Spatial inequalities in Russia: dynamic and sectoral analysis

The paper studies the evolution and determinants of spatial inequalities in Russia. We use database providing data on value-added, employment, education and population over set of Russian «subjects of Federation». These data cover period of 1995 - 2010 and several sectors: agriculture, manufacturing, service and construction. We study dynamics of the spatial inequalities and test the presence of agglomeration economies over the observed period. We use the Theil index to analyze the spatial distribution of economic activity allowing inequality across space to be captured at two geographical levels: subjects of Federation and macro-regions. The results of our analysis suggest that concentration of the economic activity continues in Russia and the pace of the interregional divergence is rather high. This fact brings to the conclusion that the country is at the left side of the bell-shaped relationship between the interaction costs and the spatial distribution. Both the Western and the Eastern parts experiences centripetal tendencies. However despite of predictions an essential redistribution of the production from the East to the West is not revealed. The first nature (highly valuated at the global market natural resources and raw materials of the East) is balanced by the second nature (better infrastructure and big markets of the West). In paper we seek the main factors lying behind the spatial evolution of economic activity in Russia over the observed period. To evaluate the magnitude of agglomeration economy we regress the logarithm of labor productivity on the logarithm of population per unit of surface area, as well as on a number of other explanatory variables: market potential, local specialization, sectoral diversity, share of skilled labor, time and region fixed effects. Our analysis provides evidence consistent with predictions of economic geography. The significant factors of the spatial concentration and the total productivity growth are density, size of and access to the markets along with the diversity of the economy. Specific of the Eastern regions is insensitivity to the diversification. There are also sectoral peculiarities: density of the population and proximity to the markets influence negatively agriculture; due to immobility of supply the external markets have no significant effect on construction. Sectoral specialization (because of fierce competition) decreases both the rate of concentration and the productivity. One of the practical ideas of the analysis is conclusion that in the nearest future we will observe further concentration of the economic activity and interregional divergence in Russia. Forces behind agglomeration economy and regional disparities are of market nature (increasing returns to scale and imperfect competition) and they start to play a major role in the country in the transition and the post-transition period.