Oil and Economy

Abstract

Economic literature has recently paid increased attention to the interrelationships between resource (oil) wealth (i.e. dependence on exports of oil and other raw materials) on one hand, and macroeconomic performance (and socio-political system) on the other. Most authors find that resource wealth has a negative impact on economic development, and suggest that resource-oriented countries should diversify their economies. This article reviews some economic-policy dilemmas, and also examines the need for, and the constraints of, structural changes in Russia, an atypical, but quite important resource-dependent country. The negative implications of the “resource curse”are valid in the case of this country, as well. Russia has become resource-oriented despite the priority of heavy (military) industry development during the Soviet period. Although in some fields Soviet manufacturing was extensive and strong, it proved inefficient and internationally non-competitive. Engineering - the largest industrial sector - was never export-oriented. In addition, post-Soviet decline led to significant de-industrialisation. Thus, the present dependence on oil and gas is more a consequence than a cause of the weakness of manufacturing. Government-managed reorientation of resources from raw materials sectors onto manufacturing and services (urged by almost everyone but showing little progress) is a necessary but far not sufficient condition of the economic modernisation.