Analysis of Foreign Trade of Russia and its Economy by Input‑Output Tables

Abstract

This paper examines the Russian economy through the lens of input-output analysis using data from the World Input-Output Database. The study explores the country’s trade patterns and sector interdependencies. The findings reveal that the Russian economy demonstrates a low dependency on imports, with domestic sources contributing significantly more to the overall output. The analysis of value-added contributions highlights the importance of natural resources. This finding underscores the need for economic reforms to address structural challenges and reduce dependency on natural resources.
Keywords: input-output table, foreign trade, Russia
Jel-code: E22, F19

Introduction

Input-output tables are a system of macroeconomic indicators that comprehensively characterize the structure of the country’s economy. They provide detailed information of economic activities and products. They show flows of final and intermediate goods and services determined according to industry outputs or according to product outputs (World Input-Output Database, 2016).

The input-output analysis is a valuable tool for understanding the interrelationships between industries within an economy and assessing the dynamics of trade. By examining the input-output table, which presents the flows of inputs and outputs among sectors, it becomes possible to gain insights into sector interdependencies, identify key sectors driving economic growth, and evaluate the impact of trade on the economy. In this paper, we analyze the input-output table of the Russian economy to shed light on the structure of the economy, sectoral contributions, trade patterns, and policy implications.

The input-output table for Russia, obtained from the World Input-Output Database, serves as the basis for our analysis. This comprehensive table provides information on the production and consumption relationships among various sectors, enabling us to delve into the intricacies of the Russian economy. Our methodology involves a systematic examination of the input-output table, including the calculation of intersectoral flows, analysis of domestic and imported inputs, assessment of value-added contributions, exploration of sector interdependencies, and examination of import-export patterns.

Russia has a sizable manufacturing sector. Given the size of the population, a significant quantity of manufactured items is consumed domestically. Nonetheless, both Russia’s export volume and its merchandise exports are rather large. It thus provides a valid reason to investigate and assess the relationship between, or potential impact on, manufacturing production and merchandise exports.

Literature review

Foreign trade plays a crucial role in shaping a country’s economy. Understanding the impact of international trade on domestic industries is essential for policymakers and researchers. The use of input-output tables provides a valuable framework for analyzing the interdependencies between sectors in an economy and their linkages to foreign trade.

Ivanova N. and Demidenko M. (2018) examine the application of input-output analysis to assess the structure and interdependencies of the Russian economy, focusing on its foreign trade sector. The authors utilize input-output tables to identify key sectors affected by international trade and investigate the effects of trade shocks on the domestic economy. Erdey L. (2005) demonstrates how indicators of intra-industry trade can be used for the same purpose, while Földvári P. and Erdey L. (2009) draw attention to the importance of exchange rate determination.

In their work Smith J. and Petrov V. (2019) employ input-output analysis to investigate the impact of international trade on the Russian economy. They analyze the structure of Russia’s trade flows, assess the sectoral linkages, and explore the effects of changes in foreign trade patterns on output, employment, and value-added across different sectors.

Kadochnikov S. and Fedyunina A. (2020) present a comprehensive analysis of Russian foreign trade by utilizing input-output tables. They examine the sectoral composition of exports and imports, identify the driving forces behind trade dynamics, and evaluate the effects of foreign trade on the overall structure of the Russian economy.

Other researchers such as Ivanov S. and Zhukov S. (2021) employ a multiregional input-output approach to analyze the impacts of foreign trade on the Russian economy at the regional level. They investigate how international trade affects regional production patterns, employment, and income distribution, providing insights into the spatial dimension of Russia’s foreign trade.

Volkov M. and Yudashkina T. (2022) conduct a comparative analysis of Russia’s foreign trade using input-output analysis. They compare Russia’s trade structure with that of other countries, identify sectoral complementarities and dependencies, and examine the role of foreign trade in the Russian economy’s integration into global value chains.

The analysis of foreign trade of Russia and its economy through input-output tables has gained significant attention. Researchers have utilized this approach to identify sectoral linkages, evaluate the impacts of trade shocks, explore the effects on regional economies, and understand Russia’s integration into global value chains. Further research in this area can contribute to the development of effective policies to enhance Russia’s competitiveness in the international trade arena.

Methodology

The analysis consists of two parts. In the first part, input-output analysis is applied to investigate and illustrate intersectoral relationships and trade flows within the Russian economy. The input-output tables used in this study were obtained from the World Input-Output Database (WIOD). The WIOD provides comprehensive and internationally comparable input-output data for various economies, including Russia. These tables offer detailed information on the intersectoral relationships and trade flows. The rows of the table represent the inputs used by each sector, while the columns represent the outputs produced by each sector.

One of the key aspects of input-output analysis is understanding the interdependencies and linkages between sectors. By examining the input coefficients in the table, which represent the amount of inputs required by each sector to produce one unit of output, it is possible to identify which sectors are more dependent on inputs from other sectors. Sectors with high input coefficients have strong linkages to other sectors, and changes in their output or demand can have ripple effects throughout the economy.

Input-output tables provide a framework for analyzing the impact of foreign trade on an economy. By distinguishing between domestic production and imports, we can identify the sectors that are most affected by changes in foreign trade patterns. Examining the import coefficients, which represent the amount of imports required by each sector to produce one unit of output, helps in understanding the import dependence of sectors and their vulnerability to changes in international trade. Thus, based on the table calculations have been performed to identify following:

– domestic and import contributions.
– key sectors.
– import consumption by sector.
– value added and industry contributions.
– final consumption expenditure.
– gross fixed capital formation.
– foreign trade turnover.

In the second part of the analysis, correlation and regression analyses were applied to find out associations between manufacturing output and merchandise exports of Russia. Time series data was used for the years from 2000 through 2022. Data was collected from World Bank database.

Through correlation analysis, possible linear association, and the strength of such relationships between manufacturing output and merchandise exports has been clarified. Based on Pearson Correlation coefficient, the strength, and the direction of a linear relationship between two variables were detected.

To determine to what extent the manufacturing output can predict Russia’s merchandise exports, regression analysis was used. Manufacturing output was classified as independent factor, while merchandise exports was considered the dependent variable. With the analysis, the extent to which manufacturing output account for the variation in merchandise exports was determined.

Results

1. Input-output analysis results

According to our calculations based on the input-output tables provided by World Input-Output Database it was revealed that it was supplied 44 % of domestic and only 5 % of imports in total amount of contributed sources. It shows that Russian economy was not import-demanding. Also, there could be a protectionist policy of foreign trade.

“Wholesale trade, except of motor vehicles and motorcycles”, is with the highest to the output. It is contributed mostly by “Administrative and support service activities” in 25636 million dollars which is 20 % of total consumption by the branch, “Public administration and defence; compulsory social security” in 10526 million dollars – 8 %, “Manufacture of coke and refined petroleum products” in 8797 – 7 %. Also, it is contributed by “Wholesale trade, except of motor vehicles and motorcycles” itself in 8451 million dollars. Probably it is capital expenditure the source for which is net income. Talking about imports, “Manufacture of motor vehicles, trailers and semi-trailers” contributed the most to the industry “Wholesale trade, except of motor vehicles and motorcycles”. It provides 2307 million dollars to the industry or 26 % of total import consumption by that branch.

Speaking about industry in Russia which consumes the biggest amount of imports to the output, it is “Manufacture of motor vehicles, trailers and semi-trailers”, utilizing 19762 million dollars which is 13 % of total imports to the economy. It is contributed mostly by imports in following industries:

– Manufacture of motor vehicles, trailers and semi-trailers;
– Manufacture of machinery and equipment n.e.c.;
– Manufacture of chemicals and chemical products.

Despite that data is for 2014, the structure of Russian imports did not change dramatically. In the first half of 2019 imports of chemical products were 14 %, whereas mechanical equipment 30 % and cars – 13 % (Figure 1). They are more than 50 % of total imports.

Analyzing Value added, in other words GDP, we can see that “Wholesale trade, except of motor vehicles and motorcycles”, is on the first place with 188689 million dollars. It can be supposed that it includes trade of oil and natural gas. On the second place is Mining and quarrying with 170602 million dollars. The value added of those two industries are about 22 % of total. It shows again that raw materials and natural resources play an important role in the economy of the country.

By inner square, we also can define the industry which was used by others the most. It is “Wholesale trade, except of motor vehicles and motorcycles”, which contributes 150182 million dollars to other industries. The main fields where this amount of money is contributed are “Manufacture of coke and refined petroleum products” in 17829 million dollars – 12 % of total amount and “Electricity, gas, steam and air conditioning supply” in 16080 – 11 %.

According to the input-output tables, there are different types of final consumption expenditure, which are following: Final consumption expenditure by households; Final consumption expenditure by non-profit organizations serving households; Final consumption expenditure by government.

Comparing them, it was revealed that Final consumption expenditure by households is the largest one which utilized 27 % of total use. It consists of the expenditure incurred by resident households on individual consumption goods and services. In the tables we can see that Russian households spent the most on the domestic industry “Wholesale trade, except of motor vehicles and motorcycles” of the amount 100897 million dollars – 11 % of total expenditure by households, whereas they bought import of “Manufacture of textiles, wearing apparel and leather products” industry and spent on it 75135 million dollars – 8 % of total expenditure by households.

Non-profit organizations serving households spent mostly on “Real estate activities” 1618 million dollars which is 22 % of their total expenditure, whereas Russian government’s expenditure in 2014 was mostly in “Public administration and defence; compulsory social security” by the amount of 109342 million dollars – 30 % of its total expenditure. Moreover, the last field, which is “Public administration and defence; compulsory social security”, was consumed the most by those three agents, i.e.

households, non-profit organisations serving households, government in amount of 143742 million dollars which is 11 % of their total expenditure.

Gross fixed capital formation is a measure of gross net investment in fixed capital assets by companies, government and households within the domestic economy. In 2014 “Construction” industry has got the largest amount of gross net investment in 214663 million dollars – 66 % of total amount of that year.

Absolute amount of foreign trade turnover of Russia in 2014 was 650324 million dollars. By that size the country was involved in the international environment. Almost 53 % of the amount is represented by 3 industries which are “Mining and quarrying”, “Wholesale trade, except of motor vehicles and motorcycles”, “Land transport and transport via pipelines”. Analyzing Russian export structure in 2014, it was revealed that they are the main export producing industries. The largest export in 2014 was in “Mining and quarrying” industry by amount of 187706 million dollars which is 38 % of total exports.

Comparing industries by exports and imports, it can be noticed that there are a lot of industries which imports exceed exports. It shows that some products produced by industry are exported, whereas other kinds of products are imported much more intensively. For example, such industries are “Crop and animal production, hunting and related service activities” (Fenyves et al, 2010), “Manufacture of food products, beverages and tobacco products”, “Manufacture of textiles, wearing apparel and leather products” etc. The export industries which use the most import is “Manufacture of motor vehicles, trailers and semi-trailers” and “Construction”. However, the trade balance of these industries is negative.

Trade balance of the country in 2014 was positive and was 337254 million. It means that Russia exported more than imported. The most export-oriented industry in 2014 was “Mining and quarrying”, whereas “Manufacture of motor vehicles, trailers and semi-trailers” consumed most of imports. Also, “Wholesale trade, except of motor vehicles and motorcycles” is the second export-oriented industry and has positive trade balance in 60924 million.

Positive trade balance was 52 % of the whole foreign trade turnover of the country in 2014. Talking about 3 main industries, net export of “Mining and quarrying” is 93 % of total turnover in the branch, net export of “Wholesale trade, except of motor vehicles and motorcycles” is 77 % and net export of “Land transport and transport via pipelines” is 81 %. They were main export-oriented branches in the country in 2014.

Continuing speaking about the main branches, we see that export earning covers much more than the whole cost of imports. For example, exports in “Mining and quarrying” are more imports by almost 27 times.

As a result of calculations, it was revealed that exports in GDP was about 30 %, whereas import was 10 % in 2014. As in 2014, the three top Russian export companies are Rosneft Oil Company, Gazprom, LUKOIL. They export natural gas, oil and oil products. The export of these products in 2019 was more than 50 % of total export (Figure 2).

It is important to note that the export of raw material is substantial part of state revenue since customs duties are applied to its export, i.e. customs duties fulfill fiscal function aimed at replenishing the state budget.

The main trading partner of Russia in 2019 is China. It is followed by Netherlands and the UK. Notwithstanding sanctions, the EU remains the main trading partner for groups of countries.

Thus, many of the structural economic problems facing Russia have remained unchanged since Soviet times. Abundant natural resources helped spur growth, but at the cost of unhealthy dependency. This problem is recognized by the Russian government. However, the continuing flow of money from oil and gas removed the incentive to undertake serious economic reforms. As a result, these reforms failed. Large swathes of the economy remain under state control. Moreover, there are many

barriers to domestic and international competition. Business fights against widespread corruption.

In recent years, the Russian government has launched a large-scale anti-corruption campaign, simplified bureaucratic procedures, restructured the education system, privatized state-owned companies and invested in innovations. However, such initiatives have brought tangible improvements in only a few areas. Due to these structural problems, the fall in oil prices and economic sanctions led to a rapid deterioration of the economic situation.

Although the worst dynamics for the Russian pre-covid economy was probably over, there was still no visible growth factor. As Elvira Nabiullina, chairman of the Central Bank of Russia, rightly said, the economy is looking for a new development model, and the recovery may be delayed for a long period.

2. Correlation & Regression Analyses Results

Manufactures exports of Russia has been rising since 2000 with some decreases over time. In 2021, exports of manufactures reached to its historic maximum with the total amount of more than $ 109 billion. Below figure illustrates the yearly manufactures exports for the period of 2000-2022.

Russia’s manufacturing output has been increasing significantly in the last a few years. Based on most recent data available on World Bank database, it was reported at $287.71B for 2022, which is 21.69% more than it was 2021. Moreover, manufacturing output for 2021 was $236.43B, a 18.15% increase from 2020.

2.1. Correlation

In this section correlation analysis of merchandise exports with manufacturing output is applied. Correlation coefficient is used to measure the strength and direction of a linear relationship between two variables. Using the below equation, model is formulated to find out the correlation coefficient.

ρxy = Cov (x,y) / σx σy ,
where: ρxy is Pearson product-moment correlation coefficient.
Cov (x,y) is covariance of variables x and y.
σx is the standard deviation of x.
σy is the standard deviation of y.
To find out whether there is a correlation between manufacturing output and merchandise exports, we applied above equation as follows:
Cov (manufacturing output and merchandise export) = 10835.30607
σ (manufacturing output) = 73.21772878
σ (merchandise exports) = 150.1857907
ρxy = Cov (x,y) / σx σy
ρxy = 10835.30607/ (73.21772878*150.1857907)
ρxy = 0.99

Pearson product-moment correlation coefficient between merchandise exports and manufacturing output is 0.99. This is considered strong correlation coefficient. There is positive correlation between merchandise exports and manufacturing output. In other words, when manufacturing output increase, the merchandise exports of Russia is likely to increase as well. The scatterplot below represents the spectrum of Pearson correlation coefficient of 0.99.

2.2. Regression

Regression analysis applied to find out to what extent manufacturing output can predict the merchandise exports of Russia. Using SPSS software, the regression analysis was run. Merchandise exports is taken as dependent variable while manufacturing output is categorized as independent variable. The sample size of the analysis is 22. In the sample, the data of last 23 years (2000-2022) is analysed. The goal is to find how much variability in merchandise exports of Russia can be explained by manufacturing output.

As per the regression test results, the significance value of our model (p value) is 0.000. The confidence level in the analysis is 95%. The model is statistically significant since the p value is less than 0.05. Thus, the null hypothesis is rejected. In other words, manufacturing output predicts merchandise exports of Russia.

Moreover, with finding adjusted R square, we can see the comparison of the explanatory power of regression model that contain different predictors. Adjusted R square is 0.97 which is indicating model accuracy measure. In other words, 97 percent variance in the target field which is merchandise exports is explained by the predictor variable which is manufacturing output.

The below table indicates the coefficient and p value for the independent variable. P value is very close to zero which means the model is statistically significant. The formula of the regression is as follows:
Y = a + bX
Y is the dependent variable,
X is dependent variable,
“a” is constant,
“b” is the slope coefficients.
“a” is constant which is Y intercept is -3.105413013 as per below computations.

The regression model equation of the analysis based on the outputs from below findings is as below:
Y= -3.105413013+ 2.021197153* X

Below figure is fitted line plot which is used to depict the actual and observed values. These plots are assessing model fit by comparing how well the fitted values follow the observed values. In other words, it is illustration of how the fitted values are in line with observed values.

Conclusions

In conclusion, the analysis of the input-output table for the Russian economy provides valuable insights into sector interdependencies and trade patterns. The findings indicate that the Russian economy demonstrates a relatively low dependence on imports, with domestic sources accounting for 44% of total contributions compared to only 5% from imports. This suggests a potential protectionist policy in foreign trade.

The „Wholesale trade, except of motor vehicles and motorcycles” sector emerges as a significant contributor to the overall output, driven by sectors such as „Administrative and support service activities,” „Public administration and defense; compulsory social security,” and „Manufacture of coke and refined petroleum products.” Notably, the „Manufacture of motor vehicles, trailers and semi-trailers” sector plays a crucial role in imports within the industry, relying heavily on imported inputs.

The analysis of value-added contributions reveals that „Wholesale trade, except of motor vehicles and motorcycles” is the largest sector, potentially fueled by oil and natural gas trade. The „Mining and quarrying” sector ranks second, highlighting the importance of natural resources in the Russian economy.

Through correlation and regression analyses, it was found out that manufacturing output has positive correlation with merchandise exports of Russia and the former can predict latter. In other words, apart from natural gas, Russia exports significant amount of manufactured goods, thus, the export volume of the country can be enhanced through increasing manufacturing. Consequently, the input needs to be increased to ensure long-term high output level in manufacturing industry.

Furthermore, examining final consumption expenditure by households, non-profit organizations serving households, and the government, it is evident that household expenditure is the largest, with significant spending on the domestic „Wholesale trade, except of motor vehicles and motorcycles” sector and imports from the „Manufacture of textiles, wearing apparel and leather products” industry. The „Construction” industry stands out as the leading sector in terms of gross fixed capital formation.

In terms of foreign trade turnover, Russia actively participates in the international market, with a positive trade balance indicating a higher value of exports than imports. The „Mining and quarrying,” „Wholesale trade, except of motor vehicles and motorcycles,” and „Land transport and transport via pipelines” sectors contribute significantly to the foreign trade turnover. The export structure is dominated by these industries, with the „Mining and quarrying” sector being the largest exporter.

The analysis underscores the need for economic reforms to address the structural problems facing the Russian economy, including the overreliance on natural resources, state control over industries, barriers to competition, and corruption. While some initiatives have been implemented to tackle these issues, significant improvements are yet to be seen, and the economy continues to face challenges. As the country seeks a new development model, the path to recovery and sustained growth may be protracted.

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Serzhena Tcyrempilova, PhD Student
Hungarian University of Agriculture and Life Sciences, Doctoral School of Economic and Regional Sciences, Tcyrempilova.

Jalil Mehtiyev, PhD Student
Hungarian University of Agriculture and Life Sciences, Doctoral School of Economic and Regional Sciences

Prof. Dr. habil Róbert Magda, full professor
John von Neumann University Doctoral School of Management and Business Administration, North-West University, Vanderbijlpark 1900, South Africa