This website uses cookies. By using this website you are agreeing to our use of cookies and to the terms and conditions listed in our data protection policy. Read more

I agree
Stockholm school
of economics
  • Education
  • Research
  • Outreach
  • Library
  • About us
  • Svenska
  • Login
  • Contact
  • Education
    • Bachelor Programs
      • Business and Economics
        • Program Description
        • Application & Admission
        • Student & Alumni Stories
        • FAQ
      • Retail Management
        • Program Description
        • Application & Admission
        • Student & Alumni Stories
        • FAQ
    • Master Programs
      • International Business
        • Program Description
        • Application & Admission
        • Student & Alumni Stories
      • Business & Management
        • Program Description
        • Application & Admission
        • Student & Alumni Stories
      • Finance
        • Program Description
        • Application & Admission
        • Student & Alumni Stories
        • Double Degree
      • Economics
        • Program Description
        • Application & Admission
        • Student & Alumni Stories
        • Double Degree
      • Accounting, Valuation & Financial Management
        • Program Description
        • Application & Admission
        • Student & Alumni Stories
      • Double Degree
      • Previous Programs
        • General Management
        • Management
        • Marketing & Media Management
    • PhD Programs
      • Business Administration
        • Program Description
        • Application & Admission
        • Student & Alumni Stories
      • Economics
        • Program Description
        • Application & Admission
        • Student & Alumni Stories
      • Finance
        • Program Description
        • Application & Admission
        • Student & Alumni Stories
    • MBA
      • This is our MBA
        • Upcoming start
        • Program Modules and Courses
          • Concentration Innovation & Entrepreneurship
          • Concentration Financial Management
        • Participant Profile
        • Individual Coaching
        • Learning Philosophy
        • MBALive®
        • International field trips
      • SSE MBA at a Glance
      • Your application
        • Tuition fee and payment structure
        • Present your business case
        • Benefits for the employer
      • Faculty, Advisory Board, Program Team
        • SSE MBA Faculty
        • SSE MBA Advisory board
        • SSE MBA Program Team
      • Voices of the program
        • Johan Berglund
        • Jenny Lantz
        • Mariette Kristenson
        • Carl Thorfinn
        • Mikael Runsiö
        • Södra
        • Ulrika Martinius
        • Charlotta Eriksson
      • Scholarships
      • SSE MBA Movies
      • Articles
      • Contact
      • FAQ
    • Executive Education
      • SSE Executive Education
      • SSE Riga Executive Education
      • SSE Russia - Executive MBA
      • Hanken & SSE Executive Education
    • Study at SSE
      • Welcome to SSE
      • Global Opportunities
        • Double Degree
        • Student Exchange
        • CEMS
        • GELS Scholarship
          • FAQ
        • K-A Bonnier International Fellows Program
        • Wallenberg International Fellows Program
        • The Swedish Program
        • The Short Program
      • Tuition and Scholarships
      • Tests that we accept
      • Study in Stockholm
      • Student Life
        • The Introductions
        • Student clubs & activities
        • Sports, trips & tournaments
        • Career opportunities
        • Go international
        • Traditions & festivities
        • Inspirational lectures & workshops
        • Your voice matters
      • Student Association
      • Student Ambassadors
      • Housing
        • Pontonjärgatan
        • Saltmätargatan
        • Lappkärrsberget
        • Högbergsgatan
        • Liljeholmen
        • Huvudsta
        • Mälarterrassen
        • Contact
      • Student Handbook & Grading
      • After Graduation
      • Podcasts
      • Meet Us
  • Research
    • Departments
      • Department of Accounting
        • Research
          • Peer Reviewed Research Articles
          • Books and Book Chapters
          • Ongoing PhD-projects
        • Courses in the Bachelor Programs at SSE
        • Master in Accounting, Valuation & Financial Management
        • PhD in Accounting and Financial Management
          • PhD Program in Business Administration
          • The Research School in Accounting - FIRE
        • People
        • History
        • News
        • Seminars
        • Contact
      • Department of Economics
        • People
        • Bachelor & Master Courses
        • PhD Program
        • Research
        • Seminar in Economics
        • Lunch Seminars
        • Dissertations
        • Job Market Candidates
        • Ohlin Lectures
          • Previous Years
        • Mini Courses
      • Department of Entrepreneurship, Innovation & Technology
      • Department of Finance
        • People
          • Faculty
          • PhD Students
          • Staff
        • Bachelor Program
        • Master Program
        • PhD Program
          • Dissertations
          • Former PhD Students
          • Mini Courses
          • Workshops
          • PhD Seminars, Swedish House of Finance
        • Seminars
        • Vacancies
        • Job Market Candidates
        • Swedish House of Finance
      • Department of Law, Languages and Economic Statistics
      • Department of Management and Organization
        • Research
          • Research areas
          • Projects and Programs
          • Completed Projects and Programs
        • Education
        • Publications
          • Books
          • Book chapters
          • Journal articles
        • People
      • Department of Marketing and Strategy
        • Research
        • Available Books
        • History
        • People
          • In Memoriam
        • Courses
        • Social Media
        • Contact
    • Centers
      • Accounting and Managerial Finance
      • Arts, Business & Culture
        • Current and Recent Research Projects
        • People
        • Publications
          • Books and Doctoral Dissertations
          • Peer Reviewed Research Articles
          • Book Chapters
          • Conference Presentations
          • Reports
        • Events
      • Business Law
        • Courses
        • Libraries
        • Affiliated Organizations
          • Handelsrättsligt Forum
          • Mercurius Förlags AB
          • Stiftelsen MercurIUS
        • People
        • Links
      • Stockholm Center for Civil Society Studies
        • Research
          • The Nonprofit Sector
          • Foundations
          • Co-operatives
          • Membership
        • People
          • Lisa Maria Dellmuth
          • Stefan Einarsson
          • Torbjörn Einarsson
          • David Falk
          • Martin Gustavsson
          • Ebba Henrekson
          • Curt-Olof Mann
          • Marta Reuter
          • Erik Sjöstrand
          • Filip Wijkström
          • Fredrik O Andersson
          • Jan Ström
          • Katarina Friberg
          • Maria Grafström
          • Tino Schöllhorn
          • Anna Lundstedt
          • Susanne Wallman-Lundåsen
          • Pelle Åberg
        • Education
        • European Civil Society Press
          • ECSP publications
        • Seminars and Events
      • Consumer Marketing
        • About us
          • Nils-Erik Wirsäll
        • Consumer Knowledge
        • People
        • Contact
      • Center for Data Analytics
        • People
        • BSc and MSc courses
        • PhD Courses
        • Research
        • Seminars and workshops at CDA
        • News
        • Publications
        • Video Filmed mathematics lectures for new students
        • Useful links
        • Vacancies
        • Demos Data Analytics
        • Center for Forecasting and Data Analytics (CFDA)
      • Center for Digital Innovation and Transformation
        • Research
          • Digital Business Transformation and Structural Changes in the Networked Society
          • Digital Transformation Think Tank
          • Managing Digital Transformation – New SIR Book 2017
          • PhD projects
        • People
        • Publications
          • Digital Transformation
          • E-Business
          • Innovation
          • Mobility & NFC
          • Shaping Business
          • Technology and Industry Convergence
          • Other Research
          • Doctoral Dissertations
          • Industry Reports
        • Education
          • Managing Digital Transformation – Theory and Practice
          • Managing Digital Transformation in the Incumbent Firm
          • Strategic Thinking in a Global Digital World
          • Executive Education
          • Media Management (2003-2015)
          • Media Management Alumni
        • Contact
      • Entrepreneurship and Business Creation
        • Publications
          • Books, Chapters and Reports
          • Journal articles
        • Research
        • People
        • News
      • Center for Forecasting and Data Analytics
      • Governance and Management Studies
        • About the Center
        • People
        • Projects
          • Board Practice in Major Nordic Companies
          • Financialization and the New Swedish Model
          • From Industrial to Financial Capitalism
          • Governing Complex Co-operation. A Study of Swedish Corporatist Insurance Companies
          • Institutional investor corporate ownership
          • Institutional Analysis of Cross-border Hostile Takeovers
          • Institutionalization of Nomination Committees in Swedish Corporate Governance
          • Rethinking Corporate Governance
          • The Role of the Board in Non-Profit Organizations
        • Publications
        • News
        • Seminars and Events
        • Contact
      • House of Innovation
      • Swedish House of Finance
      • HRM and Knowledge Work
        • Research
          • Human Resource Management
          • Knowledge Work and Professional Services
          • Changing Organizations
        • People
        • Publications
          • Articles in scientific journals
          • Book chapters
          • Books
          • Student Thesis
        • Contact
      • Innovation and Operations Management
        • Contact
        • People
        • Projects
        • Publications
      • Legal Research
      • The Center for Market Studies
        • Ongoing research at The Center for Market Studies
        • People
        • Publications
          • Articles
          • Books
          • Book Chapters
          • Doctoral Dissertations
        • History
        • Contact
      • Media and Economic Psychology
        • People
        • Publications
          • Books, Chapters and Reports
          • Conferences and Proceedings
          • Dissertations
          • Journal articles
          • Other publications
        • Research
        • Seminars
        • News
      • Modern Languages
        • Courses
        • People
      • Stockholm Centre for Organizational Research
      • Research on Sustainable Markets
        • Current Research Projects
          • Urban sustainability, sustainably urban? The importance of interlocked markets to (un)sustainable outcomes in Stockholm and beyond
          • Sustainable Development Goals and Energy Use
          • Vinnova Green Finance
          • Sustainability & Financial Markets
          • Monetization of Circular Economy benefits in the fashion and clothing industry
          • Shared Value
          • Long-term investing and inclusive market economies
          • CRSM Researchers partially funded through Misum
          • The tourist industry and its contribution to sustainable development: Social networks and social capital in the employment of immigrants
        • CSRM Project Researchers
      • Center for Retailing
        • Mission
        • Bachelor in Retail Management
        • Applied Retail Track
          • Retail Club Activities
          • Partners
        • Research
        • News
        • People
        • Events
      • Center for Retail Studies
        • Researchers
        • CFR Research School in Retailing
          • Courses and Schedule
          • Eligibility
          • Application
          • Business Collaborations
          • Important dates
          • Alumni Network
          • Contact
      • Sports and Business
        • About Us
          • Research and Ongoing Projects
          • Swedish Alliance for Women in Sport
        • People
        • Contact
        • News
      • Strategy and Competitiveness
        • Research
          • Strategy and International Business
          • Knowledge in Networks
          • Clusters and Competitiveness
          • Competitiveness Policy
        • Publications
          • Articles and Book Chapters
          • Books and Reports
          • Presentations
          • CSC in media
          • Other reports with contributions
          • Links
        • People
          • Visiting Faculty & Previous Staff
        • Contact
    • Institutes
      • European Institute of Japanese Studies
        • 欧州日本研究所(日本語)
          • EIJSアカデミーセミナー
          • 研究活動
          • EJARN
          • スタッフ・顧問会・役員会
          • 歴史
          • お問い合わせ先
        • Research
          • EIJS, East Asian Economics and Business Series
          • Working Paper
          • Publications
        • Education
          • PhD Program
          • Courses
        • Resources
        • EJARN
          • EJARN Conference 2018
          • Activity
          • Members
        • Network
        • Recent Activities
        • Seminars
        • News
        • People
        • Board
          • Advisory Board
        • Contact
        • History
      • Center for Advanced Studies in Leadership
        • About us
          • Board and Funding Institutions
          • Contact us
        • CASL people
          • Meet faculty
        • Research areas
        • CASL in the press
        • News
        • Seminars
        • CASL impact
        • Publications
        • Leadership update
          • Editorial Team
          • Leadership update archive
        • Partners
      • Institute for Economic and Business History Research
        • People
          • Board
        • Research
          • Research Seminars
          • Symposium, September 13-14, 2018
          • Heckscher Lectures
          • Håkan Lindgren Prize
          • About EHFF
          • Courses given by EHFF
        • Publications
          • Research reports
          • Working papers
        • Partners and Journals
      • Stockholm School of Economics Institute for Research
        • Research Centers
        • The SIR Research Award
        • Seminars & Conferences
          • Previous Years
        • SIR Publications
          • SIR´s Yearbook 2017
          • SIR's Yearbook 2016
          • SIR's Yearbook 2015
        • About SIR
          • The Board
          • Administrative Office
          • Vacancies
        • Contact
        • Internal
          • Research funding and applications
          • Finance and travel
          • Library/IT/Support
      • Misum
        • About us
          • More about us
          • Misum Board
          • Press Contact
          • Find us
          • PRME
        • People
        • Misum Seed Funding
        • Misum Research
          • Sustainable Finance
          • Sustainable Socioeconomic Development
          • Innovating Markets
        • Misum Archive
          • Academic Publications
          • Misum Interviews
          • Misum in the media
          • Misum Podcasts
        • Event archive
          • Sustainable Finance Conference Aug 2018
          • Jeffrey Sachs
          • Kate Raworth
          • Sustainable Consumption
          • Cass Sunstein on Nudging
          • Green Finance
          • Misum/Mistra Financial Systems meets Harrison Hong
          • Misum och Naturskyddsföreningen seminarium
          • Nu kör vi mot 2030 - hur blir din affärsidé en vinnare?
          • Misum and Hybrid Talks
          • Från invandring till vinnvandring 22 mars
        • Events and Activities
        • News from Misum
        • Misum-röster om Nobelpriset i ekonomi
          • Max Jerneck fördjupning
        • Ny rapport: Ett Sverige där anställda äger
        • Research on Sustainability at SSE
          • Digital transformation and sustainability by Per Andersson
          • Good citizens by Wiley Wakeman
          • Homo Moralis by Jörgen Weibull and Ingela Alger
        • Call for papers: CSR communication and reporting in challenging times
      • Stockholm China Economic Research Institute
        • About Us
          • Statement from the Director
          • SCERI Board
        • Research
          • Working Paper Series
          • Financial Markets and Financial Integration
          • Financial Policies
          • Political Participation by Business Owners
        • Education
        • People
        • Seminars and Conferences
          • 2017 Conference
          • 2016 Conference
          • 2015 Conference
          • 2014 Conference
          • 2013 Conference
          • 2012 Conference
          • Lecture by Leif Johansson, Chairman of the Board of Ericsson, 8 April 2016
          • 2018 Conference
        • News
      • Stockholm Institute of Transition Economics
        • About us
          • Contact
          • History
          • Board and Funding
          • Sister Institutes
          • Social media
        • Events
        • News
        • People
          • Affiliated Faculty
        • Publications
    • Research Houses
      • House of Innovation
        • The House
        • The Research
          • The connected refugee and reconfigurings of the migration process
          • Digitalization in the Public Sector
          • Knowledge processes within technology-based strategic alliances
          • Innovation performance of new entrants in emerging technology fields
          • Digital Health Accounts
          • Internationalizing Swedish SMEs
          • Moral Licensing and Venture Capital
          • Evolution of Autonomous transportation systems
          • Design Thinking 4 Business
        • The Education
        • The People
        • Outreach & Impact
          • Past Events
          • Publications
          • Media
        • Our Upcoming Events
        • Our News
      • Swedish House of Finance
    • Dissertations
  • Outreach
    • Alumni and Friends
      • Upcoming Events
      • Reconnect with SSE
        • Homecoming 2019
        • Reunions
      • International Alumni Hubs
        • New York Alumni Hub
        • London Alumni Hub
        • Germany Alumni Hub
        • Hong Kong Alumni Hub
      • Support SSE
        • Annual Fund
        • American Friends of SSE Scholarship
        • Ways to Give
        • Official Alumni Associations
      • SSE Alumni Club
      • Contact Alumni Office
      • Update your Contact Information
    • Corporate Relations
      • Corporate Partnership Program
        • New concept Capital Partners
      • Advisory Board
      • Corporate Partners
      • Involvement in Education
      • Voices about the Corporate Partnership Program
      • Team Corporate Relations
      • Innovative and Sustainable Business Development
        • Professorship, Center and Research Program
        • Professor Sarah Jack
        • Outreach Program
        • Our Supporters
    • Career Management
      • Career Services for International students
      • Skills Courses
      • MSc Mentor Program
        • Mentee
        • Mentor
        • Contact us
    • SSE Initiatives
      • Global Challenges
        • Educational shift
        • Courses
        • Global Challenges Foundation
        • Advisory Board
      • SSE Gunnar Hedlund Award
        • Previous winners
      • SSE Art Initiative
        • Events and Exhibitions
          • Symposiums
          • Research Colloquia
          • Collection
          • Exhibitions
          • Screenings
          • Art Talks
          • Streaming Poetry
        • Calendar
        • About us
        • Visit us
        • The Board Room
        • The Heckscher-Ohlin Room
        • Sustainable Art
        • Ingmar Bergman's Grand Piano
      • SSE and the Nobel Prize
        • Award Ceremony Speech
      • RAMP
        • RAMP 2018/2019
        • Admission Criteria
        • Application Process
        • Important Dates
        • Information Meetings
        • Our Internship Companies
        • Voices of RAMP
        • Class of 2016/2017
          • Adel al Lulu
          • Afaaf Naddour
          • Ali Rajab
          • Azeb Samuel
          • Basem Alsalameh
          • Bisrat Zeleke
          • Housam Hallak
          • Hussam Alhumsi
          • Ibaa Halal
          • Jack Bandek
          • Lana Haddad
          • Majd Dagher
          • Negin Namazi
          • Rand Entabi
        • Contact Us
      • Female Economist of the Year
        • About the FEOY-scholarship
        • Press
        • Previous winners
        • Founder
        • Contact
      • SSE Business Lab
        • OFFICE SPACE
        • INCUBATE
          • Apply to INCUBATE
          • The Incubate Program
          • Professional Services Partners
          • Software & Tools Partners
          • Incubate Members
          • Incubate Alumni
        • INITIATE
        • People
        • Careers
        • GDPR
      • SSE Sisters
      • SSE Literary Agenda
        • Ännu ett liv – a review by Gillian Wong Miswardi
  • Library
    • Services
      • Borrowing
      • Consult a Librarian
      • Off Campus Access to e-Resources
      • Databases
      • E-Books
      • Reading Impediments
      • Suggest a Book for Acquisition
      • FAQ
    • News
    • SSE Publications
      • Licentiate Dissertations in Fulltext
      • Doctoral Dissertations in Fulltext
      • Working Paper Series
      • Master's Theses
      • Bachelor's Theses
  • About us
    • Organization
      • Board of Directors and International Advisory Council
      • Management
      • Stockholm School of Economics Association
      • Professional Services units
        • Academic Affairs
        • Academic Support & Records
        • External Relations
          • Career Management
          • Communications & Marketing
          • Corporate Relations
          • Alumni and Foundation Relations
          • Special Events
        • Quality Assurance
        • Office of Finance and Accounting
        • IT Services
        • Human resources
        • Program Office
        • Research Office
        • Services and Purchasing
      • Departments
      • Mission and Vision
      • Equality and Diversity
      • Sustainability at SSE
      • SSE in Print
    • History
      • Year by Year
      • 2019 - A year of celebrations
    • Accreditations and Rankings
      • International rankings
      • EQUIS
      • PRME
      • SSE Worldwide
    • Contact
      • Press Contact
        • Press Photos
        • Press Clips
      • School Visits
    • Work at SSE
    • Data Protection - GDPR
      • GDPR Forms
  • Svenska
  • Login
  • Contact
  • SSE
  • About us
  • News
  • SITE News
  • 2016
  • Russia’s State Armament Plan of 2010 – The Macro View in mid-2016
About us
  • Organization
  • History
  • Accreditations and Rankings
  • Contact
  • Work at SSE
  • Data Protection - GDPR

Russia’s State Armament Plan of 2010 – The Macro View in mid-2016

2016-10-09

New policy brief by Torbjörn Becker, Director of the Stockholm Institute of Transition Economics, provides an analysis of what the new macro economic reality of Russia means for its armament plans.

Russian defense spending has increased significantly in recent years and reached over 4 percent of GDP in 2015 according to estimates. If the Russian state armament program for 2011-2020 is fulfilled, further large investments will be made in the years to come to modernize the military forces. However, the macro economic realties have change dramatically since the original plans were drawn up in 2010. This brief provides an analysis of what the new macro economic reality means for the armament plans that were made in 2010. In short, the major issue is not that spending as a share of GDP has increased dramatically but rather that the nominal ruble amounts that make up the plan amount to significantly less real purchasing power both in real ruble and dollar terms according to the most recent forecasts. In other words, it is not necessarily the trade off between different government spending areas that will be the main issue in this new macro economic environment, but rather what the priorities will be regarding different types of military equipment within the existing plan.

A 2016 study by Julian Cooper details Russia’s state armament plans for 2011 to 2020, “GPV-2020” (in Russian, State armament program is Gosudarstvennaia Programma Vooruzheniia), to the extent that is possible by using open source information. He makes a special point of discussing the non-transparent structure of Russian defense spending, which makes more precise calculations and statements regarding this expenditure area difficult or even impossible. Nevertheless, he provides broad numbers for the state armament plans that are publically available and this is used in this brief.

The plans of 2010

The state armament plans for 2011-2020 that were made in 2010 were stated in nominal ruble terms. The full path of the plan has not been announced but a total of 19 trillion rubles has been mentioned.

Figure 1. Armament and defense spending

slide1Source: Author’s calculations based on Cooper (2016)

Cooper’s study details amount until 2015 and in Figure 1, the remaining years have been guesstimated by a smooth trend that delivers a cumulative plan of 19 trillion rubles.

The armament plans were very ambitious and it is noteworthy that they were almost fully implemented during the years for which we have actual numbers from Cooper’s study (the blue and red lines almost overlap perfectly). The other rather remarkable feature is how high these spending are compared to the national defense spending reported in his report, with the GPV plan peaking at 70 percent of defense spending.

Changing macro environment

The armament plans were not made in a vacuum but decided based on the economic outlook at the time, i.e., what policy makers projected in 2010.

Figure 2. IMF forecasts and actual GDP

slide2Source: Author’s calculations based on IMF (2010, 2016). Note: The IMF’s 2010 forecast only goes to 2015 and for the remaining years a constant growth rate based on the last year is used.

Figure 2 shows what the IMF’s growth forecasts back in 2010 implied for the development of nominal GDP (dotted blue line); what actually happened until 2015 (solid red line); and what is projected to happen between 2016 and 2020 according to the latest IMF World Economic Outlook forecast of April 2016 (dotted red line). As is pointed out in Becker (2016), international oil prices are key for Russia’s growth performance and any forecast of it is no better than the forecast of oil prices. This implies that also the IMF’s April 2016 projection is highly uncertain, but this is true for any other forecast of Russian GDP as well.

There are two important observations that follow from Figure 2; first, nominal GDP at the start of the program was underestimated; and second, the growth rate was overestimated. As coincidence some times has it, two wrongs make close to a right for 2016; i.e., the forecast of 2010 almost perfectly coincides with what is expected to be the nominal GDP level in 2016 and 2017 in the latest IMF forecast. However, since the slowdown in expected growth is rather significant, in later years the IMF now expects nominal GDP to be less than what it thought it would be in 2010.

Implications for the GPV

The fact that nominal GDP in 2016 and 2017 is almost exactly the same as projected in 2010 implies that the GPV plan as a share of GDP based on the 2010 forecast compared with the 2016 forecast is almost the same in 2016 and 2017. This may be viewed as a peculiar circumstance but it can also have real implications. If the plan in 2010 was developed with a greater view of priorities in different government spending areas, the fact that the plan is still not absorbing more as a share of GDP suggest that the plan may not necessarily be a contentious issue at the level of the government.

However, this is expected to change after 2017 when nominal GDP will be lower than originally thought, and therefore the GPV share of GDP would be higher as seen in Figure 3.

Figure 3. GPV plan as share of GDP

slide3Source: Author’s calculations based on Cooper (2016) and IMF (2010, 2016)

A more immediate concern would be what the nominal spending plan from 2010 actually buys in real terms in 2016. This is a more fundamental issue than changes in nominal GDP that will affect how quickly the armed forces can modernize their equipment. Figure 4 compares how the real purchasing power of the plan has changed from the 2010 to the 2016 forecasts, both in terms of constant (or real) ruble terms (green and purple lines) and in nominal U.S. dollar terms (red and blue lines).

Figure 4. The real spending power of GPV

slide4Source: Author’s calculations based on Cooper (2016) and IMF (2010, 2016)

It is clear that there has been a significant reduction in real purchasing power both in real ruble and dollar terms. The cumulative change in real ruble terms is a loss of 12 percent in purchasing power, while the loss in dollar terms is 45 percent. Since most of the loss in spending powers is from 2014 forward, the impact in the remaining years is even higher than what these cumulative numbers indicate.

The actual impact on the spending plan will crucially depend on how much of what is planned needs to be imported but it is nevertheless clear that there has been a significant reduction in purchasing power if the initial plan in nominal ruble is implemented. This is without any consideration of the impact of sanctions or reallocating government resources to other spending areas that may be considered and would affect this calculation.

Policy conclusions

Although the precision of the discussion in this brief is no better than the accuracy of the available numbers, the general trends and qualitative conclusions made here are most likely still relevant. And without any claim of being able to assess the quality of military equipment or the ability Russia’s military industrial complex to make the right priorities (see instead Rosefielde, 2016 for such discussion), it is clear from a pure economics standpoint that the changing macro environment will have serious real implications for how quickly the modernization process of equipment can go.

It is also highly likely that the worsening of the economic outlook in 2016 compared with 2010 will lead to more general discussions of government spending priorities. Spending on producing arms by the military industrial complex could in principle be a Keynesian type of demand injection that can raise growth in the short run if there are idle resources that are put to use and generate income to workers that in turn spend more of consumption. However, it is not likely that the resources required to build sophisticated new military equipment is idle even in an economic downturn, so this effect is likely not very significant. Instead, more spending in areas that are already in short supply will generate inflation or put pressure on the exchange rate depending on how much is produced domestically and how much is imported of the demanded goods and services.

Long-term growth can also be affected if the GPV plan crowd out resources from other spending areas. The effect will of course depend on what the spending alternatives are and how this is linked to future growth; if military spending does not generate growth by itself while reducing spending on education, research and health care that we think promote long-term growth, prioritizing military spending will have an additional price in terms of reduced future growth. There could be cases where spillovers from military production are significant and spur new businesses and thus generate economic growth, but this does not seem to have been the case in the past in Russia.

In short, it will be hard for policy makers to avoid making tough decisions on what spending areas to prioritize given the new macro outlook for Russia. And even if the spending in nominal rubles in the GPV-2020 plan does not change, there will be new trade-offs to be made within the plan given how higher inflation and a depreciated currency has reduced the purchasing power of the original 2010 plan.

References

  • Becker, T, 2016, “Russia’s oil dependence and the EU”, SITE Working paper 38, August.
  • Rosefielde, S., 2016, “Russia’s Military Industrial Resurgence: Evidence and Potential”, Paper prepared for the conference on The Russian Military in Contemporary Perspective Organized by the American Foreign Policy Council, Washington DC, May 9-10, 2016.
  • Cooper, J., 2016, “Russia’s state armament programme to 2020: a quantitative assessment of implementation 2011-2015”, FOI report, FOI-R-4239-SE.
  • IMF, 2010, World Economic Outlook, October 2010 data, http://www.imf.org/external/pubs/ft/weo/2010/02/weodata/index.aspx
  • IMF, 2016, World Economic Outlook, April 2016 data, http://www.imf.org/external/pubs/ft/weo/2016/01/weodata/index.aspx

This policy brief is published on Forum for Research on Eastern Europe and Emerging Economies (FREE Network) Policy brief series. FREE Network is a joint initiative by seven think tanks: SITE (Stockholm), BEROC (Minsk), BICEPS (Riga), CEFIR (Moscow), CenEA (Szczecin), ISET (Tbilisi) and KSE (Kiev). Together, these research institutes form an extensive network of leading academic experts on economic issues in Central and Eastern Europe and the former Soviet Union. For more information please visit the website of FREE Network here.

STOCKHOLM INSTITUTE OF TRANSITION ECONOMICS

  • Home
  • About us
  • Events
  • News
  • People
  • Publications

TORBJÖRN BECKER

TORBJÖRN BECKERTorbjörn Becker is a Director of the Stockholm Institute of Transition Economics (SITE). Prior to this he worked at the International Monetary Fund (IMF) for nine years where he became interested in international financial architecture issues, how countries can protect themselves against adverse shocks and what role IFIs could have in preventing and resolving crises.

In previous positions at the IMF, he worked on emerging markets and developing countries in Eastern Europe, Asia Pacific and the Middle East. He is a member of several boards in the public, private and academic sector in the region and holds a Ph.D. in Economics from the Stockholm School of Economics.

Stockholm School of Economics | Box 6501 | SE-113 83 Stockholm | Phone: +46 8 736 90 00
Apsia
CEMS
EFMD
PIM Network
PRME