Results of the evaluation. The system of equations (1)-(2) was evaluated with regard to domestic output and volume of import both in the industrial sector on the whole and across its single industries. The results of the overall evaluation of the industrial sector are given in Table 27.
The respective indices across industries will be presented in an unabridged version of this paper.
Table Results of evaluation of the models of demand for domestic and import goods price increment rate for goods Domestic Import Coefficient P-value Coefficient P-value Constant –0,002 0,621 0,002 0,The population’s income increment rate 0,217 0,000 0,735 0,Price increment rate for domestic goods –0,001 0,990 0,536 0,price increment rate for imports 0,073 0,326 –0, 651 0,R-square 0,347 0,As it can be seen from the results of evaluation of the model of demand for domestic goods, the demand increment rates for them find themselves affected just by the population’s income increment rate, with the respective coefficient accounting for 0.217. As concerns the coefficients under the price increment rates for domestic and import goods, they proved to be insignificant. This can be attributed to the fact that at this point we used the index of the volume of industrial output, rather than the volume of consumption. Obviously, due to technological constraints, the volume of industrial output cannot fluctuate considerably under price fluctuations for domestic and import goods, and consequently the volume of industrial output proves to be less elastic in terms of prices compared with the volume of actually consumed goods. At the same time, under insignificant changes in the volume of industrial output under price fluctuations volumes of consumption can change greater thanks to changes in reserves8.
The results of the evaluation of the model of demand for imports testify to its relatively good explanatory characteristics, with determination coefficient accounting for 0.6. We estimate elasticity of the noncompensated demand for imports by incomes at the level of 0.735, while elasticity of the compensated demand for imports by prices makes up 0.536 for domestic goods and -0.651 for imports.
Computation of income and (import) substitution effects. Using results of assessments of the import demand equation, it becomes possible to compute income and substitution effects related both to changes in population’s incomes and in relative prices9. Assessments of elasticities of non-compensated demand for import in terms of prices are presented in Table 3.
Table Computation of elasticity of non-compensated demand for imports in terms of price Imports machine Forestr Total Light Food engineerin Chemicals y g Elasticity of compensated demand for –0,647 –0,314 –0,781 –0,634 –0,646 –0,imports in terms of prices The share of spending on imports 0,160 0,347 0,297 0,274 0,303 0,Elasticity of demand by income 0,735 0,848 0,600 0,717 0,730 0,Elasticity of non-compensated demand –0,765 –0,608 –0,959 –0,831 –0,868 –0,for imports by prices According to our estimates, the elasticity of non-compensated demand for aggregate imports accounts for -0.765, i.e. in the event the price for imports (which in the present research is computed by multiplying the nominal rate by the US price index) changes by 1%, the demand for the import would drop by 0.765, given that at 0.647% the decline is determined by the substitution effect and at 0.118- by the income effect. While compared with other research in his area, our price elasticity estimates prove to be slightly greater: more specifically, according to those of O. Dynnikova10, the elasticity of imports in terms of real exchange rate accounts for -0.5. The least elasticity of non-compensated demand in terms of prices is noted among light industry imports (-0.608), while the greatest price effect is noted in the case of importation of food stuffs ( Unfortunately, the statistical data o resesrves is unavaialble, that is why in the frame of the present evaluation we limit ed ourselves with the evaluation of the equation on the volume of output, while focusing mostly on the analysis of the equation of demand for imports.
The aggregate effect of the impact of prices on the volume of demand (whose indicator can be formed by the value of elasticity of non-compensated demand in terms of prices) can be computed basing on the Slutsky equation in elasticities.
See: Dynnikova, O. (2001). Plusy i minusy slaboy elastichnosti import v Rossii 0.959). In the machine-engineering, chemicals and forestry sectors, price elasticities of non-compensated demand for import account for -0.831,- 0.868 and -0.860, respectively.
By multiplying elasticities by the respective percent changes it becomes possible to compute income and substitution effects associated with changes in relative prices for domestic and import goods, as well as income effect related to changes in the population’s income. Results of such computations are given in Table 4. The sum of substitution and income effects associated with changes in prices and an income effect not associated with those is equal to the explained rise in demand for import. The difference between actual and explained growth rates of demand for import forms inaccuracy of the evaluation and can be explained by some other factors not included in the model.
Table Computation of substitution and income effects in the equation of demand for import 1997 1998 1999 2000 2001 I II III IV Elasticity of compensated demand for imports at 0,533 0,533 0,533 0,533 0,533 0,533 0,533 0,533 0,a price for domestic goods An actual percent change in the volume of demand for import due to price change for 1,3% –0,4% 2,0% 1,5% 4,5% 10,8% 5,9% 2,3% 3,2% domestic goods Elasticity of compensated demand for imports at –0,647 –0,647 –0,647 –0,647 –0,647 –0,647 –0,647 –0,647 –0,a price for imports An actual percent change in the volume of demand for import due to price change for –2,6% –0,6% –0,7% –18,7% –13,4% –9,9% –2,3% –2,4% –2,2% imports Elasticity of non-compensated demand for 0,735 0,735 0,735 0,735 0,735 0,735 0,735 0,735 0,imports by income An actual percent change of consumer demand for import under the effect from changes in –1,5% 0,4% –2,3% –1,7% –5,2% –12,5% –6,8% –2,7% –3,7% consumers’ real incomes due to price change for domestic goods An actual percent change of consumer demand for import under the effect from changes in –0,5% –0,1% –0,1% –3,4% –2,4% –1,8% –0,4% –0,4% –0,4% consumers’ real incomes due to price change for imports Actual per cent change in consumer demand for 6,4% –12,1% 0,2% 4,7% 16,1% 13,7% 7,8% 8,3% 6,7% import due to change in their nominal incomes Explained demand growth rate 3,3% -12,6% -0,7% -17,5% -0,3% 0,5% 4,4% 5,2% 3,7% Actual demand growth rate 18,2% –15,8% –4,4% –26,6% 5,5% 8,3% 5,6% 7,4% 5,3% The above results allow a number of conclusions. Overall, the model of demand for import provides a satisfactory explanation of import volume growth rates. In some moments of time, a certain backwardness of actual import dynamics from those forecasted in the model becomes notable. That means that the change in explanatory variables affects with some time lag the change in the explained variable. More specifically, the fall in import volumes in the majority of industries in question in the 3rd quarter 1998 can be explained fairly well, but in the 4th quarter, with inflation rates overrunning devaluation rates, the model foretells a soaring demand for imports, while the volume of import continues to decline.
The aggregate substitution effect that can be computed as a sum of substitution effects associetd with the price change for domestic goods and imports had a diminishing effect on the demand for import until the end of 1998, with the decline in the volume of import due to the aggregate substitution effect reaching 17.2% in the 3rd quarter 1998. Since 1999 the aggregate substitution effect across the industries in question has generally driven them towards boosting import volumes.
The aggregate income effect associated with the price change for domestic and import goods drives the demand for imports towards its decline, as the prices are growing within the whole period of time in question, except those for the national light, chemical, food and machine-engineering sectors’ output in and the food sector in the 2nd quarter 1998.
The inome effect, which appears not associated with price change for domestic goods and imports acts towards a rise in the demand for import, as the population’s nominal incomes were growing within the whole time period in question except the 1st quarter 1998.
The evaluation of the Rotterdam modelbasing on Russian data has led to the following results: demand for domestic goods proves to be elastic in terms of the population’s incomes. Price rise rates for both domestic goods and imports do not show significant effect on production growth rates in any sector of the national economy. One of explanations of this conclusion can be the fact that the available statistical data enabled evaluation of the equation of demand for domestic goods basing on output data without regard to reserves and export.
In all the industries in question but the light industry, demand for import proves to be elastic both in terms of the population’s incomes and pricing for domestic and import goods. As far as incomes are concerned, it is demand for import food stuffs that proves to be the least elastic, while that for light- industry imports proves to be the most elastic. In terms of prices for import goods, demand for import appears less elastic than for domestic goods. As well, as it was demonstrated with the above calculations, the nature of demand for imported food stuffs and light industry goods has undergone changes in the wake of the crisis. Prior to that, the demand for import in both sectors was highly elastic by incomes and non-elastic by prices, while after the crisis elasticity by incomes lowered, while that by prices showed a reverse trend.
We estimate the aggregate price effect, which is described by elasticity of non-compensated demand by price, on demand for imports at the level of -0.765. Our price elasticity estimates thus prove to be a little greater vs. other researchers’ data. The least elasticity of non-compensated demand by price is noted with import of the light industry’s output, while the greatest effect is noted in the event of importation of food stuffs.
Overall, the present research allowed two main outcomes: first, the evaluation of demand for domestic and import goods: the respective results demonstrated that such demand appeared elastic in terms of the population’s incomes. In addition, it was found out that a substitution between domestic and import goods was possible, and it proved to be dependent upon relative prices, or in other words, on the real exchange rate:
an appreciation of th real rate at 1% leads to a substitution for domestic goods by imports and boosts imports at 0.77% across the economy on average and up to 0.96% in the food sector alone. Second, the evaluation of substitution and income effects allows to reckon that in 1998 and hence the dynamics of import and output might have been to a significant extent driven by the substitution effect, i.e. changes in the proportion of consumption of domestic goods and imports affected by the change in the real exchange rate.
P. Kadochnikov, S. Chetverikov Foreign trade A favorable state of affairs in international markets allows stable positive dynamics of development of Russia’s foreign trade, and its export and import supplies grwo considerably.
The process of Russia’s acesssion to WTO decelerated, while discrimination of national exporters has recently intensified, and the only way to protect them is country’s joining WTO.
With the state of affairs on international markets remaining favorable for the country, its ain trade indicators continue their steady rise. In May 2003 Russia’s foreign trade turnover peaked USD 15.9 bln., or at 23.5% higher than in may last year. The stucture of the national foreign trade turnover is dominated by exports that account for neraly 2/3 of it an made up USD 10.1 bln. in May 2003 (at 21.7% up vs. May 002), while import supplies grew by 26.1% vs. May 2002 and acccounted for USD 5.8 bln.
-1997 1998 1999 2000 2001 2002 Balance Export Import Source: Goskomstat of RF Fig.Main indicators of Russia’s foreign trade (as USD bln.) The rise in thevalue volume of exports was ensured primarily thanks to a favorable world prices for energy sources and non-ferrous metals.
As major consumers were keen to increase their oil reserves and because of a new automobile season, May 2003 saw the rise in oil demand that boosted oil prices. The uncertainty with the renewal of Iraqi supplies also had a certain effect on the markets, which resulted in the average quotations of Urals being USD 24.9/barrel (8.7% up vs. April 2003), while Brent was traded at USD 25.4 (2.2% up).
Against such a background, contractual prices for Russian natural gas soared by 11% v. April 2002.
The state of affairs in the markets for non-ferrou metals has also encouraged national producers’ spirit, with aluminum traded at USD 1,397.6/t. (up at 4.9% vs. April 2003), copper - 1,667.5 (4.3%), and nickel- 8.351,9 (5.5%).
Table The average world prices in May of the respective year 1996 1997 1998 1999 2000 2001 2002 Oil (Brent), USD / metric ton 155,2 125,38 101,36 114,43 167,2 191,2 187,9 180,Natural gas, USD / thous. m3 - 70,2 91,0 78,1 109,0 185,7 121,7 192,Gasoline, USD / metric ton 252,5 162,4 135,1 139,7 288,5 356,9 290,9 305,Copper, USD / metric ton 2574,9 2369,7 1775,3 1539,9 1710,1 1689,4 1620,8 1598,Aluminum, USD / metric ton 1590,2 1554,0 1413,5 1318,0 1448,0 1493,7 1370,3 1332,Nickel, USD / metric ton 8053,9 7312,.4 5352,5 5239,5 9657,1 6303,1 6940,6 7915,Source: calculated in accordance to the data presented by London Metal Exchange (UK), International Oil Exchange (London) Imports were boosted primarily thanks to rising contractual prices and more specifically the increased purchases of machinery, equipment and means of transportation, while there was also noted a parallel increase in import supplies of food stuffs, chemicals, ferrous metals, and light industry produce.
In July, the 20th session of the task force on Russia’s accession to WTO has finished its work in Genev.
Despite a considerable progress in discussions, the task force so far has failed to solve key problems blocking Russia’s joining WTO.