The distributive impact of terms of trade shocks: The case of the oil price changes in Russia

Abstract

The halving of oil prices, during a short period between 2014 and 2015, has generated major terms of trade losses for oil exporting countries. This terms of trade shock has economywide effects and significant distributive impacts. This paper, using a macro-micro simulation model, describes and quantifies the channels of transmission from the drop of oil prices, to changes in welfare distribution at the household level for the case of the Russian Federation. The oil price reduction generates a reverse Dutch disease impacting sectoral employment, factor returns and consumption prices. It causes a contraction of employment and wages in more skill-intensive (non-tradable) sectors, and a reduction in consumption prices that is more pronounced for non-food than for food goods. When these shifts are mapped to changes in incomes at the micro level, all households are affected. Poverty rates increase by 1 to 4 percentage points, depending on the poverty line used.At the US$ 10 a day threshold, 4.1 million additional people fall into poverty. Along the consumption distribution, richer people are affected more than those in the bottom 40%.However, this minor progressive impact may be reversed due to increases in unemployment and cuts in social programmes.

Inequality in Russia over time and over the life cycle

“…Our main source of consumption and income data is the RLMS, for the waves from 1994 to 2018.We also use consumption data from the HBS conducted by the national statistical agency, Rosstat, for the years 2003–2014. Both the RLMS and HBS are used in recent studies of inequality in Russia (see, e.g., Bussolo and Luongo, 2020; Lisina and Van Kerm, 2022).…”

Do terms of trade affect economic growth? Robust evidence from India

“…The reduced competitiveness of exports causes a F I G U R E 1 Direct and indirect effects of terms of trade on economic growth-the transmission channels structural shift in the economic activity away from tradable and towards non-tradable sectors. Such structural shift, analogous to the "Dutch disease" phenomenon, can have discernible distributional effects (Bussolo & Luongo, 2020). The "Dutch disease" arising from the appreciation (overvaluation) of exchange rate harms export industries, creates sectoral imbalance, impedes investment, and debilitates the economy.…”

“…A decline in TOT could cause difficulties in financing the trade and current account deficits and thereby lead to large external debts. The TOT shocks inflict business cycle fluctuations in the emerging and low-income economies (Alquist, et al, 2020;Fernández et al, 2017Fernández et al, , 2020Kose, 2002;Mendoza, 1995) and affect inequality dynamics both between and within countries (Bussolo & Luongo, 2020). The adverse TOT mimic market-driven international tax on the "commodities" and "services" exporting developing economies.…”