Russia's exports became furtherdominated by petroleum and natural gas over the last decade.The sector experienced double-digit annual export growth inthe last decade and represented almost 65 percent ofRussia's exports value in 2009 a product of highercommodity prices and higher export volumes. Export growthrates of the non-oil and gas sector were also notable. Suchindustries as machinery, electronics, transportationequipment and chemicals reached a combined growth rate inexport value of 10 percent in the last decade. This morepositive comparison, however, hides relevant structurallimitations in Russia's trade performance.Moreover,Russia's revealed comparative advantage seemsconcentrated in the 'periphery' of theproduct-space map, which may limit the potential for exportdiversification. This includes industries such as rawmaterials (26 products) and forestry (11 products) out of atotal of 97 identified products. (At the center of theproduct-space are industries such as metallurgy, vehicles,machinery, etc, in which Russia does not show comparativeadvantages). Such specialization is sometimes consideredproblematic because the capabilities developed in thosesectors are not easily redeployed to other industries,hindering the process of economic diversification. Yet,several resource-rich countries have managed to expand theircomparative advantages beyond the traditional, naturalresource-intensive products. Russian firms are, on average,larger than the average firm in the ECA region but too fewfirms export. It is a well documented fact that only aminority of firms in an economy export. Economicmodernization and export diversification are priorities inthe Russian economic policy agenda, with several measuresbeing undertaken in recent years to promote growth in thenon-oil and gas sectors. Yet the reason why some firmssucceed in breaking into foreign markets while others do notis far from fully understood. In this note, the author triesto identify the binding constraints to exportdiversification in Russia. Using firm-level data, the authoridentify which investment climate factors are affectingRussian firm's propensity of engaging in exportactivities. Results show that lack of competition andentrepreneurial innovation are relevant obstacles to theemergence of new, potentially exportable products.
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