The health of the Russian economy still depends heavily on natural resource revenues. The history of the economic collapse and recovery in 1970–2004 provides new evidence on the sources of Russian economic growth, while a survey of the economic literature suggests that the Russian economy could be viewed as a weighted combination of virtual and normal forces.

If the Russian economy is considered to be dominated by normal market economy forces, higher energy export receipts provide an opportunity for structural reforms while compensating for social costs, making the economy less vulnerable to decline in world energy prices. However, the domination of virtual forces - value transfers from the energy sector to strategic enterprises - suggests that high world energy prices are masking an inefficient manufacturing sector, and that the Russian economy is highly vulnerable to energy price declines.

This paper presents the following:

• new evidence on the sources of Russian growth
• defines areas of agreement
• identifies questions still unanswered

The sources of growth show that capital accumulation was driving output growth in the Soviet period and TFP was the main contributor to output decline and recovery during the transition. The disorganization model could explain some aspects of the collapse. As the model would predict, growth accounts show that collapse in the industrial sector was more prominent than in all other sectors of the economy, driving the collapse of the entire Russian economy.

To systematically evaluate predictions of the normal economy line of thought by using the growth accounting framework would depend on data on output and factor inputs in the public and private sectors that is not currently available. If it is observed that the negative contribution of the state at the outset of the transition was replaced with increasingly positive contributions of the private sector, it would be an evidential support for the normal economy line of thought.

Comparing sources of growth in the energy and manufacturing subsectors and studying reallocation effects between them could help to quantify the virtual hypothesis. Studying energy-sector’s quasi-fiscal deficits could help understandings of virtual hypothesis.