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26
I
nt. J. Economic Policy in Emerging Economies, Vol. 12, No. 1, 2019
Copyright © 2019 Inderscience Enterprises Ltd.
Russian trade policy: main trends and impact on
bilateral trade flows
Ekaterina Y. Аrapova and
Tatiana M. Isachenko*
Ministry of Foreign Affairs of the Russian Federation,
Moscow State Institute of International Relations (University),
76 Vernadskogo Prospect Moscow, 119454, Russia
Email: arapova_katrin@mail.ru
Email: tatiana_isachenko@yahoo.com
*Corresponding author
Abstract: The paper provides a comprehensive analysis of current Russian
foreign trade policy and evaluates empirically its influence on the country’s
trade flows. First, it considers the role of trade in the country’s economic
development. Second, it examines the evolution of the trade policy and the
effect of the WTO accession process on its development. Third, Russian
foreign trade policy is contextualised in broader regional perspective, looking
at relations with EAEU partners, EU, APEC and BRICS. Finally, the authors
explore the impact of ‘sanctions’ on Russian trade. The authors apply an
augmented gravity model to explore the influence of the Russian foreign trade
policy on bilateral trade flows. They conclude that tariff liberalisation may
increase foreign trade, WTO accession asserted a significant positive influence
on the Russia’s trade flows, and economic sanctions hurt Russian exporters
significantly. Trade with APEC partners is relatively more promising than with
BRICS, EU or EAEU.
Keywords: trade policy; foreign economic policy; competitiveness; foreign
markets; WTO accession; multilateral trading system; Eurasian Economic
Union; BRICS; value-added chains; sanctions; gravity model.
Reference to this paper should be made as follows: Аrapova, E.Y. and
Isachenko, T.M. (2019) ‘Russian trade policy: main trends and impact on
bilateral trade flows’, Int. J. Economic Policy in Emerging Economies, Vol. 12,
No. 1, pp.26–48.
Biographical notes: Ekaterina Y. Arapova is a Head of the Department of
Masters’ Degree Programs Assessment and a senior researcher at the Moscow
State Institute of International Relations (MGIMO-University) of the Ministry
of Foreign Affairs of the Russian Federation. She received her PhD in
Economics from the MGIMO University in Moscow, Russia. She is a
researcher in the field of foreign trade and regional trade agreements, as well as
economic integration and cooperation patterns in East Asia, Asia-Pacific and
BRICS.
Tatiana M. Isachenko is a Full Professor at the Department of International
Economic Relations and Deputy Dean for the School of International Business
and Business Administration at the Moscow State Institute of International
Relations (MGIMO-University). She is a researcher in the field of trade policy
and multilateral trading system with a special focus on regional trade
agreements and WTO rules.
Russian trade policy 27
This paper is a revised and expanded version of a paper entitled ‘Main trends in
Russian Foreign Economic Policy’ presented at 47th Convention of the
Association of Slavic, Eastern European and Eurasian Studies, Philadelphia,
USA, 15–21 November 2015.
1 Introduction
Trade policy is represented by state measures aimed at the regulation of the trade and
investment relations with other countries. It plays a significant role in ensuring the
effective use of external factor in the national economy. To improve the competitiveness
and the dynamics of economic development it is necessary to use the most effective tool
of regulation of foreign trade, as well as to achieve greater openness of the national
economy. At all stages of economic development of the state uses both internal and
external sources of development of the productive forces to ensure a balance between the
interests of domestic producers and the development trends of the world market. Modern
foreign economic strategy of the state can be defined as the most efficient use of external
factors in order to achieve short, medium and long-term economic development goals.
Trade policy has become an important tool for accelerating economic growth, enhance
competitiveness and stimulate employment. The stronger economic position the country
has, the higher the level of competitiveness can be achieved. The competitive position of
the countries and their companies are highly dependent on the nature of participation in
international economic cooperation. The opening of markets encourages domestic
companies maximise the possible benefits of foreign economic cooperation. The global
financial crisis of 2008–2009 and continuing negative trends in the economic
development of many developed and developing countries and countries with economies
in transition, clearly showed that the system of measures to overcome or mitigate the
crisis tendencies occupy a special place measures of trade policy and regulation of the
most sensitive markets. The political crisis of the last two years provided an evidence of
the use of trade policy as a tool of economic diplomacy, that not compulsory benefits
domestic industry of all countries, but is aimed at the economic and political leadership
of some of them. At the same time the politisation, economic sanctions and the evident
cooling of trade and investment cooperation with main Western partners made the issue
of the urgent need for the diversification of commodity and geographical structure,
however the stable development is possible only ion a peaceful political conditions.
The research aims at conducting comprehensive analysis of contemporary trends in
Russian foreign trade policy, the country’s participation in global and regional trade
agreements and initiatives and their influence on the its foreign trade flows.
The methodology bases on combination of qualitative analysis of contemporary
trends in Russian foreign trade policy and augmented gravity model, which was applied
to a panel data spanning the period 2007–2015.
The research’s scientific novelty and fundamental character is determined, firstly, by
the complex methodological approach. Many of contemporary international studies stem
from quantitative ex-post analysis of foreign trade determinants on the basis of gravity
equation. Nevertheless, the number of studies, that consider Russian foreign trade and
based simultaneously on combination of qualitative and quantitative analysis is limited.
28 E.Y. Аrapova and T.M. Isachenko
Secondly, the study presents a detailed analysis of contemporary trends in Russian
foreign economic policy, including ‘sanctions’ and ‘contr-sanctions’ mechanism and
advanced negotiations within EAEU + frameworks.
2 Conceptual basis for the analysis of the role of trade in the country’s
economic development and economic growth
The role of trade in the development and economic growth of any country is determined
by the economic development and the depth of the country’s integration to the world
economy. The first economic theory that served as a conceptual fundamental base for the
understanding of the impact of the international trade and economic benefits for the
domestic producers was elaborated by Smith in 1776. As a representative of classic
political economy Smith has studied the static effects while the contemporary world is
characterised by deep and dynamic changes, main ideas remain valid and justified till
nowadays.
Certain elements of dynamics were introduced by the Riccardian model of
comparative advantages. In his model Riccardo analysed the same issue hence managed
to add dynamic vision and thus made a step forward compared with Smith. This is
explained by the existence of international trade and its usefulness difference in the
absolute cost of production of some goods, i.e. overall feasibility of the international
division of labour and specialisation, based on the fact that in every country there are
special conditions and special resources to ensure its benefits compared with other
countries and provide the ability to produce some goods at lower production costs.
However, without analysing the movement of factors of production in the global market,
he argued the feasibility of removing obstacles to the free movement of goods, the
feasibility of international trade in general and the consequent international division of
labour. Ricardo assumed that in every country, no matter if it was small and poorly
resourced there were always some products that it could offer to the world market and
thus got in return all that was necessary for its domestic economy. This assumption in
fact turned out to be unrealistic. While developing new sectors of production more
developed countries are not giving up those branches, the comparative costs of
production that shows the worst ratio.
Since that time the concept has improved significantly including more factors as
determinants of the model of international trade involvement. The comparative advantage
theory explains the direction of international trade by cross-country differences in the
relative costs, but leaves out the key question opened: why there are these differences
across countries? In an effort to answer this question, in the 20-30-ies of 20th century
Swedish economists Heckscher and Ohlin developed more advanced theory of
international trade. In their opinion, countries differences in the relative costs are
explained by the fact that, firstly, in the production of various commodities factors used
in different proportions and, secondly, the relative provision of the production factors
varies (Heckscher and Ohlin, 1991). The application of this theory in Russia is quite
obvious. The reliability of the Russian Federation with its rich natural and resource
potential will, with other things being equal, orient the country to participate in the
system of the international division of labour as an exporter of various natural resources,
including energy resources.
Russian trade policy 29
Later on the concept was also adjusted to the modern economy by well-known
American economist Leontief in the mid-1950s. He attempted an empirical verification of
the main conclusions of the Heckscher-Ohlin theory and came to paradoxical conclusions
(Leontief, 1966). Using input-output model based on data from the US economy for
1947, he showed that American exports were relatively more labour-intensive goods,
while imports – capital-intensive. The paradox was based on the fact, that in the post-war
years, in the United States, in contrast to most of its trading partners, the capital was
relatively abundant factor of production, and the level of wages was much higher.
According to the basic Heckscher-Ohlin’s theory the USA would have to export
capital-intensive goods, and import-consuming. In other words, the empirical result
clearly contradicted what was assumed by Heckscher-Ohlin theory, so called ‘Leontief
paradox’. Subsequent studies confirmed the presence of this paradox in the post-war
period, not only for the US but also in other countries (Japan, India, and others.).
Numerous attempts to explain this paradox made it possible to develop and enrich the
theory of Heckscher-Ohlin by taking into account other circumstances of international
specialisation, that are important to understand Russia’s specialisation in the global
economy. Among them are the following:
• Heterogeneity of the factors of production, especially labour, which may vary
significantly in terms of qualification. As a result, exports of industrialised countries
may reflect the relative redundancy of not labour as it is, but highly skilled labour,
while developing countries are exporting products that require significant labour
costs for low skilled workers. In the case of Leontief paradox, US were exporting
unique ‘labour-intensive’ products, the production of which included the high cost of
‘human capital’.
• A significant role of natural resources, which can often participate in production
processes only in association with large amounts of capital (e.g., mining, quarrying
industries). This to some extent explains why the exports of many developing
countries rich in natural resources, is capital, although capital in these countries and
is relatively abundant factor of production. In case of Russia this assumption proved
to be absolutely true and with the lack of financial resource and technology the
extraction industry is not effective and the export of primary mineral commodities is
declining.
• Impact on the international specialisation of trade policy pursued by the government,
which could restrict imports and stimulate domestic production and exports of those
industries, which are heavily, used relatively scarce factors of production that also
had reflected in Russian development.
Some later theories on correlation between international trade and economic growth
contributed to the clarification of this concept. After World War II the theory of
Heckscher-Ohlin has undergone scrutiny by many economists, who were trying to find
out the existence of correlation between capital-intensive and labour-intensive industries
of individual countries and the actual structure of their exports and imports.
This mechanism has been substantiated by the US economist Samuelson (1948). In
countries that have manpower and specialised in labour intensity of production will
increase the demand for labour and the price of the age factor of production. Gradually
initial benefits both countries lost and each of them will be forced to look for new
30 E.Y. Аrapova and T.M. Isachenko
opportunities to export their products, for which it is necessary to improve production.
The latter conclusion is crucial in terms of the formation of Russia’s export strategy, and
recent development has confirmed its relevance.
Another importance contribution to the study of effects of international trade on the
economic development was made by Swedish economist Myrdal in 1956, who was
among economists who attached great importance to the practical issues of economic and
social policies, and to get involved in this area a wide range of economic disciplines. He
believed that among the characteristics that are relevant to the development process of an
economy are political and social forces, such as the availability of natural resources, the
historical traditions of production activity, national cohesion, religions and ideologies,
economic, social and political powers and groups of interest. The ideological and political
factor plays a crucial role in the modern trade policy of Russia.
He has stipulated that the international trade as it is did not equal the remuneration of
factors (in contradiction with the proposal of the neoclassical model) and that, unlike the
industries of the industrial nations, the traditional industries of the developing countries
remained quite weak. In short term, the international trade and economic cooperation
with foreign nations could have positive effects of diffusion on the developing countries,
but in the long-term the negative effects remained because it stimulated a production of
primary goods, that in fact happened in Russia.
The determinants of international trade flows have become a subject for a wide set of
economic studies, aimed at the determination of the influence of different factors on
foreign trade with the use of both qualitative and quantitative instruments. The gravity
model takes the central position in empirical studies for explaining the factors,
influencing foreign trade. The model was first introduced by Tinbergen (1962), who
assumed bilateral trade as a function of the two countries’ gross national products and
distance between them (as a proxy for trade obstacles). The further studies extended the
basic gravity model, including additional variables. Linnemann (1966) added population
as a proxy for market size, Rose and van Wincoop (2001), and Rojid (2006) measured the
effects of exchange rate fluctuations. Lеamer (1988), Feenstra (1995) and Wang (2001)
explored the influence of average tariffs on bilateral trade.
The basic gravity equation can be extended by various dummy variables and different
indices. Bergstrand (1989) included a dummy variable of the countries’ participation in
Preferential Trade Agreement. Fratianni (2007) developed the model by including
common land border, common coloniser, colonial relationship and other factors as
dummy variables. Cheng and Wall (2005) introduced common language and time dummy
variables into the gravity model. Abiad et al. (2010) added time dummy variable to
identify the impact of the Global financial crisis on foreign trade. Green (2013) included
a set of binary variables, such as directs access to the sea, common language and culture,
and participation in free trade agreement. Besides, he integrated index of overall
competitiveness and index of trade openness into the model. Wall (1999) assessed the
impact of economic freedom on foreign trade, introducing the index of trade freedom into
the model. The same approached was followed by Kimura and Lee (2006).
3 Russian foreign trade policy: evolution and contemporary trends
During the whole history Russia has long been not only an active participant in the
formation of European and world markets, but also a leader in the export of certain goods
Russian trade policy 31
and commodities, especially in the late 19–early 20 centuries. Significant changes have
occurred in the second half of the 19th century, when Russia as a capitalist country has
become a major consumer of industrial products and European supplier of food and raw
materials. In the context of the dynamic development western industrial nations started to
develop their economic relations with it. Later, after the socialist regime was established
and the country has transferred to the socialist economic system, the traditional trade
flows have been significantly disrupted.
However, the role of the trade in the economic development even has increased and
new forms of the economic cooperation provided for the more active participation in the
international collaboration, hence with a certain group of states that belonged to the
socialist community. The existence and functioning of the Council for Mutual Economic
Assistance (CoMECon) created the platform and legal basis for the international division
of labour between socialist countries and industrial cooperation. Besides, there was strict
division and distribution of industries between Soviet republics, that later became a
significant factor of post-reform development.
In the early 1990s, Russian foreign trade has declined significantly. Reduced trade
flows coincided with the globalisation and strengthening of the relations between
countries and markets, which resulted in an even greater role of foreign trade in the
economic development of the country. Starting from the first years of transformation and
until nowadays the decisive role of the foreign cooperation in the form of trade and
investment is to serve as a source of technology and high-tech goods, as a mean of
market saturation with necessary goods and services and the one of the most effective
ways of obtaining foreign experience.
Russia’s transition to a market economy with particular acuteness put the country task
of creating a system of regulation of foreign economic relations, in conformity with the
world today. The complexity of the solution of this problem was the fact, those 90 years
of the last century Russia went without established system of foreign economic policy.
As a result, the result received while making the liberalisation of foreign economic
relations is the emergence of uncontrolled trade, which does not contribute to the solution
of problems facing the country reform of the domestic economy, its adaptation to the
demands of the modern market.
3.1 The foreign economic policy concept – correlation with macroeconomic
and industrial policy
Economic theory unambiguously links trade and macro-economic development at all
stages of the country’s economic development. In the context of globalisation and the
formation of global production cycles, this interaction is even more important. If the
country does not participate in the international division of labour, it loses its presence in
the several segments of the world market. Largely the participation in the global
cooperation depends on the trade policy and the ratio of protectionism and free trade.
Thus, mercantilists placed emphasis on trade protection measures solely in terms of the
rationale for the accumulation of resources in the country, supporters of free trade theory
advocated use of foreign markets as incentives for national economic growth and
expansion. One of the most prominent representatives of this school – Moncretien – is
considered the founder is the creation of a whole science ‘political economy’ as a
justification for connection of foreign trade regulation and other aspects of national
32 E.Y. Аrapova and T.M. Isachenko
development. The theory of free trade was a logical extension of the concept of the free
market.
In Russia, one of the first research on the topic was the book by Vitchevsky,
translated from the German “Customs and industrial policy of Russia since Peter the
Great to the present day”, published in 1909. The author used the two terms ‘protective’
and ‘protectionist’ policy. The measures taken to ensure security, but in general is not
conducive to economic growth could be defined as protective and measures taken in the
interests of the national economy and national producers – as protectionist. Another
interesting source for analysis is the work of well-known Russian politician, philosopher,
economist, historian and publicist Struve ‘trade policy of Russia’, which presents a series
of lectures on the history of Russian trade policy with the first customs tariff (New Trade
charter of 1667) until the end of the 19 century. He explains the transition from
protectionism to the relative freedom of trade, and vice versa, as well as each tariff and
their economic implications (impact on economic growth and modernisation).
In the era of globalisation foreign and trade policies play an important role also as a
significant part of the companies’ strategy. The interests of the business sector
significantly influence decision-making in the field of trade policy at the state level. The
formation of an effective strategy is important in terms of the strengthening of
cooperation between the state and business as a crucial factor of the development of
competitive industries, as well as increased investment in the development of the human
factor. Thus, the concept and scope of dissemination of trade policy is constantly
expanding.
Under the conditions of planned economy, the interaction between the internal and
external sectors was very limited. Moreover such a situation deliberately maintained by
the state, to exercise state monopoly on foreign economic relations. By the beginning of
‘perestroika’ the country had no experience of use of commonly applied trade policy
tools. During the last 20 years, Russian trade policy and trade regulation have undergone
serious revision, and in fact have been reformulated from the ground up and passed the
revision, amendment, and conceptual change due to both the development of foreign
trade in Russia and the negotiation process on accession to the World Trade Organisation
(WTO), as well as the development of bilateral relations with key partners.
In case of Russia, the WTO accession has not played the substantial role in the
economic development since Russian enterprises appeared not to be prepared to the
participation. For example, the WTO provisions on safeguards provide that one of the
conditions for the measure application is that the import causes serious injury to the
sector of the Russian/Eurasian economy (special safeguard measures) and material injury
to Russian producers. That means that producers are supposed to provide all their
financial information to prove the injury that is what the majority of producers prefer not
to do.
The WTO accession has influenced the Russian trade policy significantly (Isachenko,
2013). The detailed study of the Russia’s WTO accession working party report and
Russian commitments allows assuming that the main goal of Russian negotiators was to
ensure as favourable and appropriate for the country terms of accession as possible
(Sutyrin et al., 2012). Certainly some industries were influenced by the accession more
than the others were. Among the most sensitive was Russian agricultural sector, however
so far the impact is not crucial. The ‘sanctions’ exchange enabled the sector to take an
advantage of all possible measures of support regardless of WTO commitments. Among
Russian trade policy 33
most significant challenges for Russia in the WTO was the participation in the dispute
settlement mechanism (DSM).
One of the current goals for Russia’s foreign economic strategy is to define
development priorities. Many aspects of the development of economic cooperation
suggest the need for a serious review of existing trends and setting new objectives.
3.2 Regional biases in Russia’s foreign trade policy
Even after more than 20 years after the collapse of the Soviet Union and the creation of
the Commonwealth of Independent States (CIS) the development of the region remains
highly controversial. However, besides the lack of progress at the global trade talks many
countries, including Russia and its CIS partners, initiated bilateral and multilateral
regional and cross-regional free trade deals in order to create more liberal terms for trade
and investment flows.
Another factor that significantly contributed to the formulation of Russian trade
policy and became a key priority was the creation of the Customs Union with Belarus and
Kazakhstan and later the Eurasian Union (EAEU, entered into force in 2015) with a
participation of Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan. Despite the
ambitious goals, some problems occurred with the accession of Kyrgyzstan and Armenia
with their commitments at the WTO. Second, one was the Kazakhstan accession to the
WTO that again provoked the discussion about the change in the commitments initially
fixed in Russia’s accession protocol. Another problem was provoked by the introduction
of so called ‘sanctions’ and ‘contr-sanctions’. Russia proposed its EAEU partners to
adopt a common resolution on the new trade regime in bilateral trade with Ukraine basing
on the provisions of Annex №6 Agreement on free trade within the CIS, which was
rejected at the meeting of the Council of the Eurasian Economic Commission. The
decision by Russia’s partners was motivated by the fact that the real threat to the signing
of an association agreement between Ukraine and the EU Customs Union has not yet
received specific quantification. In this regard, it should be emphasised that this situation
certainly creates some difficulties, however, in no way indicates the disintegration of
countries. The way out of this situation can only be the development of integration
processes and a clearly formulated objective and strategy integration that in the case of
the EAEU so far is clearly lacking.
As relations with Western partners are concerned, the main question is whether it will
be possible to restore the high level of cooperation. Trade between Russian and EU grew
very fast mid-2008 when the trend was interrupted by the economic crisis and unilateral
measures adopted by Russia, which had a negative impact on EU-Russia trade. Since
2010, mutual trade has resumed its growth reaching record levels in 2012. The EU is also
the most important investor in Russia. In the complicated political environment, the most
painful for both partners was the introduction of sanctions and so called contr-sanctions.
The European authorities have limited the cooperation with Russia even in cases where it
was mutually beneficial as they followed the logic of ‘something must be done’1 and as a
certain alternative to the use of military force, though it was clear that weak Russian
economy would not be in the interest of the West.
In a certain sense Ukraine was faced with a choice between a Customs union with
Russia and a free-trade agreement with Europe, it was impossible to participate in two
customs unions because of the serious regulatory changes stipulated by DCFTA.
34 E.Y. Аrapova and T.M. Isachenko
On the contrary to the Russia-EU mutual economic ties between Russia and US are
really modest and business contacts are pretty limited.
The level of cooperation is significantly different from the same with China and other
BRICS. Mutual relations were and still are crucially influenced by political environment
that prevented these relations for getting advantages of their potential. Moreover, other
countries sometimes appear to be influenced by the USA-Russia contradictions and/or
collaboration serving as a signal for the global stability or imbalance. In some sectors US
and Russian businesses continue to cooperate and the effectiveness of such projects is
hindered by the absence of civilised regulation and interaction. In both countries, politics
interferes into business and government and presidential administration imposes their
ambitions and will on it.
The year 2001 brought a new challenge for world economic development with the
development of the BRICS concept.2 Even in spite of the fact that BRICS still remains
the non-formal but there are more tendencies for further cooperation in various fields
defined by regular Summits. On wide range of major groups of their exports to the world
markets countries are more competitors than complementary partners and this is a
definite problem for the development of cooperation.
Trade and trade policy coordination are the most important areas of cooperation
between the countries and regions, as embodies all the possible aspects of cooperation
and implemented by all the existing tools of economic diplomacy. There are certain
perspectives for BRICS’s cooperation in the field of trade facilitation and economic
cooperation, namely joint efforts in the WTO in the negotiations on trade liberalisation
and DSM reform; negotiations on investment issues; the development of joint projects
associated with technology and innovation; IPR enforcement and some others
(Isachenko, 2012). As the format of the possible RTA between these countries is
concerned we should take into consideration differences between BRICS countries,
which, to our mind currently do not allow to initiate such large-scale project as the free
trade area of the five countries. However, having in mind active negotiations between
Russia (and now EАEU) and some countries like Vietnam, Israel, Egypt and some others,
on free trade (FTA) we could suggest that there is an evident need in bilateral
negotiations between BRICS on the issue. At the same time for further deepening of the
investment cooperation it could be appropriate to consider the possibility of establishing a
free investment zone BRICS.
Since Russian trade policy was aimed mainly at the establishment of the strong and
mutually beneficial ties with the so-called ‘Western world’ Russian government has not
paid enough attention to the development of the cooperation and trade in the Asian part
of the world. We could argue that due to this one-side focus Russia has lost some
opportunities to strengthen its positions in the region. The most contradictive issue is the
cooperation between Russia and China. As it was mentioned above both countries pay
serious attention to the possible cooperation in BRICS format and in G20, however as a
main world exporter China has moved much further in terms of world markets
penetration than Russia.
Another Asian nation Japan proved to be a reliable regional partner with many
sectoral trade and investment interests. Despite all the efforts made by the parties in the
framework of the political dialogue, relations between Russia and Japan remain
problematic and complicated by unsolved problem of the Kuril Islands, which
significantly reduces the potential for cooperation. Japan has also joined the sanctions
against Russia over the conflict in Ukraine, further complicated an already uncertain
Russian trade policy 35
situation and seriously weakened the motivation for the development of dialogue on all
issues.
Against this background and the backdrop of deteriorating relations with all partners
and reduced the dynamics of foreign economic ties quite interesting is the growing
interest in South Korea to the Russian market. There is a significant potential for
Russian-Korean cooperation on the multilateral level. The perspectives projects should be
regarded in a value-chains format, which allows countries to realise their competitive
advantages and acquire technological knowledge and experience as well as create more
jobs.
Seeking to provide a stable position in the world markets, as well as trade and
political support for their initiatives, Russia started to use such form of deepening its
trade contacts as preferential trade agreements. Successfully advanced negotiations with
New Zealand and Vietnam were aimed at deepening sub-regional cooperation in the
APEC region (Arapova, 2015). The negotiations with New Zealand have been terminated
because of political tension between Russia and the West.
Even more significant could become for Russia the potential FTA between Israel and
countries of the Customs Union. For the Russian side, this FTA is very important in
terms of attracting technology for the development of many sectors of the national
economy, including agriculture, pharmaceuticals, which is especially important in the
conditions of restrictive practices and the existence of sanctions and contr-sanctions in
relations with other partners. In 2015 the FTA agreement between the EAEU and its
Member States, on the one hand, and the Socialist Republic of Vietnam, on the other, was
signed. The agreement covers not only the tariff liberalisation, but some related to trade
in goods area, such as protective measures, customs procedures, rules of origin, sanitary,
veterinary and phytosanitary measures, technical regulations. Besides, shortly upon the
conclusion of the FTA between Russia and Vietnam the trans-pacific partnership (TPP)
agreement was signed. Taking into consideration the scope and the membership of the
TPP one could assume that the participation of Vietnam in more advanced cross-regional
initiative might be more important and effective.
4 Influence of Russian foreign trade policy on trade flows
4.1 Theoretical framework and methodology
Our empirical framework builds on the augmented gravity model of trade flows,
incorporating the variables that capture key modalities of the Russian foreign trade
policy.
The empirical evidence for the gravity equation of international trade is strong. The
accuracy and robustness of the gravity model, developed as an analogy with Newton’s
universal law of gravitation, have been confirmed empirically in academic literature. It
was proved that the two parameters, underlying the basic gravity equation – countries’
economic size and the distance between them – are remarkably stable over time.
The basic gravity equation for international trade, introduced by Tinbergen (1962)
can be stated as:
123
,0 ,
** *
ij ijij
X
GDP GDP Dist=
ααα
α
(1)
36 E.Y. Аrapova and T.M. Isachenko
where Xi,j – trade between countries i and j, GDPi – GDP of a country i; GDPj– GDP of a
country j; Disti,j – distance between countries i and j.
In the original version by Tinbergen (1962), the model was expressed in a log-log
form:
,01 2 3 ,ij i j ij
LnX LnGDP LnGDP LnDist ε=+ + + +
αα α α
(2)
This transformation has two strong points. Firstly, it converts the initial equation to the
linear form, simplifying the calculations. Secondly, it clarifies the interpretation of the
results, as the coefficients by the factors show elasticity of the trade flows with respect to
explanatory variables.
In the original estimation by Tinbergen (1962), as well a in all subsequent analyses
(Linnemann, 1966; Anderson, 1979; Krugman, 1980; Lеamer, 1988; Feenstra, 1995;
Anderson and van Wincoop, 2003; Kimura and Lee, 2006; Helpman et al., 2008, etc.) the
coefficients by GDP and distance resulted relevant and significant, and had ‘the expected
signs’ in accordance with the classical economic theory. The coefficients by the countries
size were positive, while the ones by distance variable were negative.
Nations with large GDPs export more to all destinations, since they produce many
varieties (Helpman and Krugman, 1985). Moreover, nations with large GDPs must have
lower relative prices, and as a result, higher opportunities to sell all their production –
market clearing condition (Anderson and van Wincoop, 2003). At the same time, import
accompanies the industrialisation process, driving national GDPs, especially in a group of
developing countries (Grossman and Helpman, 1991) and applies to export, accelerating
economic growth, which, in turn, leads to higher import (Frankel and Romer, 1999).
Thus, there is a direct correlation between GDP and foreign trade with causality, running
in both directions (Kadochnikov and Fedyunina, 2013; Nakawiroj, 2016).
At the same time, the longer distance between trading countries is associated with the
higher direct and indirect costs for creating a foreign trade contract. A huge variety of the
distance effects was studied by Disdier and Head (2008). First of all, distance between
trading partners is a reflection of so called ‘natural trade costs’ (Anderson and van
Wincoop, 2003; Salvatici, 2013; Chaney, 2013) because of the direct correlation between
distance and transportation costs. Moreover, the longer distance between trading
countries results in the weaker input-output linkages between firms and vertical
production chains (Oberfield, 2013). As a result, there is an inverse relationship between
distance and foreign trade.
The current study bases on the extended gravity equation, which is the result of
dramatic progress, made by the previous researchers in understanding the theoretical
basis for the gravity equation and in improving its robustness and accuracy of the
empirical results.
The set of additional regressors depends mainly on the peculiarities of the economy in
focus, initial hypothesis and the objectives of the research.
Central to our analysis are the indicators of Russia’s foreign trade policy, and its
integration into the world trade system, as well as the dummies of regional economic
grouping, taking into account Russia’s intention to reach geographic diversification of its
trade flows.
Thus, the extended model contains average tariff rate, applied by Russia on foreign
import (in the import model) or applied on Russian import by its trading partner (in the
export model), dummies of Russia’s accession to the WTO and economic sanctions
Russian trade policy 37
against the Russian Federation, introduced by a group of developed countries after the
conflict in Ukraine. The significant influence of average tariffs on bilateral trade was
proved in a number of studies, including Lеamer (1988), Feenstra (1995), Wang (2001)
etc., who confirmed the positive overall impact of tariff liberalisation on foreign trade.
Besides, the model contains a set of dummies for regional economic grouping –
BRICS, EU, EAEU, and APEC. The choice of groupings can be explained by geographic
structure of Russia’s foreign trade, its contemporary foreign economic policy,
geopolitical and geoeconomic priorities, as well as positions in various regional and
transregional blocks.
The binary variables are commonly used in extended gravity equations (Cheng and
Wall, 2005; Kimura and Lee, 2006; Green, 2013; Rana and Chia, 2018) and help identify
regional biases in the country’s foreign economic policy.
Following Abiad et al. (2011) and Rana and Chia (2018) the time dummy of the
Global Financial Crisis (2008–2009) was introduced into the model. This step may
increase significantly the accuracy of the modelling results, as it ‘refines’ the model from
the negative influence of the GFC, when global demand and, consequently, trade plunged
severely.
We also hypothesise that free floating and rapid devaluation of the Russian rubble
after 2014 became one more factor, which has affected foreign trade in recent years.
Thus, following Rose and van Wincoop (2001), and Rojid (2006) and other researchers,
we included exchange rate fluctuation into the gravity model.
Foreign trade comprises two components – export and import flows. It’s, therefore, of
interest to investigate the influence of the same determinants on both Russia’s export and
import and compare the effects of the same variables.
Thus, we estimated two different forms of augmented models:
,01 2 ,3 4 ,
5,6 7 8 9 10
11 12
ln
ln
it t it i it
it
LnExp LnGDPus LnGDPPart LnDist Tariff
ER BRICS APEC EAEU EU WTO
Sanctions GFC ε
=+ + + +
++++++
+++
αα α α α
αααααα
αα
(3)
,01 2 ,3 4 ,
5,6 7 8 9 10
11 12
ln
ln
it t it i it
it
LnImp LnGDPus LnGDPPart LnDist Tariff
ER BRICS APEC EAEU EU WTO
Sanctions GFC ε
′
=+ + + +
++++++
+++
αα α α α
αααααα
αα
(4)
where
Expi,t Russian export to the country i at time t (dependent variable in model 1)
Impi,t Russian import from the country i at time t (dependent variable in model 2)
GDPRust Russian gross domestic product at time t
GDPParti,t gross domestic product of the country i at time t
LnDisti geographical distance (in kilometres) between Moscow and the capital of the
country i
Tariffi,t average tariff rate in the country i, applied on import from Russia at time t
,it
Tariff ′ Russian average tariff rate applied on import from the country i at time t
38 E.Y. Аrapova and T.M. Isachenko
ERi,t annual average exchange rate of the national currency of the country i to the
Russian rubble at time t
BRICS a binary variable, which equals ‘1’ for Russian BRICS partners and ‘0’ for
the rest of countries
APEC a binary variable, which equals ‘1’ for Russian APEC partners and ‘0’ for the
rest of countries
EAEU a binary variable, which equals ‘1’ for Eurasian Economic Union members
and ‘0’ for the rest of countries
EU a binary variable, which equals ‘1’ for European Union members and ‘0’ for
the rest of countries
WTO a binary variable, which equals ‘1’ for the WTO members after Russian
accession and ‘0’ for the rest of countries
Sanctions a binary variable, which equals ‘1’ for those countries, which introduced
economic sanctions against Russia and ‘0’ for the rest of countries
GFC a binary variable, which equals ‘1’ during the years of the global financial
crisis and ‘0’ in the rest of years
α
1, …,
α
12 elasticity coefficients by the respective variables
ε error of the model that includes omitted variables and unobserved country
effects.
A panel data approach incorporates all categories of trade in goods for a sample of
112 Russia’s trading partners over a nine-year period (2007–2015). The statistical sources
of variables are presented in Table 1.
Table 1 Sources of variables
Variable Source
Expi
,
t World Bank Statistics. World Integrated Trade Solution. Available at:
https://wits.worldbank.org/
Impi,t
GDPRust World Bank Statistic Database, in dollars, annual. Available at:
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD
GDPParti
Disti Geo Dist Database. Available at: https://cepii.fr
Tariffi,t World Bank Statistics. World Integrated Trade Solution. Available at:
https://wits.worldbank.org/
,
it
Tariff ′
ERi,t World Bank Statistic Database. Available at:
https://data.worldbank.org/indicator/PA.NUS.FCRF
In order to provide the robustness of the model and the accuracy of its results, the three
issues were addressed.
First, according to the WTO, import value data are known to be more reliable than
export values or import volumes, which calls for prudence in interpretation when dealing
with bilateral flows or unit values (WTO, 2012). Thus, in order to enhance the accuracy
of the quantitative results, Russian export to trade partners was measured as their import
from Russia.
Russian trade policy 39
Table 2 Correlation matrix for export specification
(1) GDPRu s (2) GDPpart (3) Dist (4) Tariff (5 ) Tariff' (6) ER (7) BRICS (8) APEC (9) EAEU (10) EU (11) WTO (12) S anctions (13 ) Crisis 20 08–2009
(1) (2) (3) (4 ) (5) (6) (7) (8) (9) (10) (11) (12) (13)
GDPRus 1.00
GDPpart 0.06 1.00
Dist 0.00 –0.06 1.00
Tariff –0.03 –0.26 0.21 1.00
Tariff' – 0.01 0.25 0.28 - 1.00
ER –0.01 0.38 –0.41 –0.39 0.1 7 1.0 0
BRICS 0.00 0.29 0.14 0.10 0.06 –0.01 1.00
APEC 0.00 0.44 0.40 –0.24 0.1 2 –0.03 0.05 1.00
EAEU 0.0 3 –0.01 –0.15 0.0 2 –0.40 –0.13 –0.02 –0.05 1.0 0
EU 0.00 0.25 –0.61 –0.23 0.1 8 0.5 5 –0.11 –0.24 –0.07 1.0 0
WTO 0.27 0.06 0.02 –0.03 –0.01 0.07 0.01 0.01 –0.05 0.03 1.00
Sanctions –0.01 0.13 – 0.24 –0.13 –0.01 0.28 –0.06 –0.02 –0.03 0.31 0.43 1.00
Crisis 2008–2009 –0.41 –0.04 0.00 0.01 – 0.03 –0.03 0.00 0.00 –0.06 0.00 –0.37 –0.16 1.00
Source: Au thors ’ calc ulatio ns
40 E.Y. Аrapova and T.M. Isachenko
Second, as the estimation can be subject to omitted variable biases, random effects
estimates were obtained using the generalised least squares (GLS) methods. Besides, the
Breusch-Pagan Lagrangian multiplier test for random effects was performed. The
interpretation of the test is the following: if the statistics rejects the hypothesis of no
random effects, the model must be estimated according to the random effects regression
instead of the fixes effects estimations. The Hausman specification test was another
instrument, used to choose the best model. The test is widely used to test the null
hypothesis of normality when comparing simple ordinary least squares method and fixed
effects regression model. The Wald Chi-square test was also estimated to check the
model robustness.
Third, the calculations were preceded with the correlation analysis of control
variables in order to exclude autocorrelation of the regressors. The correlation matrix for
both specifications is presented in Table 2. Correlation of the most of the regressors
appears to be low (0–0.3), there was a medium correlation just between the exchange rate
and a group of EU countries (0.55) because of the Eurozone, EU and a distance variable
(–0.61). Nevertheless, medium correlation doesn’t affect the main findings and can be
deemed as acceptable.
4.2 Results and discussion
Thus, each of two augmented gravity models with panel data was tested according to
three methods: simple ordinary least squares, the fixed-effect models and the
random-effects models. Besides, the basic gravity equation was estimated, in order to
prove the reasonableness of the augmented model. The best model selection based on the
results of the Wald Chi-square test, Hausman specification test and Breusch and Pagan
Lagrangian multiplier test for random effects.
The Wald Chi-square tests are statistically significant at 1% across all estimations in
both models. Additionally, the Breush-Pagan tests are statistically significant at 1%,
favouring random effects as opposed to fixed effects and standard ordinary least squares
model.
As a result, in both models – for export and import, the random-effect model was
selected as the most appropriate.
The estimation results of the two models are presented in Table 3.
The overall R2 equals 0.75 for export and 0.61 for import, which means that the first
model explains 75% of the variation in Russian export, while import is determined by a
wider set of factors, as the same influencing variables explain only 61% of variations in
Russian imports. These findings correspond with the previous studies, using augmented
gravity equations to explore foreign trade (Krugman, 1980; Helpman and Krugman,
1985; Lеamer, 1988; Feenstra, 1995; Anderson and van Wincoop, 2003; Kimura and Lee,
2006, etc.). The coefficients of determination range usually within an interval of 0.6 to
0.82, dependently on the research hypotheses and specifications of the augmented
models. Moreover, the relevance of the extended model was proved by the fact, that the
overall R2, estimated for the basic gravity equation, appeared to be lower, especially in
the export model –0.69 against 0.75 and 0.58 against 0.61 for import, respectively.
Hence, the expansion of the model and inclusion of additional regressors into the
econometric analysis approved the quality of the model significantly and contributed to
more accurate results.
Russian trade policy 41
Table 3 Augmented gravity model estimation for two gravity equations, 2007–2015
Explanatory
variables Basic GM Augmented GM (LSQ) FEM regression REM regression
Model 1: dependent variable: LnExp
LnGDPRus 0.5947***
(0.1731)
0.5498**
(0.2203)
0.5742***
(0.1129)
0.5577***
(0.1028)
LnGDPPart 1.0142***
(0.0314)
0.8645***
(0.0315)
0.8250***
(0.1403)
0.8679***
(0.0727)
LnDist –2.2341***
(0.0567)
–2.0163***
(0.0794)
Omitted –2.1477***
(0.2025)
LnTariff –0.0533*
(0.0330)
–0.1540*
(0.0823)
–0.1081*
(0.0618)
LnER –0.1212***
(0.0385)
–0.0103
(0.0884)
–0.0580
(0.0680)
BRICS 0.7722***
(0.2572)
Omitted 0.7344
(0.7038)
APEC 1.3283***
(0.1662)
Omitted 1.1894***
(0.4358)
EAEU 1.6722***
(0.3902)
–0.2193
(0.2566)
–0.1349
(0.2521)
EU 0.1461
(0.1476)
–0.9280**
(0.4363)
–0.4460
(0.2900)
WTO 0.1916*
(0.1130)
0.1940***
(0.0581)
0.1938***
(0.0528)
Sanctions –0.2830
(0.1936)
–0.2095**
(0.0970)
–0.2076**
(0.0930)
GFC 0.0648
(0.1202)
0.0463
(0.0536)
0.0480
(0.0535)
_const –0.4847
(6.2667)
–15.89004***
(3.6031)
0.8055
(3.5299)
R2 0.6873 0.7573
R2 adj. 0.6847 0.7543
within 0.2226 0.2207
between 0.3981 0.7778
overall 0.3885 0.7475
Wald*** chi2(12) = 632.22 Prob > chi2 = 0.0000
Hausman test chi2(7) = 10.34 Prob > chi2 = 0.1699
Breusch and Pagan
Lagrangian multiplier test***
chi2(1) = 2510.31 Prob > chi2 = 0.0000
Number of observations 1,008
Number of groups 112
Notes: *, ** and *** statistically significant at 10%, 5% and 1% significance level
respectively.
Source: Authors’ calculations
42 E.Y. Аrapova and T.M. Isachenko
Table 3 Augmented gravity model estimation for two gravity equations, 2007–2015
(continued)
Explanatory
variables Basic GM Augmented GM (LSQ) FEM regression REM regression
Model 2: dependent variable: LnImp
LnGDPRus 0.5713***
(0.2847)
0.5356*
(0.3196)
0.5516***
(0.1610)
0.5317***
(0.1479)
LnGDPPart 1.0349***
(0.0617)
1.0187***
(0.0468)
0.9785***
(0.2028)
0.9567***
(0.1062)
LnDist –1.3341***
(0.3476)
–0.8722***
(0.1281)
Omitted –1.2918***
(0.3002)
LnTariff –0.2823***
(0.0326)
–0.0628
(0.0476)
–0.1226***
(0.0416)
LnER –0.2005***
(0.0539)
0.2824**
(0.1259)
0.0685
(0.0965)
BRICS 1.3917***
(0.3727)
Omitted 1.3585
(1.0237)
APEC 1.6094***
(0.2328)
Omitted 1.6412***
(0.6202)
EAEU 1.1097*
(0.5997)
–0.2419
(0.3697)
–0.0915
(0.3650)
EU 2.0736***
(0.2264)
0.3070
(0.6291)
0.8174*
(0.4272)
WTO 0.1670
(0.1641)
0.3012***
(0.0830)
0.3076***
(0.0770)
Sanctions 0.4561
(0.2814)
0.0413
(0.1365)
0.0976
(0.1327)
GFC 0.2813
(0.1745)
0.2695***
(0.0771)
0.2645
(0.0774)
_const –13.0947
(9.0857)
–21.7470***
(5.0120)
–9.4151*
(5.0597)
R2 0.5808 0.6413
R2 adj. 0.5776 0.6370
Within 0.1541 0.1491
Between 0.5254 0.6484
Overall 0.4982 0.612
Wald*** Chi2(12) = 363.78 Prob > chi2 = 0.0000
Hausman test Chi2(7) = 18.86 Prob > chi2 = 0.1086
Breusch and Pagan
Lagrangian multiplier test***
Chi2(1) = 2,536.55 Prob > chi2 = 0.0000
Number of observations 1,008
Number of groups 112
Notes: *, ** and *** statistically significant at 10%, 5% and 1% significance level
respectively.
Source: Authors’ calculations
Russian trade policy 43
In both models, the three variables of the basic gravity specification are statistically
significant at 1% across all equations and have the expected signs. The growth in both
Russian and its partners’ GDPs increases bilateral trade. Both export and import are
positively correlated with the countries’ size. This is consistent with the classical
economic theory, previous estimations and the casual observations of the Russian foreign
trade statistics, as such large economies as China, Germany, the USA, Netherlands, Italy,
France, Japan take traditionally the first positions in the geographic structure of Russia’s
foreign trade. Nevertheless, the coefficient by the partners’ GDP is relatively higher in
the import model. It means that successful economic performance and high paces of
economic growth in Russian trading partners may stimulate national import at a higher
pace than Russian export. It is also worth to mention one more time, that the causality
between GDP and foreign trade run in both directions, when trade stimulates economic
growth (Kodochnikov and Fedyunina, 2013). Causality issues between these two
parameters are not at the focus of this study, but leave space for the further research.
As it was expected, the Russian trade flows are inversely related to the distance.
Econometric estimates of the constant elasticity of trade to distance range within an
interval of –0.7 and –1.2 (Disdier and Head 2008; Salvatici, 2013; Chaney, 2013) and
distance appears to be very persistent over time (Brun et al., 2005; Salvatici, 2013).
Nevertheless, the coefficients by the distance variable depend on the country or a group
of countries, which are in the focus of the particular research. In this study the
coefficients by distance are much higher in absolute value and reach –2.15 in the export
specification and –1.29 in the import one. Thus, the negative influence of distance on
Russian export is much higher than on import. This can be explained by the specifics of
the Russian economy and commodity structure of its foreign trade, high share of raw
materials in the export structure, which is associated with higher transportation costs and
need for better developed infrastructure (Baldwin and Taglioni, 2011; Weckström, 2013).
The results of this study correspond completely with the comparable studies of Russia’s
foreign trade. In Lissovolik and Lissovolik (2006) a distance coefficient is about minus
one for Russian exports, while in Kaukin and Idrisov (2014) it varies from –1.88 to –4.25
dependently on specification and means of transport. In Zubtsova (2013) the coefficients
by the distance variable in the export model vary from –1.73 to –1.99, while in the import
model it is much lower (from –0.97 to –1.32).
The variable ‘Tariff’ is significant in both specifications and the coefficients
demonstrate inverse direction consistently with the theoretical models. Thus, tariff
liberalisation results in higher trade flows, the current research confirms the findings in
the most of previous fundamental studies, including Lеamer (1988), Feenstra (1995),
Wang (2001), etc. Nevertheless, in the case of Russia, simultaneous linear 1% cut in
customs duties, applied by Russia and its trade partners on mutual imports may increase
Russian import by 0.12% and raise national export by lower 0.11%. This conclusion can
be of special interest for evaluating potential trade effects in case of ‘EAEU+’ integration
scenarios, which have been actively discussed in recent years. Deeper analysis of
commodity elasticities on average applied tariffs may become the object for further
research, as there is a risk, that symmetric tariff liberalisation may speed up Russian
import at a higher pace, in comparison with export. This may lead to lowering trade
surpluses or increasing deficits in bilateral trade.
Exchange rate is statistically insignificant in both specifications. This may be
explained by the fact, that in the current research the influence of the exchange rate was
44 E.Y. Аrapova and T.M. Isachenko
considered in a short-term perspective. In further research where the influence of
exchange rate is in the main focus of the analysis, it may make sense to introduce a
lagged variable into the augmented model.
The results on the regional economic grouping are rather contradictory. The BRICS
dummy was statistically insignificant in both specifications, which confirms the ‘political
and geopolitical’ nature of this transregional association, relatively low complementarity
of the BRICS economic systems and significant number of obstacles and contradictions
on bilateral and multilateral levels, hampering economic and industrial cooperation, and,
consequently, mutual trade.
Although the EU countries remain to be Russian key trading partners, the statistical
significance of this dummy was confirmed at 10% only in the import model, while in the
export specification the factor was insignificant. Such a trend can be explained, mainly,
by rising tension in both economic and political relations with the European countries
after the Ukrainian crisis, as well as significant contraction of Russian exports to the
region amid relatively lower contraction of national imports. Nevertheless, European
countries remain to be the main supplies of various groups of commodities to the Russian
economy. According to the econometric modelling Russian import from EU countries is
by 0.82% higher than from the rest of the world.
At the same time, it’s interesting, that the dummy variable, which describes trade with
APEC partners, is statistically significant at 1% in both models and has positive
coefficients. This confirms high trading potential of the Asia-Pacific region for Russia,
taking into account its rising consumer potential, rapid transformation of Asian countries’
economic growth models (Arapova, 2017) and an increased interest of Russia in
diversifying geographic structure of its foreign trade and developing economic
cooperation with the Asian region. Nevertheless, the coefficient in the import model is
much higher than in the export one, thus, in a short run, there are better chances to
diversify Russia’ import structure in favour of Asian countries than to increase its export
to the region.
EAEU dummy, which is commonly used to evaluate efficiency of regional economic
integration, is insignificant and has negative coefficients in both specifications. This may
seem surprising, taking into account, that the most of international studies prove positive
influence of regional economic integration on intraregional trade, but this is not the case
of the Eurasian Economic Union. Eurasian integration is not a perfect ‘success story’
(Vinokurov, 2017), because of low complementarity of intraregional trade and
differences in foreign economic strategies of the member countries. Some complications
arose from the fact that EAEU members joined WTO at different time and the
negotiations were not consolidated on some issues (Isachenko, 2010). Moreover, the
Ukrainian crisis has exacerbated contradictions among the EAEU members. All these
factors prevent regional economic integration within EAEU from serving as a driver of
regional economic development, and this was reflected in the results of the econometric
modelling.
WTO accession of Russia in 2012 had a significant positive influence on the
country’s trade flows. These findings conform to the existing studies and economic
theory (Feenstra, 1995; Anderson and van Wincoop, 2003; Helpman et al., 2008, etc.), as
well as the findings on Russia’s accession to the WTO (Lissovolik and Lissovolik, 2006;
Zubtsova, 2013; Kaukin and Idrisov, 2014). At the same time, it should be stressed that
profits of national exporters seem to be lower in comparison with those received by
Russian trade policy 45
foreign exporters: the coefficient by the dummy in the second model is much higher in
comparison with that in the first one.
The mixed results have been received for the influence of economic sanctions and
contr-sanctions on Russian trade after 2014. The quantitative results reveal significant
negative effect of international economic sanctions on Russian export. At the same time,
the influence of sanctions and contr-sanctions on Russian import in the short run
appeared to be insignificant.
The GFC dummy was introduced in both models to ‘clear’ trade flows out of negative
effects of the Global financial crisis. Nevertheless, the crisis dummy was statistically
insignificant in both specifications.
5 Conclusions
The format of the current paper makes it impossible to cover all issues of Russian trade
cooperation and its regulation with all countries and regions in the world. The provided
analysis of the main trends in Russian trade policy makes it possible to draw some
important conclusions.
First of all, the specific feature of Russian foreign economic policy in the last
20 years was the serious restructuring of internal economic development that reflected in
dynamics and structure of trade flows and trade regulation.
Secondly, trade policy of the country is influenced by the political content and
political ambitions and position in the world that sometimes is harmful for the economic
development and interests.
For some partners, mainly EU, the political tension and worsening of the
relations with Russia become crucial and threatened the interest of their domestic
producers. The quantitative analysis proves that political tension, which led to the
sanctions-contr-sanctions adversarial process, worsened substantially positions of
national exporters. That could served as one of the main arguments for an assumption
that peace is a natural condition and effect of trade and all problems could be solved on
the negotiations basis rather than in a political discourse.
Thirdly, for the majority of its partners Russia is still interesting as a consumption
market and the supplier of mineral resources, while the preserving of such situation is not
in the Russian interest. Nevertheless, the whole Russian history provides the evidence
that under certain peaceful conditions Russia has all prerequisites to become an important
player at the world markets. Despite numerous speculations about Russian accession to
the WTO, its overall positive influence on the country’s foreign trade flows has been
proved by both qualitative analysis and the results of gravity modelling. Nevertheless,
relatively higher impact on national import may in long-run result in lowering surplus of
the national trade balance and hamper implementation of the import-substitution strategy.
Fourthly, low trade complementarity of EAEU members and multiple controversies
in coordinating approaches to foreign economic policy among the member countries do
not allow implementing the integration potential of the block.
Fifthly, the empirical results proved that Russia has good chances for geographic
diversification of its foreign trade flows. EU countries are still Russian main trade
partners. Nevertheless, the efficiency of trade with APEC countries under otherwise
46 E.Y. Аrapova and T.M. Isachenko
equal conditions is higher (both in export and import), although trade cooperation may
become relatively more profitable for Russian trade partners than for Russia itself.
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Notes
1 http://www.cer.org.uk/publications/archive/policy-brief/2015/frozen-politics-and-economics-
sanctions-againstrussia.
2 As explained by Jim O’Neil, “the Godfather of the BRICS idea”, these countries are worthy of
special interest and consideration since they represent emerging powers and might express the
joint position of developing countries in various global forums.
