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Documents de travail du Département des Affaires économiques de l'OCDE

Documents de travail du Département des affaires économiques de l’OCDE recouvrant toutes les activités de ce département : conjoncture économique, analyse politique et projections ; politique fiscale, dépenses publiques et fiscalité ; questions structurelles dont le vieillissement, la croissance et la productivité, la migration, l’environnement, le capital humain, le logement, les échanges et les investissements, les marchés de l’emploi, la réforme réglementaire, la concurrence, la santé et d’autres thèmes.

English, French

The drivers of regional growth in Russia

A baseline model with applications

Russia is a federation of more than 80 regions spanning across a huge territory. Natural resource endowment, inherited industrial specialization, remoteness and climate conditions contribute to large regional disparities. This paper presents an empirical framework model for assessing determinants of regional growth in Russia between 2004 and 2015 with an extension to include sub-national fiscal policies. Baseline results show convergence rates of regional GDP per capita in line with the 2% “iron law of convergence” between countries. Capital investment, and public investment in particular, is a stronger driver of regional growth than in most OECD countries.

Natural-resource rich regions are growing faster, and oil price shocks have little economic impact in these regions, pointing at Russia’s centralized tax and transfer system. Subnational current government expenditure is associated with lower growth and slower regional convergence, suggesting low sub-national spending efficiency. There is also weak evidence that sub-national investment yields higher returns than federal government investment. Transfers have mixed effects depending on their nature. Budget equalization grants tend to slow regional growth as they reduce incentives to improve spending efficiency. On the other hand earmarked matching grants tend to spur growth and convergence as they direct resources towards more productive spending.

English

Keywords: empirical growth model, Regional convergence, public investment, fiscal federalism
JEL: H72: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Budget and Expenditures; O47: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence; P25: Economic Systems / Socialist Systems and Transitional Economies / Socialist Systems and Transitional Economies: Urban, Rural, and Regional Economics; R50: Urban, Rural, Regional, Real Estate, and Transportation Economics / Regional Government Analysis / Regional Government Analysis: General; R12: Urban, Rural, Regional, Real Estate, and Transportation Economics / General Regional Economics / Size and Spatial Distributions of Regional Economic Activity
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