The Sensitivity of Various Industries to the Performance of Economic Variables in Russia

In this paper I studied the contribution of macroeconomic shocks to the investment levels and performance in four Russian industries: extraction of materials and natural resources, manufacturing industries, retail and commerce, finances. The selection of these specific industries is explained by the large share in whole economy GDP of each industry and relatively high development in comparison with other sectors of the economy. To understand the contribution of separate exogenous shocks to the investments in given industries the following variables were picked. Industry-specific variables are wages before taxes in a given industry, GDP of specific industry, and investments in specific industry. Macroeconomic variables include exchange rate and crude oil prices. The two economy-level shocks studied in this paper are unexpected crude oil price changes and unexpected changes in exchange rate. The two industry-specific shocks are changes in net investments, which determine salaries within industry, and changes in Gross Domestic Product of industry. Two assumptions are used in the paper. As was shown in the Literature Review, most researches on the topic were done with the help of Simultaneous Vector Autoregressive model (SVAR) model. SVAR is used to describe dynamic effects in a multivariate system. Sign restrictions are determined using economic theory and general logic. The main results are such that economy-level macroeconomic variables except crude oil price do not explain the variation in industry-specific indicators. However, the performance of industries hugely identified by industry level characteristics such as net investments. The results of the analysis could be used to make predictions about what will happen to industry performance if given shocks occur.