Exchange Rate and Competitiveness of Russia’s Industries

Abstract

The impact of real exchange rate on the Russian economy in internal and external markets is studied. The analysis takes into account that imported goods are only partial substitutes for those produced domestically, as the former is comprised mainly by manufactures with diverse properties. Positive or negligible effect of real appreciation of the ruble on the share of Russian goods in internal markets is found for major industries. This means that real appreciation of the ruble shifts domestic demand from imported to domestically produced goods, i.e. increases their competitiveness. Higher share of imports in constant prices is combined then with positive effect of the ruble appreciation on the volume of domestic supplies. No evidence of adverse effect of real appreciation on export supplies has been found, supposedly due to high profitability of most exports. Additional channel of negative influence of higher real exchange rate on inflation is revealed: through adjustment of producer prices to cheaper imported analogues.