Application of us experience in the economic development project for Russia

It is broadly thought that nowadays the Russian Federation struggles to escape recession. Indeed, Russia’s real GDP in 2015 was -3.75% compared to the previous year. But it seems that there is not any significant progress made towards the Russia’s recovery. I suggest that it should be necessary to consider the world’s experience to get out of the recession and to make steps towards further development.

This subject was mainly studied by John Maynard Keynes, the most famous and influential economist of the 20th century. The results of his research were published in his book “The General Theory of Employment, Interest, and Money” and were used in the US to get out of the Great Depression, occurred in 1929 and lasted for about 5 years. According to Keynes, some of the main factors of rapid economic growth are, of course, the policy and institutional reforms. Before it was thought that land potential was a key to the successful development. However, the world economic history has shown that in the industrialization race economies with lots of natural resources were beaten by those which had far less resources, but much more developed social institutions and more reliable policy system. It is important to emphasize that the Russian Federation has a huge land potential capacity. However, it is still not enough to catch-up with the leading economies. Maybe the problem is in the policy chosen.

Macroeconomic theory asserts that during recessions the expansionary fiscal policy should be adopted to boost real GDP and decrease unemployment. It suggests that government should increase expenditures like transfers and decrease taxation. But that was not the case in Russia in 2015. Instead, the government decreased overall spending so that not to dive into deeper budget deficit. But this caused an inflation rate of 12.9% by the end of the year [2].

Also, according to the macroeconomic theory, the government must take action to spend its budget mostly on social needs rather than military or anything else. As a consequence, in the Russian budget plan of 2016 the government is going to increase the amount of pensions to retired workers by 4% [4]. It is not as high as needed for the rapid growth, but it is still quite effective in making steps towards the slow-motion recovery. In addition, it increased spending on other social groups (for instance, minimal wage is going to be risen by 4%) [1]. It is expected that Russia’s real GDP will be -1.6% compared to the previous year and the inflation rate will be about 6-8% or 10% depending on the source of data [3]. The Trading Economics, global economics research centre states that GDP in Russia is expected to be USD 1669,85 billion by the end of this quarter. In the long-term, the Russia’s GDP is projected to trend around USD 2043,25 billion in 2020, according to our econometric models [5]. The forecasts are fair and hopeful enough. In 2 years’ time such steps can gauge some success of the Russian economy and help it to get out of the recession. Unfortunately, it is not suitable to perform the take-off and launch the rapid economic growth projects.

In conclusion, the Russian current economic policy which is going to be adopted in 2016 will be quite helpful. According to distinguished forecasts, Russia is going to recover from current recession in 2 years’ time. However, the policy and institutional reforms are still necessary so that the economy could catch-up with well-developed leading economies.