Annals of the Japanese Association for Russian and East European Studies, vol.26, 1998 Received October 1997, Final Version December 1997 A Note on Regional Economy under Transition Research Fellow, Japan Society for the Promotion of Science Graduate School of Economics, Kyoto University *)**) Kazuhiro Kumo 1. Introduction only economic and technical factors but also The collapse of the Soviet Union socialistic ideology led to these principles. drastically changed regional economic Reducing economic differentials between cities conditions. It is well recognized that many and rural areas had been one of the main aims Russian regions are in serious stagnation after of Soviet socialism. In addition to these, disintegration. This study examines regional military factors also had various effects on economy in Russia and is organized as follows. these policies. In the next section, development policies However, it is very doubtful whether during the Soviet era are briefly reviewed. In these policies can be justified from the section 3, regional economic deterioration in economic point of view. For example, regional Russia is discussed, focusing on its factors. A specialization resulted in an upsurge of summary and concluding remarks are transport costs. Although the increase of presented in the final section. transport costs in a large country may be This paper is concerned with the Russian inevitable, regional specialization further regional economy, which can be regarded as worsened this situation. small and open. As Armstrong and Taylor The Soviet government also recognized (1985) surveyed, it may be appropriate to the problems of regional specialization. In the assume that population reflects regional 1930s, the communist party already asserted economic conditions. Hence, regional the necessity of reducing transport costs. After migration statistics will also be investigated. the 1950s, in order to avoid long-distance transport, the government tried to settle 2. Regional Development Policy during the laborers in developing areas, giving various Soviet Era+) incentives such as higher wages. These The most striking characteristic of measures were applied to the Far North regions, development policy in the former Soviet Union parts of which existed in the Arctic Circle. This is, needless to say, centralized planning. When policy was continued in the 1960s, and the socialist party had the administrative power, equalization among regions was regarded as industrial location also was planned by the one of the main principles of industrial location. government. As Saushkin (1969) pointed out, It was very natural that regional equalization the principles of the development policy were policy led to industrial location in the frontier (1) equalization among regions, (2) such as Siberia or the Far North regions. resource-oriented and/or consumer-oriented Regional equalization policy, however, industrial location, (3) centralization of resulted intensive investment in less-developed production, and (4) regional specialization. Not regions, which then led to low investment 1 efficiency in the 1960s. On the other hand, the in specific regions that were abundant in problems of long-distance transport remained natural resources and well-developed European unsolved. These events urged the central Russia. The government decided which regions government to change its development policy. to develop, and the laborers were supplied by After the 1960s, developing specific wage rate incentives or other political regions had become one of the guidelines for measures. governmental policy. This tendency has been obvious since the 1970s. Then after the 1970s, 3. Regional Economy after the Collapse of greater priority was given to developing the Soviet Union Europe-Russian regions such as Moscow and Development policies reviewed in the the Baltic republics. previous section are known to result in Great importance was placed on resource inefficient capital location and, at the same extraction when the government invested in time, inefficient population location. Regional developing regions. However, it was very development would be conducted when it was difficult to settle laborers in the frontier. Higher necessary for profit maximization behavior. wages in these areas were not enough to offset Giving political incentives can lead to insufficient infrastructure. In addition, inefficient resource allocation. In this section, developing the frontier itself cost much we investigate how development policies because of severe environmental conditions. In during the Soviet era affected the Russian order to avoid maintaining infrastructure and to regions. promote short-run efficiency, the government intended to utilize day-workers through wage 3.1 Economic Crisis in Regions rate incentives in the Far North regions Regional development patterns in Russia (Milovanov, 1994). At the same time, to raise changed drastically after the collapse of the returns of capital, investment priority was Soviet Union. Since 1991, regional economic shifted from the frontier to the west side of the conditions have intensively worsened. Statistics Ural mountains (Kumo, 1997b, 1997c). show divergence in industrial output, average In the earlier stage, development policy wages and so on (Table 1). A similar tendency in the Soviet Union attached great importance was observed in the 1980s also, but to equalization among regions. However, geographical patterns of economic conditions efficiency considerations required development Table 1 Coefficients of Variations: Trends of Divergence by Average Wages and by Industrial Output per capita 1980 1985 1990 1991 1992 1993 1994 1995 Average Wage Rates 0.32 0.31 0.28 0.29 0.49 0.53 0.56 0.54 Industrial Output per workers N.A. 0.32 0.29 0.34 0.67 0.62 0.60 0.63 Note: N.A. indicates lack of data. (Sources: Goskomstat Rossii, 1994a, 1995a, 1996b) 2 Table 2 Growth Rates of Industrial Output, in percent Region 1985 1990 1991 1992 1993 1994 1995 North 5 0.1 -5 -10 -11 -17 -2 North-West 3 0.7 0.4 -17 -11 -33 -15 Central 4 0.8 -3 -23 -12 -27 -13 Volga-Vyatka 4 0.2 -0.6 -12 -6 -33 -11 Central Black Earth 5 1 -3 -12 -9 -25 -2 Volga 4 -0.2 -3 -12 -9 -25 -9 North Caucasus 2 2 -3 -20 -15 -30 -10 Ural 4 -1 -2 -17 -14 -23 -6 Western Siberia 4 -0.9 -4 -15 -12 -16 -6 Eastern Siberia 3 -2 -4 -14 -12 -17 -5 Far East 5 -2 -3 -15 -12 -14 -18 (Sources: Goskomstat Rossii, 1994a, 1995a, 1996b) Table 3 0 The Net Migration Rate in Each Region（ /00） Region 1980 1985 1992 1993 1994 1995 North 0.2 2.6 -7.5 -5.5 -6.8 -4.3 North-West 5.0 5.5 -0.5 0.9 5.9 5.0 Central 2.9 3.1 2 3.7 7.2 5.6 Volga-Vyatka -3.9 -1.9 2.6 3.2 6 3.7 Central Black Earth -0.8 -1.2 10.3 11.6 13 7.9 Volga -1.2 1.5 6.3 7.9 9.9 6.2 North Caucasus 2.3 -0.1 6 8.9 9.5 4.9 Ural -3.7 -2.2 1.8 2.1 6 3.6 Western Siberia 3.0 7.1 -0.5 1.8 7.4 3.3 Eastern Siberia -1.6 2.0 -3.9 -2.5 -0.8 0.4 Far East 1.0 -0.5 -18.9 -12.9 -19.2 -13.6 (Sources: Goskomstat Rossii, 1994a, 1995a, 1996b) 3 show apparently different characteristics after Russian economy, the effects of development disintegration. policies during the Soviet era would come to Striking economic deterioration is light. observed in the Far North regions, where investment priority was given during the Soviet 3.2 Factors affecting Regional Economic period. In addition, the Central economic region, Conditions which includes Moscow City, and the Ural 3.2.1 Industrial Structure in Each Region economic region, which had been the most As mentioned in the previous subsection, industrialized zone throughout the Soviet era, the largest industrial decline is observed in the are currently suffering from a serious industrial Central region (includes Moscow) and the decline. It is important to note that regions North-West region (includes Sankt-Petersburg), producing more sophisticated outputs tend to be which are recognized as the most advanced in a more vulnerable position (Dmitrieva, 1996, areas in Russia. West and East Siberia regions p.171). In other words, maximum rates of are in rather stabilized situations. This can be decline were recorded in the Central and the explained by the difference in industrial North-West regions, the well-developed regions structure in each region, and thus, the (Table 2). Keynesian approach can be applied to this As for regional utility level, a general phenomenon. trend can be seen in migration. As can be seen The North region or West and East from Table 3, large outmigration from the Far Siberia regions are abundant in natural East and the North regions, where excess labor resources. Regions specializing in the extraction supply was stimulated by the Soviet and processing of raw materials can easily find government, is observed (Kumo, 1997a). The demand for their outputs. On the contrary, the direction of population flows is the reverse of Central or the North-West regions’ that during the Soviet era. People now leave manufacturing industry is not competitive on the Far East or the North regions, where the world market. investment priority was given during the Soviet Regional specialization policy must have era, and migrate to the Central Black Earth or affected these aspects. Specialization itself has the Volga regions, that had been regarded as some positive effects on regional development. the sources of labor supply. However, it can not sustain long-run economic Almost all regions in Russia are now growth because of demand constraints. For experiencing serious economic problems under example, Toyota City in Japan can not be a transition.