantshareon
Russiancurrencymarket. Takingintoaccountthefactthatpaymentforthesupplyofmainexportedby
RussiaproductsiscarriedoutinUSD,namelytheUSDtakesthedominatingpositionontheRussian
currencymarket. Atthesametime,“theaveragetotalshareofEuroincurrencyturnoverofMoscow
InterbankCurrencyExchangewas2.6%in2007,whereastheshareofEurointhebasketofforeign
currenciesaccountsforupto44.5%”(Panilov,2009[16]).
Forthesereasons,theconstructionofREERinthepresentstudywasdoneonthebasisofbothUSD
andEURcurrencies. ThecorrespondingweightswillbecalculatedastotalturnoverofUSD/RURand
EUR/RURinMoscowInterbankCurrencyExchange. EquationforcalculationofREERisgivenbelow:
˜ ¸
źn P NERMk wmk
REER “ m ¨ m (1)
m Pk NERMk
i“1 m m´1
whereREER isthemonthlyrealeffectiveexchangeratetoUSDandEUR;P isapriceindexthat
m m
demonstratestheratioofinflationrateforthemonth-mtopreviousmonth-(m´1)inRussia;P kisthe
m
sameindexforcountry-k;NERM kisthemonthlyaveragenominalexchangerateofRussianrouble
m
(indirectquotation)tok-currencyinmonth-m;NERM kisthesameforthepreviousmonth-(m´1);
m´1
w kisnormalizedmonthlyweightofk-currency;n=2(USDandEUR);andkiscountry(impliesUSA
m
andEU).
IfthecalculatedvalueofREERindexishigherthanunityitmeansthegrowthofindexrelative
to the previous month and vice versa. The growth and decline in index values are expressed in
percentages. Thelevelofthepreviousmonthwastakenas100%sothatapercentagegrowth/decline
in REER index values was calculated as (REER ´ 1) ˆ 100%. REER index curve measured in
m
percentagesisthencalculatedwiththeuseofthefollowingequation:
REER p%q “ REER p%q´pREER ´1qˆ100% (2)
m m-1 m
According to the Equation (1), the REER index is influenced by the values of inflation rate
(expressedasConsumerPriceIndex)P , P k andnominalexchangerateindexNER k. Thus, the
m m m
resultingvalueoftheREERindexcanberewrittenas:
REER “ REERpP qˆREERpNER q (3)
m m m
whereREER(P )isaREERindexpurifiedfromNER influence(orwhenNER isconstant), but
m m m
influencedbychangesininflationrate;andREER(NER )isaREERindexpurifiedfromP influence
m m
(orwhenP isconstant),butinfluencedbychangesinNominalexchangerateindex.
m
FollowingthesamelogicasinEquation(1),weget:
źn ´ ¯wk
REERpP q“ P {Pk m (4)
m m m
k“1
źn ´ ¯wk
REERpNER q“ NERk m (5)
m m
k“1
Economies2016,4,12 5of19
CalculationofpercentagechangesinREER(P )andREER(NER )isconductedinthesameway
m m
asitwassuggestedbyEquation(2):
REERpP , %q “ REERpP , %q´pREERpP q´1qˆ100% (6)
m m-1 m
REER (NER , %q “ REERpNER , %q´pREERpNER q´1)ˆ100% (7)
m-1 m-1 m
UsingEquations(2)and(3),weget:
REER p%q “ REER p%q´pREERpP qˆREERpNER q ´ 1qˆ100% (8)
m m-1 m m
InaccordancewithPanilov(2009)[16],since(x´1)ˆ(y´1)=xˆy´x´y+1,thenforanyx
andythefollowingidentityistrue: xˆy=x+y´1+(x´1)ˆ(y´1).
Ifxandyvaluesdifferlittlefromunity,thenthefollowingapproximateequationistrue:
xˆy « x ` y´1 (9)
TheerrorforEquation(9)expressedinpercentagesisthen: ((x´1)ˆ(y´1))/100%. Errorvalues
becomesignificant,incaseif(x´1)and(y´1)equalto10%ormore(Orlov,2002).
TakingintoaccountthatREER(P )andREER(NER )donotexceed5%,wecanconsequently
m m
assertthat:
REERpP qˆREERpNER q« REERpP q ` REERpNER q´1 (10)
m m m m
SubstitutingexpressionEquation(10)intoEquation(8),weget:
REER p%q«REER p%q´pREERpP q ` REERpNER q´2qˆ100% (11)
m m-1 m m
IfweconsidertherightpartoftheEquation(11)separatelyandsimplifyitusingEquations(6)
and(7),weget: REERm´1(%)´(REER(Pm)+REER(NERm)´2)ˆ100=REER(Pm´1,%)´(REER
(Pm)´1)ˆ100+REER(NERm´1, %)´100´(REER(NERm)´1)ˆ100=REER(Pm, %)+REER
(NER ,%)´100.
m
Thus,REERindexwhereinfluencesofinflationandnominalexchangerateareseparatedcanbe
writtenas:
REER p%q« REERpP , %q ` REERpNER , %q´100 (12)
m m m
Equations (3)–(12) show the logic according to which the initial Equations (1) and (2) were
representedthewayallowingdistinguishinginfluencesexertedbyinflationrateandnominalexchange
rateonREER.Thisdecompositionhelpstoseewhatfactorwasthestrongestcauseoftherealeffective
exchangerateappreciationordepreciation. Takingintoaccountthefactthatoneofthepartialaimsof
theresearchistoanalyzetherecentdynamicsoftherealeffectiveexchangerateofRussianrouble,the
decompositionanalysisisseenasjustifiedsinceitshedsomelightontherootsofREERfluctuations.
TheresultsofthecalculationsarepresentedinFigure1(seeSection3).
2.2. AnalysisofRussianAgro-Producers’CompetitivenessinInternalMarkets
For a meaningful assessment of any phenomenon development in time, a number of various
analyticalindicatorscanbeused. Oneofthemostcommonamongthemistheaveragegrowthrate.
Theaverageannualgrowthrateinindustrialmanufacturingofselectedgroupsofcommoditiesin
theRussianeconomyaswellastheaveragerateofincreaseinimportsofcorrespondinggroupsof
commoditiesiscalculatedinthepresentstudyemployingastandardstatisticalapproachforatime
series. Theperiodfortheanalysisisfrom2000to2014. Theobtainedvalueswillthenbecompared.
TheresultsofthatcomparisonaregiveninTable2(seeSection3.1).
Economies2016,4,12 6of19
Theequationusedforthecalculationoftheaveragegrowthrateisasfollows:
GRAi “ ppGOi {GOi q1/n´1qˆ100% (13)
GO t t0
whereGRAisaveragegrowthrateexpressedin%; GO isgrossoutputinsectoriin2014; GO is
t t0
grossoutputinsectoriin2000;andnisnumberofobservationswiththesameperiodicintheselected
period(inourcasen=15).
Thesameapproachwasemployedforcalculationoftheaveragerateofincreaseinimports:
GRAi “ ((IMi {IMi )1/n´1qˆ100% (14)
IM t t0
Themethodologyforcalculatingmarketshareofdomesticproducersusedinthepresentresearch
isbasedonthestudyofBlank,GurvichandUlyukaev(2006)[17]. Tocalculatetheshareofdomestic
producersincorrespondinginternalmarketsthefollowingdatawillbeused: thevolumesofindustrial
productionbyselectedEquation(9)commoditygroupsrepresentingcorrespondingtypesofeconomic
activity(valuesareexpressedinRussianroubles(RUR)),dataonimportsandexportsofthesame
commoditygroups(rawdatawereexpressedinUSdollarsandthenwiththeuseofcorresponding
to each period exchange rates were converted to RUR). These data allow for the estimation of the
domesticsupply(S)anddomesticdemand(D)volumes:
i i
S “ Y ´Ex ˆe (15)
i i i
D “ S ` Im ˆe (16)
i i i
whereY isvolumesofproductionini-commoditygroup; Ex andIm arevolumesofexportsand
i i i
importsofi-commoditygroup(inUSD),respectively;andeistheRUR/USDnominalexchangerate.
Theshareofdomesticproducerincorrespondinginternalmarketisthencalculatedwiththeuse
ofthefollowingratio:
v “ S{D (17)
i i i
TheobtainedresultsarepresentedinTable3(seeSection3.2).
2.3. AnalysisofRussianAgro-Producers’CompetitivenessinExternalMarkets
Theclassicaltheoryofcomparativeadvantagepredictedthatgainsfromtheexchangeofgoods
maximize welfare and free trade would lead to world economic prosperity. The determinants
of the comparative advantage, however, differ among various trade theories. The Ricardian
theory, forinstance, explainscomparativeadvantagefromcostsandtechnologicaldifferences, the
Heckscher–Ohlin–Samuelsontheoryconsidersfactors’pricedifferences,thetheoryofproductcycle
examinestechnologicalinnovation,neo-technologicaltheorylooksatfactorefficiency,butconsiders
alearning-by-doingeffect(softtechnologicalchange)asthemaincauseofcomparativeadvantage
differences. Comparativeadvantagefacesameasurementproblem,asitisdefinedintermsofautarkic
pricerelationshipsthatarenotobservable.Tradestatisticsreflectonlypost-tradesituations(Benderand
Li,2002[18]). Therevealedcomparativeadvantage(RCA)approach,pioneeredbyBalassa(1965)[19],
assumesthatthetruepatternofcomparativeadvantagecanbeobservedfrompost-tradedataonly.
BalassaRCAcomparestheexportshareofagivensectorinacountrywiththeexportshareofthat
sectorintheworldmarket. TheRCAindexiscalculatedasfollows(Balassa,1965[19]):
RCA “ pX {X q{pX {X q “ pX {X q{pX {X q (18)
ij it nj nt ij nj it nt
whereX isexportsofj-commodityfromi-country;nisasetofcountries;andtisasetofcommodities.
ij
RCAindexisbasedonexportperformanceandexistingtradepatterns. Itmeasuresacountry’s
exportsofacommodityrelativetoitstotalexports. Thus,ifRCA>1,thenacomparativeadvantage
Economies2016,4,12 7of19
is revealed. Up to the present time, the Balassa’s RCA index was the most common method of
calculatingthecomparativeadvantages(SvatošandSmutka,2012[20]). Itservedasabaseforlater
developmentsofnew,morerelevanttomoderneconomicrealitiesindices. Amonglateralternative
attemptstomeasurecomparativeadvantagethefollowingmostpopularindicescanbelisted: Vollrath
Competitiveindex(VCA)andLafayindex.
AccordingtotheapproachsuggestedbyVollrath,therevealedcompetitiveness(RC)iscalculated
asthelogarithmoftherelativeexportadvantage(lnRXA)minusthelogarithmoftherelativeimport
advantage(lnRMA).Itisexpressedas:
VRC “ RC “ lnRXA´lnRMA (19)
whereRXAequalstoBalassaRCAindex,andRMAiscalculatedonthebasisoftheEquation(18),but,
insteadofexportflows,importsareconsidered.
Valuesgreaterthanzerorevealacomparativeadvantage;alternatively,negativevaluesreveala
comparativedisadvantage(Vollrath,1991[21]).
Thenextindicator,whichwasproposedbyLafay(1992)[22],measurestheextentofacountry’s
specialization in a given sector in international dimension. The Lafay index (LFI), by taking into
accountimports,allowsforcontrolofintra-industrytradeandre-exportflows. LFIindexweightseach
product’scontributionaccordingtotherespectiveimportanceintotaltrade. Foragivencountryi,and
foranygivenproductj(N,isaselectedsetofproducts),theLafayindexisdefinedas:
ř
xi´mi N pxi´miq xi`mi
LFIi “100p j j ´ řj“1 j j qř j j (20)
j xi`mi N pxi`miq N pxi`miq
j j j“1 j j j“1 j j
wherexi andmi ,are,respectively,exportsandimportsofj-commodityfromi-country.
j j
Usingthisindex,weconsiderthedifferencebetweeneachitem’snormalizedtradebalanceand
overallnormalizedtradebalance(Smutkaetal.,2014[23]). Giventhattheindexmeasureseachgroup’s
ř
contribution to the overall normalized trade balance, the following relation holds: N LFIi = 0.
j“1 j
PositivevaluesoftheLafayindexindicatetheexistenceofcomparativeadvantagesinagivenitem;
thelargerthevalueisthehigherthedegreeofspecialization. Onthecontrary,negativevaluespointto
de-specialization(Zaghini,2003[24]).
3. ResultsandDiscussion
Figure1illustratesthecalculationsonREERofRURindextoEUR-USDcurrencies(REER_EUR-USD)
alongwithREERindicesreflectingseparateinfluencesofinflationratechanges(REER_EUR-USD_P)
andnominalexchangeratechanges(REER_EUR-USD_NER)onREER_EUR-USD.Thedownward
slopeoftheREERindexcurvecorrespondstotheREERgrowth,i.e.,RURappreciationwithregardto
EUR-USDcurrencypair,andviceversa.
The first thing that deserves attention is that the observed dynamics of REER index curve
confidently points to the real appreciation of the domestic currency. The latter at the end of the
analyzedperiodcomparedtothebeginningamountedtoapproximately56%. However,in2013,the
realappreciationoftheRussianroubleachievedevenmoredramaticvaluesof94%. Therecoveryof
theREERofRUR(itsdepreciation)inthelastanalyzedyear,2014,wasduetoasharpdeclineinthe
nominalexchangerateofRURinrelationtoEUR-USDcurrencypair.
Economies 2016, 4, 12  7 of 19 
(cid:1876)(cid:3036)(cid:3398)(cid:1865)(cid:3036) ∑(cid:3015) (cid:4666)(cid:1876)(cid:3036) (cid:3398)(cid:1865)(cid:3036)(cid:4667) (cid:1876)(cid:3036)(cid:3397)(cid:1865)(cid:3036)
(cid:1838)(cid:1832)(cid:1835)(cid:3036) (cid:3404)100(cid:4666) (cid:3037) (cid:3037) (cid:3398) (cid:3037)(cid:2880)(cid:2869) (cid:3037) (cid:3037) (cid:4667) (cid:3037) (cid:3037)   (20)
(cid:3037) (cid:1876)(cid:3036)(cid:3397)(cid:1865)(cid:3036) ∑(cid:3015) (cid:4666)(cid:1876)(cid:3036) (cid:3397)(cid:1865)(cid:3036)(cid:4667) ∑(cid:3015) (cid:4666)(cid:1876)(cid:3036)(cid:3397)(cid:1865)(cid:3036)(cid:4667)
(cid:3037) (cid:3037) (cid:3037)(cid:2880)(cid:2869) (cid:3037) (cid:3037) (cid:3037)(cid:2880)(cid:2869) (cid:3037) (cid:3037)
where xij and mij, are, respectively, exports and imports of j‐commodity from i‐country. 
Using this index, we consider the difference between each item’s normalized trade balance and 
overall normalized trade balance (Smutka et al., 2014 [23]). Given that the index measures each 
group’s contribution to the overall normalized trade balance, the following relation holds: ∑(cid:3015) (cid:1838)(cid:1832)(cid:1835)(cid:3036) 
(cid:3037)(cid:2880)(cid:2869) (cid:3037)
= 0. Positive values of the Lafay index indicate the existence of comparative advantages in a given 
item; the larger the value is the higher the degree of specialization. On the contrary, negative values 
point to de‐specialization (Zaghini, 2003 [24]). 
3. Results and Discussion 
Figure  1  illustrates  the  calculations  on  REER  of  RUR  index  to  EUR‐USD  currencies 
(REER_EUR‐USD) along with REER indices reflecting separate influences of inflation rate changes 
(REER_EUR‐USD_P)  and  nominal  exchange  rate  changes  (REER_EUR‐USD_NER)  on 
REER_EUR‐USD. The downward slope of the REER index curve corresponds to the REER growth, 
Economies2016,4,12 8of19
i.e., RUR appreciation with regard to EUR‐USD currency pair, and vice versa. 
I II III IV
180
160
140 I. The period of declining price 
competitiveness
120
II. The period of increasing price 
100 competitiveness
III. The "turbulence" period with 
80
relatively low competitiveness
60 IV. Price competitiveness of Russian 
producers began to grow
40
20
0
171717171717171717171717171717
000000000000000000000000000000
‐20 0_0_1_1_2_2_3_3_4_4_5_5_6_6_7_7_8_8_9_9_0_0_1_1_2_2_3_3_4_4_
000000000000000000001111111111
000000000000000000000000000000
222222222222222222222222222222
‐40
REER_EUR‐USD REER_EUR‐USD_NER REER_EUR‐USD_P  
FFiigguurree 11.. TThheeR REEEERRo forfo ruobuleblteo taob aa sbkaestkoeftU oSfD U-ESUDR‐EcUurRr ecnucrieresn1c(i2e0s0 01 –(22001040)–,2in01%4.),N ino te%:.1 NREoEteR: i1n RdeExEiRs 
CinPdIeaxd jiuss tCePdIa anddjuthsetetodt aalntudr nthoev etrootaflU tSuDrn/oRvUeRr oafn dUESUDR/R/URUR Rancudr rEeUncRy/pRaUirRs wcueirgrhentecdy. Spoauirrsc ew:Aeuigthhoterd’s. 
cSaolucurclaet: ion,Aruawthodra’sta  takcaelncufrloatmio:nw, wwr.amwi cex.druat[a2 5]atankdehnt tpsf:/ro/mw:w  ww.stwatwbu.mreiacuex.o.rrug [26[,2257]] . and 
https://www.statbureau.org [26,27]. 
Still, in 2009, the impact of the world financial crisis made the Russian monetary authorities
The first thing that deserves attention is that the observed dynamics of REER index curve 
pass “Basic directions of general state monetary and credit policy for 2009 and for the period of
confidently points to the real appreciation of the domestic currency. The latter at the end of the 
2010–2011”inlateOctober2008. Thepolicyofmilddepreciationoftheroubleexchangerateendedin
analyzed period compared to the beginning amounted to approximately 56%. However, in 2013, the 
March2009withachievingthecurrencybandatRUR38–41pertheUSD/EURbasketcomparedto
real appreciation of the Russian rouble achieved even more dramatic values of 94%. The recovery of 
RUR29–30perthebasketinSeptember2008. ThementionedbasketconsistsofUSD0.55andEUR
the REER of RUR (its depreciation) in the last analyzed year, 2014, was due to a sharp decline in the 
0.45. In early 2010, the Russian Federation monetary authorities made the currency band floating
nominal exchange rate of RUR in relation to EUR‐USD currency pair. 
anditreachedRUR33.7–36.7perthebasketinApril2010duetotheriseinworldpricesofRussian
Still, in 2009, the impact of the world financial crisis made the Russian monetary authorities 
major export commodities” (according to the All-Russian Market Research Institute’ report [28]).
pass “Basic directions of general state monetary and credit policy for 2009 and for the period of 
Withregardtothelatestsituation,afloatingexchangerateregimeiscurrentlyunderwayinRussia.
2010–2011” in late October 2008. The policy of mild depreciation of the rouble exchange rate ended 
“Effectivefrom10November2014,theBankofRussiaabolishedtheexchangeratepolicymechanism
in March 2009 with achieving the currency band at RUR 38–41 per the USD/EUR basket compared to 
throughcancellingthepermissiblerangeofthedual-currencybasketroublevalues(operationalband)
RUR 29–30 per the basket in September 2008. The mentioned basket consists of USD 0.55 and EUR 
andregularinterventionsonandoutsidethebordersofthisband. However,thenewapproachofthe
0.45. In early 2010, the Russian Federation monetary authorities made the currency band floating 
BankofRussiatooperationsinthedomesticmarketdoesnotprovideforcompleteabandonmentof
and it reached RUR 33.7–36.7 per the basket in April 2010 due to the rise in world prices of Russian 
foreignexchangeinterventions,whichcanbeimplementedincaseoffinancialstabilitythreats... Asa
result of the implementation of this decision, the rouble exchange rate will be determined by the
marketfactorsthatshouldenhancetheefficiencyoftheBankofRussiamonetarypolicyandensure
pricestability. Besides, the newapproach tooperationsin thedomestic ForeignExchange market
willcontributetofasteradjustmentoftheeconomytochangesofexternalconditionsandenhanceits
resistancetonegativeshocks”(TheCentralBankoftheRussianFederation(BankofRussia),2014[29]).
Thisimpliesthattheexchangerateoftheroubleisnotfixedandtherearenotargetssetfortheexchange
ratecorridororitsfluctuations. Undernormalconditions,theBankofRussiadoesnotinterveneto
affecttheexchangerateofrouble. Nevertheless,incaseofnecessityandinordertomaintainfinancial
stability,theBankofRussiamonitorsdevelopmentsintheForeignExchangemarketandmayresortto
foreignexchangeoperations.
TheresultsoftherealeffectiveexchangerateofRussianroublecalculationhaveshownthatits
influenceinaccordancewiththetheoryisexpectedtobeunfavorableinrelationtodomesticproducers
sincerealappreciationaffectspricecompetitivenessofthelatternegatively. Theobserveddynamics
ofREER_EUR-USDindexallowsustoconcludethatRURgraduallyappreciatedfromJanuary2000
toJuly2008. TherealappreciationoftheRURduringthatperiodamountedtoapproximately97%
(periodI).However,innominaltermstheappreciationofRURamountedtonearly18%attheend
Economies2016,4,12 9of19
ofthesameperiod. InthenextperiodII,RURdemonstratedadepreciation;thelatterlastedupto
February2009andamountedtoapproximately40%relativelytoitsvalueattheendoftheprevious
periodinnominaltermsandaround28%inrealterms.Afterthat,thedynamicsoftheREER_EUR-USD
indexcurvecanbecharacterizedasturbulentwithadecliningoveralltrend(periodIII).Itimpliesthat
duringthisperiodRURagainbegantoappreciateinrealterms.
TherealappreciationofRURintheperiodIIIapproximatelyamountedto25%relativelyitsvalue
attheendoftheperiodII;however,valuesofthenominaleffectiveexchangerateofRURwereatthe
endofthesameperiodalmostidenticaltothoseinthebeginning. ThenextperiodIVdemonstratesa
sharpgrowthofREER_EUR-USDindex,whichmeansRURrealdepreciation.
Decompositionofinflation’andNER’influencesonREERhasshownthatthegreatestimpacton
REERappreciationwasexertedbythedifferenceininflationratesinRussiaanditsmainforeigntrade
partners(oncurrencymarket). NominalexchangeratefluctuationsaffectedREERtoamuchlower
extentthanitinflationratedid(seeTable1).
Table1. Contributionsofinflation(REER_P)andnominalexchangerate(REER_NER)tochangein
REER1,in%.
Year REER REER_NER REER_P
2000 15.10 8 92
2001 8.64 30 70
2002 5.99 31 69
2003 18.48 47 53
2004 13.89 42 58
2005 3.94 29 71
2006 15.80 61 39
2007 14.24 50 50
2008 ´1.94 51 49
2009 ´1.59 56 44
2010 4.27 23 77
2011 0.63 41 59
2012 6.08 38 62
2013 ´3.69 66 34
2014 ´35.55 82 18
Note:1REER—therealeffectiveexchangerateofRussianrouble.ValuesofREERindex,calculatedasitaverage
changeincorrespondingyearrelativelytothepreviousone,arealsogivenin%.Positivevaluescorrespondto
REERindexgrowth(i.e.,roubleappreciation).Source:Author’scalculation.
According to Brodsky (2006) [30], real appreciation of the national currency reduces
competitiveness of all domestic producers and entails a number of other negative consequences.
Inparticular,REERappreciationreducesgrossoutputsaswellasexportsofmanufacturingindustries.
Iteventuallyleadstounemploymentgrowth,increaseinimports,decliningnetexportsand,ultimately,
adropinthevolumeofthegrossdomesticproduct. Increaseinimportsisanotheralarmingsymptom
of a declining national competitiveness. In the next subsection, namely the interrelation between
productionvolumesandvolumesofimportswillbeanalyzed.
3.1. CompetitivenessofRussianAgro-ProducersinInternalMarkets
To investigate the position of Russian agro-producers in internal markets relative to both its
foreigncompetitorsanddomesticproducersrepresentingothersectors,itwasdecidedtoestimate
theirmarketsharesincorrespondingmarkets. Priortothat,itwasnecessarytocollectdatabothon
volumesofproductionandcorrespondingexportandimportflows. Table2givenbelowpresentsthe
resultsofthecalculationsofaverageannualgrowthratesofproductionvolumesincomparisonto
averagegrowthratesofcorrespondingimports(Equations(13)and(14)wereused).
Accordingtotheobtainedresults,wecanconcludethatduringtheanalyzedperiod,theaverage
annual growth rates of production volumes in almost all sectors (except Mineral Products) were