Prelims

Half Title Page

EXPLORING THE FUTURE OF RUSSIA’S ECONOMY AND MARKETS

Endorsement

In this extraordinary, essential volume, Bruno Sergi has put together a diverse, multinational, multidisciplinary collection of authors to explore the most important, most relevant trends in Russian economic development. This book deserves a wide audience of scholars and practitioners of policy and management.

Professor Rawi Abdelal, Harvard Business School

This book gives an in-depth and comprehensive analysis of the contemporary Russian economy, covering its infrastructure, financial and industrial sectors, stock market, and potential for innovation. The authors do not ignore controversial and complicated issues of Russian economic development, such as structural and institutional problems and the negative impact of sanctions, but at the same time they outline perspectives for further growth and sustainable development. This orientation gives an analytical foundation for both academic analysis and brave forecasting. The book can be recommended not only to academics but also to investors and CEOs interested in working with Russia.

Professor Feodor Voitolovsky, Director of IMEMO RAN (Primakov Institute of World Economy and International Relations, Russian Academy of Sciences)

One could not explore contemporary Russia without careful research on its economy. This book is highly recommended for its strong and comprehensive analysis. It would be useful either for academic scholars in the field of Russian studies or for the business community.

Ivan Timofeev, Director (Programs), Russian International Affairs Council

In time of stereotypes and prejudices the book provides the reader with professional and unbiased research on how Russian economy really works. The reader would explore its strong sides, challenges it is facing nowadays and its potential future. Highly recommended.

Vladimir Gutenev, Deputy of the State Duma of the Federal Assembly of the Russian Federation; First Deputy Chairman of the Committee on Economic Policy, Industry, Innovation and Entrepreneurship; Chairman of the Commission on Legal Support of the Development of Organizations of Defence-Industrial Sector.

Title Page

EXPLORING THE FUTURE OF RUSSIA’S ECONOMY AND MARKETS: TOWARDS SUSTAINABLE ECONOMIC DEVELOPMENT

EDITED BY

BRUNO S. SERGI

Harvard University, USA and University of Messina, Italy

United Kingdom – North America – Japan – India – Malaysia – China

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Emerald Publishing Limited

Howard House, Wagon Lane, Bingley BD16 1WA, UK

First edition 2019

Copyright © 2019 Emerald Publishing Limited

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ISBN: 978-1-78769-398-2 (Print)

ISBN: 978-1-78769-397-5 (Online)

ISBN: 978-1-78769-399-9 (Epub)

Acknowledgments

This book originates from a special seminar “New Reality and Russian Markets” held at Harvard Davis Center for Russian and Eurasian Studies on April 10, 2017, co-hosted by the Davis Center and RUDN University, Moscow. I must start by thanking the Director of Harvard Davis Center, Rawi Abdelal, who enthusiastically supported the event and the subsequent work on this book. Penelope Marie Skalnik at the Davis Center has helped with the organization of the meeting and with a broad range of administrative stuff. They both deserve my gratitude to have given me advice and were as important to this book getting done.

Special thanks to RUDN University that has co-organized and financed the special seminar at Harvard and supported the many colleagues who flew to Cambridge to present their research, not least the Director of the International Center for Emerging Markets Research at RUDN University, Vladimir Matyushok, as well as Svetlana Balashova and Andrey Berezin, who are extraordinary and insuperably colleagues and friends. Without their support and experience, this book would not exist. I express my gratitude to the Vice-Rector of RUDN University, Nur Kirabaev, and Dean Yuriy Moseikin who actively supported the idea of establishing the center and presented it at Harvard University in April 2017.

I am also profoundly grateful to all chapter contributors, Emerald Group Publishing, particularly Charlotte Maiorana and Nick Wolterman, who gave passionate support, editorial help, and keen insights right from the book proposal to the final manuscript and the excellent production process. I express my thanks to Mohana, the copy-editors, and the proofreaders for the excellent and diligent job they have done during the last steps of the publishing process. Thanks to everyone who made this book possible.

Bruno S. Sergi

About the Editor

Bruno S. Sergi teaches on Emerging Markets and the Political Economy of Russia and China at Harvard University. He is an Associate at the Davis Center for Russian and Eurasian Studies and is Scientific Director of the Lab for Entrepreneurship and Development at Harvard. He also teaches International Economics at the University of Messina, is the Series Editor of Cambridge Elements in the Economics of Emerging Markets, Co-series Editor of the Emerald Publishing book series Harvard Lab for Entrepreneurship and Development, an Associate Editor of The American Economist, and Co-founder and Scientific Director of the International Center for Emerging Markets Research at RUDN University in Moscow.

About the Contributors

Boris Ananyev is a Lecturer at the Department of Political Theory, MGIMO University, Moscow. He graduated from MGIMO University where he received his Bachelor’s degree in International Relations and his Master’s degree in GR and Political Expertise. A former Content Editor of Rethinking Russia think-tank (2016–2017), his primary specialization is the theory of politics, new approaches to IR theory, Russia’s domestic policies, and foreign politics.

Svetlana Balashova is an Associate Professor of the Department of Mathematical Modeling in Economics and Executive Director of the International Center for Emerging Markets Research at RUDN University, Moscow. She has been elected as a visiting professor at the Belgrade Banking Academy. She teaches Econometrics, Financial Econometrics, and related subjects for undergraduate and graduate students. In addition to teaching, Svetlana Balashova is actively engaged in scientific research. Her field of research is economic growth and innovative development, and applications of econometric modeling. She is the author or co-author of several textbooks and numerous research papers. She has taken part in many international conferences and seminars, including being a speaker at the seminar on “New Reality and Russian Markets” at Harvard’s Davis Center for Russian and Eurasian Studies in April 2017.

Andrey Berezin is the Director for Development for International Center for Emerging Markets Research at RUDN University, Moscow. His areas of interests are energy efficiency, risk analysis, strategy, energy conservation, sustainability, development of territories, global business, and public–private partnerships. Andrey took part in big infrastructure projects and development of waste heat recovery technology and natural gas vehicles in the Russian oil and gas sector. Andrey is a graduate of Harvard University, Ural Federal University, and RUDN University with graduate degrees in Civil Engineering, Investment Management, Finance, and International Economics.

Aleksei V. Bogoviz is a Doctor of Economics, Associate Professor, and a Chief Scientific Officer of the Federal State Budgetary Scientific Institution “Federal Research Center of Agrarian Economy and Social Development of Rural Areas—All Russian Research Institute of Agricultural Economics,” Moscow, Russia. His sphere of scientific interests include economic growth, sustainable development, globalization, developing countries, the institutionalization of social development, planning of development and strategic planning, agriculture, agro-industrial complex, digital economy, and state management. He has more than 200 publications in Russian and foreign peer-reviewed journals and books.

Kevin Chen is currently Chief Economist of Horizon Financial. An adjunct Assistant Professor at New York University since November 2012 and a guest speaker at Harvard University, Fordham University, Pace University, and IESE Business School, he is also a member of the Adjunct Advisory Committee of SPS, New York University. He is Interim Head of the Private Sector Concentration program of Ms. of Global Affairs, New York University and a member of the Economic Club of New York, Fellow of the Foreign Policy Association, Editorial Advisory Board Member of the Global Commodity Applied Research Digest (GCARD) at JP Morgan Center for Commodities (JPMCC) at the University of Colorado Denver Business School, and Fellow of International Center for Emerging Markets Research at RUDN University, Moscow. He holds the position of co-chair of the New York Finance Forum. Kevin is also a co-founder and vice-chairman of the Absolute Return Investment Management Association of China and Senior Portfolio Manager, Credit Agricole/Amundi Asset Management from August 2008 to October 2011. He was the Director of Asset Allocation at Morgan Stanley from August 2004 to August 2008 and Manager at China Development Bank, September 1998 to August 2000. He completed his PhD in Finance from the Financial Asset Management Engineering Center at the University of Lausanne, Switzerland, 2004 and master’s degree in Finance from Center for Economic Research, Tilburg University, the Netherlands, in 2001. He completed his BA degree in Economics from the Renmin University of China in Beijing, in 1998.

Veronika Chernova is a Professor in the Department of Marketing, People’s Friendship University of Russia. With an MBA and PhD in Economics, she has extensive business experience from her current work in Coca-Cola company as a Marketing Manager, where she is responsible for retail marketing in federal chains of Russia. She has more than 80 scientific publications to her name, including more than 15 in internationally peer-reviewed journals. Her primary areas of academic interest are international strategies of transnational companies, trade marketing patterns, and product development.

Sergey U. Chernikov is Professor of International Marketing at the Economic Faculty of People’s Friendship University of Russia (RUDN University, Moscow) and Visiting Professor at IMC University of Applied Sciences Krems, Austria. He received his MA and PhD at Moscow International Higher School of Business MIRBIS, Russia, and his LLM degree in International Trade Law from London Guildhall University. Before beginning his MBA degree at MIRBIS Business School, he worked for several Russian consumer durable goods companies in supply chain departments. His teaching spans a range of courses in international marketing, supply chain management, and international business.

Ekaterina Degtereva is a Professor of the Department of Marketing at the economic faculty of People’s Friendship University of Russia (RUDN University), Professor at the Department of World Economy of MGIMO University, and Senior Researcher at Institute of Europe, Russian Academy of Science, European sector. She is also coordinator of several EU projects: Erasmus plus Capacity Building, Erasmus plus Mobility, Jean Monnet Modules, Jean Monnet Project, Marie-Curie Horizon 2020 project. She has authored more than 100 scientific publications on different aspects of internationalization, including global expansion of Russian enterprises.

Shahdad Naghshpour is Professor of Economics at Alabama A&M University and past President of the Academy of Economics and Finance. He is the recipient of numerous excellence awards in research and excellence in teaching award from different institutions. His research interests are in international economics, Eastern European financial sector, and income distribution and inequality. He has published in prestigious journals such as Journal of Regional Analysis and Research, Journal of Economics and Finance, Journal of Economic Studies, and Review of Regional Studies. He has also authored eight books and eight book chapters. Shahdad has a PhD in Economics from Oklahoma State University.

Mikhail Kuzyk completed his PhD in Economics and is a graduate of Moscow Institute of Physics and Technology. Currently, he is the Head of the Division at Interdepartmental Analytical Center, a Senior Researcher at Russian Academy of National Economy and Public Administration, and a leading expert at National Research University—Higher School of Economics (Moscow, Russia). His fields of expertise include industrial policy; science, technology, and innovation policy; firm behavior; public policy evaluation; development institutions; state-owned companies; and privatization.

Inna Lazanyuk is an Associate Professor of the Department of Mathematical Modeling in Economics at the RUDN University. She teaches econometrics, analysis, and forecasting of world commodity markets. She conducts research based on the following areas: development of emerging countries, Russia’s economic growth, information and communication technologies and their contribution to the country’s economy, and the phenomena of the Indian economy. The theme of the scientific work “Information technology is the basis of the growth of the Indian economy” was defended in 2005. She has published in a wide spectrum of scholarly journals and is an author of more than 30 scientific papers.

Vladimir Matyushok is a Full Professor of the Department of Mathematical Modeling in Economics at the RUDN University. He is a member of the International Academy of Organizational Sciences and the head of the undergraduate double-degree program Economics and Management and graduate double-degree International Business in cooperation with the University of Nice, and graduate double-degree program International Project Management in cooperation with CNAM University (Paris). Vladimir is an expert at the Russian Government’s Russian Humanitarian Scientific Fund. He is Vice-president of the International Association of Economists “CEMAFI international.” Vladimir Matyushok was elected to the International Francophone Academic Network CEDIMES, which was founded in 1972 and includes researchers and scientists from 33 countries participating in CEDIMES. Vladimir is the author of more than 160 scientific publications, including textbooks and monographs.

Elena G. Popkova is a Doctor of Economics, Professor of the Chair “International Economics and Economic Theory,” Volgograd State Technical University, and founder of Institute of Scientific Communications. Her scientific interests include economic growth, sustainable development, globalization, humanization of economic growth, developing countries, the institutionalization of social development, development planning, and strategic planning. She is a guest editor for the International Journal of Educational Management (special issue, 2016); International Journal of Trade and Global Markets (special issue, 2017); Journal of Entrepreneurship in Emerging Economies (special issue, 2017); and Contributions to Economics (books series published by Springer). She has more 300 publications in Russian and foreign peer-reviewed journals and books.

Elena V. Popova is a Professor at the Plekhanov Russian University of Economics, Moscow, Russia. Her scientific interests include theory and practice of modern management, development of state sector of the economy, anti-crisis management, management of technological progress, innovational development of the Russian economy, information technologies, and automatic management systems. Professor Popova has more than 300 publications to her name, including study guides. She is a member of the editorial boards of four Russian scientific journals.

Julia V. Ragulina is Deputy Director of the Federal State Budgetary Scientific Institution “Federal Research Center of Agrarian Economy and Social Development of Rural Areas—All Russian Research Institute of Agricultural Economics,” Moscow. She is a Doctor of Economics, an honored worker of higher professional education of the RF, and an academic of the Russian Academy of Natural Sciences and the Russian Municipal Academy. She has authored study guides on state and municipal management, economics of municipal entities, and monographs on the interaction between state and business. She is also the author of more than 200 publications. Her research interests are the knowledge economy, regional economy, and economics and management.

Yuri Simachev is Director for Economic Policy at National Research University—Higher School of Economics (Russia, Moscow). He is responsible for coordinating economic research in order to develop the practical proposals on the state structural policy. Simachev has been extensively involved in applied research on the brink of economic and legal issues. He has focused on recommendations for federal authorities on innovation and industrial policy, development institutes, private sector development, and SMEs. Simachev is a member of the Expert Council of the Russian Government. Simachev is a graduate of Lomonosov Moscow State University and Higher School of Economics. He is a Candidate of Science.

Yan Vaslavskiy, a PhD in Political Science, is Head of Department of Analytics and Expertise at the State Duma of the Federal Assembly of the Russian Federation. He is an Associate Professor at the Department of Political Theory, MGIMO University, Moscow. He was Director of Rethinking Russia think-tank (2015-2017), Director of the School of Government and International Affairs, MGIMO University (2013–2017), and held the position of APEC CEO Summit Program Director in 2012. He is a Member of the board of the Russian Political Science Association and the Political Development Research Committee at the International Political Science Association. His principal research interests are domestic politics and foreign policies of Russia and the US, problems of democratic development, world energy, and energy policy.

Natalia Volgina is Doctor of Economics and Full Professor of the Department of International Economic Relations, Faculty of Economics, Peoples’ Friendship University of Russia. The field of her academic interests is connected with the activity of multinational enterprises, international production, and global value chains. She is an author of more than 40 scholarly papers, a book International Production in Russia (2011), a co-author of a monograph Value Chains in the Automotive Industry of Central and Eastern European Countries (2018), and a textbook International Economics (2006, 2010, 2018). She teaches International Business as well as International Economics at Peoples’ Friendship University of Russia and at the University of Sofia-Antipolis (France). In 2018 she was a Visiting Fellow at the University of Cambridge, Centre of Development Studies.

Alexander Zobov has a PhD in Economics and is is Head of Department of Marketing of the Peoples’ Friendship University of Russia, Associate Professor at Management Department of Moscow State University. He has over 25 years of management experience in higher education, performing a number of large-scale projects together with Ministry of Science and Education of Russia and Russian Scientific fund. He is a known Russian researcher and expert in strategic alliances and strategic marketing, being the author of more than 70 publications in this field of studies.

Preface

The emerging market economies’ booming and fast-developing local consumer markets, abundant low-cost labor, and rising middle class have been the significant characteristics of the world economy. They showcase some of the most appealing economic growth stories since the end of World War II, and we have noticed the shift in wealth from developed economies to emerging markets. According to national data, advanced economies accounted for an average of over 59% of world GDP (at purchasing power parity) from 1980 to 2007, while the combined share of developing and emerging economies was 41%. Since 2007, this share has been wholly reversed, and the emerging and developing nations now account for 59.25% of the world’s GDP. This fact has naturally attracted much attention. However, upon closer examination, scholars find that the landscape is fraught with an ongoing slowdown across some of the world’s major emerging markets and complex social, economic, and financial systemic risks. Russia is one of these countries that paradoxically exhibit enormous potential. With a remarkable GDP growth rate during the 2000s, Russia has changed, but not enough to compete regarding smart industrialization and modernization, which are still a long way off. Considering these realities, I intended to produce an analysis of the challenging issues faced by Russia and its people in a perspective of sustainable growth, suggesting issues, analysis, and ways of solving these challenges. However, let me kick off with a simple question. What is Russia? This vast country, the world’s largest one, no doubt rich in natural resources, straddling Europe, Asia, the Pacific and the Arctic oceans, a fantastic landscape, and history, it is home to economic and industrial markets that can become of immense scale. Russia is an essential, critical player in an unprecedently complex global economy. It has yet to exploit its unique position within this brave new world fully. That is, Russia is a relevant country to explore during such groundbreaking and critical times. As the sheer scale of Russia and cultural position between the booming Asian region and western Europe, Russia is a case essential and unique. Therefore, I wanted to produce a book that is a first serious attempt to deal with the economic potentiality Russia has, and the extraordinary range of chapters forms a coherent read.

Exploring the Future of Russia’s Economy and Markets offers the first serious study of Russia’s contemporary economic growth and economic aptitude. A full spectrum of financial, banking, and technology innovation have developed, and we can expect that more changes and innovations will shape Russia, and more disruptive financial technologies will come in soon. Endeavoring to bring all these perspective in one single volume was my primary goal. Moreover, as a current associate of the Harvard’s Davis Center for Russian and Eurasian Studies, having the first international meeting of the International Center for Emerging Markets Research held at Harvard could be the ideal venue. Based on the April 2017 conference “‘New Reality’ and Russian Markets” that was held at Harvard University and co-hosted by Harvard Davis Center for Russian and Eurasian Studies and RUDN University, Moscow, it brings together world-renowned thinkers to offer the latest empirical research on financial risks and stability, fintech, industrial policies and technological parks, TNCs, the oil and natural gas industry, and the impact of international sanctions on Russia’s sustainable development. Cumulatively, the chapters I gathered here to demand that Russia looks for alternative drivers to get its economy going. The distinguished colleagues and economists here offer flexible bases for economic and financial stability that would foster sustainable economic development for Russia.

Although the continuing western sanctions, Russia has enormous economic potentialities. In this context, I wanted to look at the case of how Russia is now doing to create employment, development, and prosperity. Russia has the tenth largest population in the world, of 144 million people, unemployment has been around the 7.6% mark from 1993 until 2017, and it is less than 5% at the time of writing this preface. It does not have now a booming market economy like other emerging markets do, although its primary source of growth in the last few years, i.e., during the first two terms of President Vladimir Putin’s presidency, has been the oil and gas industry. Nevertheless, it needs to find alternative sources to be able to make rapid progress in the changing landscape of the global economy.

This edited volume aims to highlight the economic impact these new realities are having on the Russian economy and how it will help Russia to shift its dependence from its natural resources of oil and natural gas to other critical factors, such as IT, innovation and technological projects. If in the past, Russia has been heavily reliant on oil and natural gas revenues, which had been the core of the economy, however, an ever-changing situation demands that Russia look for alternative means to get its economy going instead of relying on oil and natural gas as it has been doing over the past several years. I think to cope with external sanctions, Russia is moving towards a greener economy based on the concept of preservation of natural resources and development of innovations. Even though Russia has been a relevant crude oil producer for the past 130 years, oil production has spurred economic growth for the country during the 2000s and affected Russia’s overall international influence. However, Russia’s natural resources did not turn out to be a permanent bonanza for Moscow because of price fluctuations. Russia is experiencing a significant change on the way to the sustainable development path with greater welfare conditions for the Russians. Importantly, perspectives are much different today because Russia is a world player, giving the country an unrivaled stake.

The volume is the product of a conference that has been taken place at Harvard University’s Davis Center for Russian Studies on April 10, 2017, center to whom I am an associate since 2013, and organized by the International Center for Emerging Markets Research at RUDN University, Moscow. Having in mind graduate students, researchers, and professionals alike, this book catalyzes cutting-edge research and rigorous conceptual and empirical chapters, presenting in-depth and yet digestible way for the students and professionals. The volume is committed to innovating the literature panorama and remain committed to broadening the knowledge about Russia and explore the intellectual answers to the problems in the functioning of the present-day Russian market and institutions. It explores the subjects of contemporary trends in Russian economic performance as well toward financial stability.

All in all, Exploring the Future of Russia’s Economy and Markets examines Russia’s promises and realities from both a theoretical and empirical perspective. Grounded in state-of-the-art and comprehensive coverage, all contributors present theoretical and econometric analysis of past and current trends, provide up-to-date technical portrayals on the economic challenges including the dynamics and prospects of Russia’s economics. Moreover, with an added endeavor of disentangling and breaking the markets down to see what the resulting outcomes, directions, and strategies would be. Although each chapter will be a stand-alone piece of analysis, the entire volume communicates new insights to students who are interested in the Russian economic experiment and eventually concerned with its policy and applications. The book is very comprehensive and offers a friendly reading style. The chapters provide definitive new insights into the evolving Russia’s economics that was the central theme of the conference held at Harvard. The distinguished economists have been able to articulate rock-solid economic thoughts and methodologies that would help understand how Russia might take full advantage of its position within the world economy and foster its sustainable economic development. I very much hope that Exploring the Future of Russia’s Economy and Markets may shape future lines of inquiry on the causal factors and limits of economic policy in Russia and for its original insights into frontier topics, the book is exceptionally worth to read and likely to stimulate analysis for economists and policymakers.

Bruno S. Sergi