Russia's Regions: Income Volatility, Labor Mobility and Fiscal Policy

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.Russia's regions are heavily exposed to regional income shocks because of an uneven distribution of natural resources and a Soviet legacy of heavily skewed regional specialization. Also, Russia has a limited mobility of labor and lacks fiscal instruments to deal with regional shocks. We assess how these features influence the magnitude and persistence of regional income shocks, through a panel vector autoregression, drawing on extensive and unique regional data covering last decade. We find that labor mobility associated with regional shocks is far lower than in the United States yet higher than in the EU-15, and that regional expenditures tend to expand in booms and contract in recessions. We discuss institutional factors behind these outcomes and policy implications. JEL Classification Numbers: C33, E62, H77, J61, P52

TFP change, output gap and inflation in the Russian Federation (1994–2006)

“…We thus notice that a decline in output was averted because of the positive growth rate in technology in the Russian economy, as expressed through TFP in the time period 1998-2006. 9 Our results are, in general terms, consistent with the findings by Oomes and Dynnikova (2006), Kwon and Antonio (2005), and Andrienko and Guriev (2004) …”

“…Furthermore, supply-side constraints in goods markets are likely to have arisen because of insufficient investment, given that gross fixed investment in Russia has been considerably less than in most other transition countries (Oomes & Dynnikova, 2006). On the other hand, supplyside constraints in labour markets appear to be the result of a lack of interregional labour mobility (Andrienko & Guriev, 2004;Kwon & Antonio, 2005).…”

Regional Unemployment and Human Capital in Transition Economies

“…Finally, another strand in the literature on regional unemployment differences focuses on the size of the regional shocks and different responses of skilled and unskilled 9 workers to these shocks (e.g., Topel, 1986;Mauro and Spilimbergo, 1999;Kwon and Spilimbergo, 2005). This literature suggests that the highly skilled migrate promptly in response to a decline in regional labor demand, while the low-skilled workers drop out of the labor force or stay unemployed.…”

Fiscal Centralisation and Decentralisation in Russia and China

“…Kwon and Spilimbergo (2005) observe that regional expenditures tend to expand in booms and contract in recessions, providing little inter-regional redistribution or insurance against shocks.…”