Integration of the Russian Market. Empirical Analysis

The paper analyzes a spatial pattern of goods market integration in Russia, and characterizes the movement of the national market as a whole to integration. By the spatial pattern is meant a state of each individual region of the country: whether it is integrated, and if not, whether it moves towards integration. Time series of the cost of the basket of 25 basic foods across 75 regions of Russia for 1994-2000 with monthly frequency are used as the empirical stuff. With the use of nonlinear cointegration relationship that includes asymptotically subsiding trend capturing movement towards integration, 36% of Russian regions are found to be integrated with the national market; 44% of them are non-integrated, but are tending to integration with the national market; and 20% of regions are non-integrated having no such a trend. Analyzing distribution dynamics, σ-convergence is found to take place; and the shape of the across-region distribution of prices tends to be more regular over time. To characterize intra-distribution mobility, a stochastic kernel (the generalization of a transition probability matrix, pioneered by Danny T. Quah) is estimated. Such a kernel is also used to estimate the long-run limit of the price distribution. This limit is unimodal, predicting that “price convergence clubs” will not arise in the long run.