Economic modernization and exportdiversification are priorities in the Russian economicpolicy agenda, with several measures undertaken in recentyears to promote growth in the nonoil and gas sector.Russia's export base has narrowed substantially overthe past decade. Lack of diversification cannot be pinneddown to a single cause. Competition and innovation areexamined in this study as key drivers of exportdiversification. After presenting our findings we identifysome key trade policy measures that could help firms enterforeign markets and sustain current trade relationships. Acomprehensive competition policy will help establish a levelplaying field, facilitate entry of more efficient firms, andencourage orderly exit of less efficient firms, therebycontributing to increased productivity and exportpropensity. The government's current initiatives tofoster innovation could be strengthened through a number ofspecific measures focusing on commercialization of publicresearch and development and adequate research funding. Thisstudy is organized as follows. Section two scrutinizesvarious dimensions of Russia's trade performance,including export diversification, sophistication, andsurvival. A detailed analysis of the role of exports,innovation, productivity, and competition on firmperformance is presented in section three. Section fouranalyzes the competition environment in Russia, bypresenting analyses of price-cost margins, state ownership,and regional and sectorial characteristics of competition,while Section five provides an overview of Russia'sinnovation system and measures to increase the impact ofresearch and development on the economy. Section sixconcludes and presents policy options.
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