Nonetheless, since 2007, Russia seems to have had difficulties adding new trading partners and in fact seems to have lost some.<sup>10</sup> During the great trade collapse in 2008, Russia was able to add some partners ( **Error! Reference source not found.** ), but Brazil, however, not only did so but ever since has been steadily bringing in new trade partners. There is a variety of reasons that might be the basis for this difference in performance, such as regulatory barriers or domestic enabling factors such as institutions or ICT infrastructure. Lowering artificial trade barriers helps attract new trade partners.

**Error! Reference source not found.** shows that Russia’s exports to Germany, one of its most important markets, have been increasingly complementary, which means there is an excellent opportunity to intensify this relationship. It is also possible to increase complementarities with East Asian and South‐ East Asian countries, such as China, Japan, Korea, and the Philippines. However, Russia’s trade complementarity with Indonesia has declined in the last few years. That means that Indonesia somewhat competes with Russia’s services export basket and does not have potential as an export market in the near future.

Trade complementarities with India started from a low base but have been steadily increasing. It may be that Russia’s exports are still too focused on construction, communication, and transportation (see Table 2) whereas India’s export basket is dominated by ICT and computer services, in which it traditionally has had a comparative advantage. The analysis also shows that trade complementarity with Ukraine has been declining slightly over the whole period. Concentrating on countries with which it shares higher Trade Complementary Index measures, such as Germany, Korea, Japan, or China, is therefore recommended to open up opportunities for trade in services.

Russia can build its services exports on the basis of its current strengths. First, its services are quite sophisticated (Box 1).<sup>11</sup> The second question is: What markets might service providers target? To reach an answer, a gravity analysis was performed using bilateral trade data to examine Russia’s potential for trade in services relative to its actual trade flows.<sup>12</sup> First, two separate regressions were run: one with country‐specific fixed effects (FE) to capture all factors that influence trade for all countries; and one without country effects but with the Services Trade Restrictiveness Index (STRI) measured so as to control for the trade‐ inhibiting effects of regulation. For all the countries discussed **Error! Reference source not found.** plots predicted bilateral trade levels for these two specifications.

> 10 The information about bilateral trade in services is not as detailed as for goods and presents potential interpretation problems. 11 Sophistication is measured by constructing an index of services export sophistication (EXPY). Any increase in a country’s EXPY indicates a shift toward exports of more sophisticated products. Hausmann et al. [2007] call the sophistication of a particular service PRODY; it is calculated as the weighted average of the GDPs of countries exporting that service. The problem with using the EXPY measure, however, is that it has two components that can increase or decrease EXPY: RCA and per capita income. The latter is very large for some countries; thus, even if the RCA for modern service exports is not high, the “sophistication” of a country’s services exports is found to be high.

> 12 The gravity model has used extensively in the international trade literature due to its intuitive empirical and theoretical appeal. Anderson and van Wincoop (2003), Feenstra (2004), and Baldwin and Taglioni (2006), among others, have done exhaustive literature reviews on application of the gravity equation in the empirical trade literature.

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