Inflation and the Pattern of Trade: General Conclusions and Evidence for Russia

The purpose of this article is to investigate the effect of differences in the inflation rates of trade-partner countries on their foreign trade patterns. The results of the analysis of a simple trade model served as the basis for an empirical study of Russia's foreign trade. For the purposes of experimental verification, we built Russia's export and import gravity models, using trade data for 2005-2012, as well as indicators reflecting the ratio of inflation rates in Russia and its trade-partner countries by the main commodity groups (inflation data for 1995-2012). The results of the empirical verification have basically confirmed the conclusions derived from the trade model analysis: Russia intensifies its export of fuel and raw-material commodities to countries with lower inflation rates and, simultaneously, increases its import of engineering, chemical, and agricultural products from countries with lower inflation rates.