RUSSIA Reshaping Economic Geography
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Report No. 62905-RU. Public Disclosure Authorized RUSSIA Reshaping Economic Geography Public Disclosure Authorized Public Disclosure Authorized June 2011 Poverty Reduction and Economic Management Unit Public Disclosure Authorized Document of the World Bank Europe and Central Asia Region Table of Contents ACKNOWLEDGEMENTS ..........................................................................4 EXECUTIVE SUMMARY ...........................................................................7 SPOTLIGHT 1: FROM YALTA TO YEKATERINBURG ....................................... 20 CHAPTER 1. RUSSIA TODAY ............................................................. 23 SPOTLIGHT 2: AT THE END OF WORLD WAR II .......................................... 30 CHAPTER 2. A MODERN RUSSIA ....................................................... 34 SPOTLIGHT 3: AT THE END OF THE COLD WAR .......................................... 52 CHAPTER 3. A DIVERSIFIED RUSSIA .................................................. 58 SPOTLIGHT 4: AT THE END OF THE TRANSITION ......................................... 80 CHAPTER 4. A COMPETITIVE RUSSIA ................................................ 87 CHAPTER 5. A PROSPEROUS RUSSIA ............................................... 112 ANNEX .......................................................................................... 120 BIBLIOGRAPHY ................................................................................ 132 2 | P a g e LIST OF TABLES Table 1. Key Country Size and Economic Indicators, Russia and Six Comparator Countries, late-2000s ................ 21 Table 2. Changing GDP 1870–1998 for Russia and selected comparators (1990 PPP billion International $) .......... 28 Table 3. Changing per capita GDP 1870–1998, Russia and selected comparators (1990 PPP international $) ......... 28 Table 4. Prioritized Monotowns for Support by the Intergovernmental Committee on Monotowns ......................... 44 Table 5. Structural change and regional convergence in the US 1880-1980 .............................................................. 50 Table 6. Change in Employment Structure: Australia, Canada, and Russia 1890-2007 ............................................. 59 Table 7. Spatial efficiency and income per person in major cities .............................................................................. 62 Table 9. Per Capita and Total Real GDP of BRIC Nations and the US,..................................................................... 81 Table 10. Rankings in international business environment surveys ........................................................................... 89 Table 11. Foreign investment by sector (percent) ...................................................................................................... 92 Table 12. Special economic zones in Russia, early 2009 ......................................................................................... 105 Table 13. Summary of the Report ............................................................................................................................. 119 LIST OF FIGURES Figure 1. Increasing gap in economic power between the US and Russia .................................................................. 33 Figure 2. Sectoral composition does not reflect regional comparative endowments .................................................. 60 Figure 3. Russia‘s size distribution of cities deviates from the normal pattern .......................................................... 66 Figure 4. Moscow‘s atypical upward sloping density profiles (1992 and 2002) vis-à-vis downward sloping density profiles of Shanghai, Paris, New York, Barcelona, Los Angeles, and Warsaw........................................................... 74 Figure 5. India‘s software exports grew 25-fold in a decade ...................................................................................... 84 Figure 6. Foreign direct investment, net inflows (BoP, current US$, billion) ............................................................ 88 Figure 7. Foreign direct investment, net inflows (% of GDP) .................................................................................... 88 Figure 8. Thick borders .............................................................................................................................................. 90 Figure 9. Undiversified exports: Share of fuel exports in total merchandise exports (percent) .................................. 91 Figure 10. Undiversified economy: Russian stock market performance closely tracks oil prices .............................. 91 Figure 11. Annual GDP growth, percent .................................................................................................................... 93 Figure 12. Share of manufacturing exports in total merchandise exports (percent) ................................................... 96 Figure 13. Share of services exports of total exports, percent .................................................................................. 102 Figure 14. Remittance flows from and to Russia, US$ billion ................................................................................. 103 LIST OF MAPS Map 1. The US population is concentrated in only a few parts of the vast country ................................................... 32 Map 2. Australians have conglomerated in a few cities ............................................................................................. 54 Map 3. Canadians are concentrated along the US border in a few cities .................................................................... 55 Map 4. Russians are much more dispersed ................................................................................................................. 56 LIST OF BOXES Box 1. Difficulty of Agricultural Land Transactions .................................................................................................. 39 Box 2. Pittsburgh: Explaining the Decline and Revival of a US Industrial City ........................................................ 42 Box 3. Transforming Company Towns in Canada ..................................................................................................... 46 Box 4. Strategies to Manage Declining Towns in the United Kingdom ..................................................................... 48 Box 5. Labor migration and regional income convergence in the US 1880-1980 ...................................................... 50 Box 6. Australia: Mining linkages concentrate the economic stimulus on large cities ............................................... 61 Box 7. Urban Problems in St. Petersburg ................................................................................................................... 63 Box 8. How Greater Toronto boosts Canadian productivity ...................................................................................... 65 Box 9. Odd Size Distribution of Firms and Farms ..................................................................................................... 67 Box 10. Inefficient Land Use Rules, Incompatible Regulation, and Inconsistent Enforcement ................................. 72 Box 11. Are large resource endowments bad for long-term growth? ......................................................................... 94 Box 12. Russia‘s experience with specific SEZs ...................................................................................................... 107 3 | P a g e Acknowledgements This report has been prepared in collaboration with Russian experts. It was written by Chorching Goh (task team leader), Uwe Deichmann, and Bruce Fitzgerald. Richard Auty and Eric Ciaramella made important contributions. Sarah Boeckmann, Kali Glenn-Haley, Anna Prokhorova, and Zharna Shah provided able research assistance. Pedro Alba, Benu Bidani, and Klaus Rohland gave managerial support, guidance, and oversight. Bruce Ross-Larson edited, and Elena Kantarovich formatted the report. The team thanks Zeljko Bogetic, Mikhail Dmitriev, Roumeen Islam, Denis Kadochnikov, Tatiana Khomiakova, Loenid Limonov, John Litwack, Nina Oding, Marsha Olive, and Willem van Eeghen for their feedback and comments on earlier drafts of the report. The team specially thanks Indermit Gill for his time, invaluable advice, many suggestions and ideas for the report‘s structure and contents. Background notes from Russian and international experts for this report are significant and invaluable, and the team would like to thank their contributors: Richard M Auty, Vyacheslav Baburin, Arthur Batchev, Alain Bertaud, Valentin Bogorov, Irina Denisova, Jean-Jacques Dethier, Mikhail Dmitriev, Sergei Drobyshevsky, Timothy Heleniak, Denis V. Kadochnikov, Tatiana Khomiakova, Austin Kilroy, Somik Lall, Zvi Lerman, Leonid Limonov, Vera Matusevich, Tatiana Mikhailova, N.V Mkrtchian, Nina Oding, Igor Pilipenko, Alexei Prazdnichnykh, Mark Roberts, Olga Rusetskaya, Lev Savlulkin, Victor Sulla, Andrei Treivish, Ilya Voznyuk, and Igor Zakharchenkov. The team also wishes to acknowledge important inputs and contributions from the Center for Strategic Research, the Leontief Center, the New Economic School, State University‘s Higher School of Economics, the Russian Academy of Sciences, the Russian Academy of National Economy, the Carnegie Moscow Center, the Institute of Economies in Transition, and Bauman Innovation. The panel of advisors in and outside of Russia provided excellent suggestions