Re-scaling the debate on Russian economic growth: Regional restructuring and development asynchronies

Abstract

This article provides a critique of the literature on Russian economic growth and argues that broadening the growth debate to include regional perspectives may cast new light on economic processes at work in the varied geographical context of Russia. The article shows that growth in Russia's regions is much more comprehensive than often realised in the West and is closely associated with rising levels of industrial production in the overwhelming majority of regions. This contradicts the perception that resource dependency is the only formula of success within Russia. The author also provides a close examination of Leningrad oblast', once declining but recently one of the fastest growing regions in the Russian Federation. However, although the general vector of development has changed radically, the case of Leningrad oblast' demonstrates that the growing economy perpetuates the landscape of unevenness. New technologically intensive loci of development have paralleled ‘underinvested’ areas—despite being situated within the same administrative and political context. Nevertheless, growth continues to trickle down to less advantageous areas, both buttressing and spurring national growth as a whole.

Notes

²³I am much indebted to Judith Pallot from Oxford University for her guidance and advice. I also wish to thank the referees for their suggestions, and many individuals in St Petersburg and Leningrad oblast' who shared their time and expertise with me during my study visits to the area. My study was supported by the Clarendon Fund of Oxford University. The usual declaimers apply.

¹‘Dutch disease’ is a concept which explains the relationship between the exploitation of natural resources, the exchange rate, and a decline in manufacturing. If there is a large inflow of foreign currency (e.g. due to a sharp surge in prices for a nation's natural resources), the local currency exchange rate may increase. Consequently, products of domestic manufacturing become more expensive in the international market, while imported goods become cheaper in the local markets. This situation is believed to lead to de-industrialisation.

²However they disagree on some developments. In contrast to OECD (2004), the experts of the World Bank (2005, pp. 11 – 13) question the applicability of ‘Dutch disease’ to such a large and diversified economy as Russia (see also Roland 2006) and indicate the potential advantages of manufacturing located in Russia due to the possibility of lower domestic prices for energy and a lower tax burden than in Russia's counterparts.

³See also D. Wilson & R. Purushothaman, ‘Dreaming with BRICs: the Path to 2050’, Goldman Sachs Global Economics Paper No. 99, 2003, available at: http://www.gs.com/insight/research/reports/99.pdf, accessed November 2005.

⁴Moscow's share in Russia's GRP varied from 15% to 21% in 1998 – 2004 and was 19% in the latter year. This is not dissimilar from some other centralised national economies—for example, Greater London provides 16 – 17% of the UK's Regional Gross Value Added.

⁵The contribution of Tyumen oblast' to Russia's total GRP reached 13% in 2004, rising from 8.3% in 1999; but, in fact, most of its wealth is generated in oil and gas production and concentrated in two other ‘Federation Subjects’—Khanty-Mansi and Yamal-Nenets autonomous districts (ADs)—which lie within Tyumen oblast' administratively (and are considered thus for statistical purposes), but are politically autonomous. Dismantling the contribution of these ADs from Tyumen oblast' would have reduced its share to 1.4% in 2004.

⁶IPI in Russia was previously measured according to 10 industry branches but, more recently, it has been seen as comprising three sectors: (a) manufacturing; (b) mining and quarrying; and (c) electricity, gas and water production and supply. The two methods produce somewhat different figures. At the time of writing, only the former method of calculation was available in the regional statistics prior to 2005.

⁷The inclusion of nine autonomous districts (ADs) further increases average and median IPI growth rates, for in six of them growth rates ranged from 7.6% to 18.1% on average per annum. Among the other three, Yamalo-Nenets AD grew with an annual average rate of 3.6%, while IPIs of Ust'-Orda Buryatia and Koryakia AD were decreasing (respectively, −4.1% and −0.6% per annum).

⁸The Pearson correlation (and a two-tailed significance) between ‘per capita GRP in 1998’ and ‘GRP change in 2004 relative to 1998’ for the 79 regions produced −0.04 (0.75). The correlation between ‘per capita GRP in 1998’ and ‘IPI in 2004 relative to 1998’ returned −0.17 (0.13), and −0.26 (0.03) once Moscow city and Tyumen oblast' were excluded. More remarkably, the correlation between ‘IPI in 1998 relative to 1990’ and ‘IPI in 2004 relative to 1998’ produced −0.27 (0.01) for the 79 regions.

⁹For instance, while Russia's real GDP increased by almost 1.5 times between 1999 and 2005, her current price dollar GDP grew 3.9 times—from $196 billion in 1999 to $766 billion in 2005. See ‘World Economic Outlook Database, IMF, April 2006’, available at: http://www.imf.org/external/pubs/ft/weo/2006/01/data/index.htm, accessed July 2006.

¹⁰The study of Leningrad oblast' is derived from a synthesis of government statistics, published mass media resources, Internet materials, unpublished government documents, and in-depth interviews conducted during a series of field trips to the region. People interviewed included officials of oblast' and local administrations, urban planners, researchers, and business executives.

¹¹In the composition of the GRP of Leningrad oblast' in 2004 the value added of industry was 31.6%, agriculture 6.5%, construction 15.7%, transport 13.2%, trade and services 6.9%, and non-market services 7.9% (Rosstat, ‘Otraslevaya struktura valogo regional'nogo produkta za 2004 god’, 2006, available at: http://www.gks.ru/bgd/free/b01_19/IssWWW.exe/Stg/d000/vrn03.htm, accessed July 2006).

¹²‘Intervyu Gubernatora Leningradskoi oblasti V.P. Serdyukova zhurnalu Expert Severo-Zapad’, Expert Severo-Zapad, 23 May 2005.

¹³‘Novye prioritety: Leningradskaya Oblast' perekhodit ot ekstensivnoi k intensivnoi modeli razvtiya’, Expert Severo-Zapad, 2 February 2004.

¹⁴Foreign companies were also involved in the acquisition of existing plants [as for example International Paper (US) which bought the Svetogorsk pulp and paper mill in 1999] or partial ownership acquisitions. Already established companies with foreign capital have expanded too (such as Henkel-ERA at Tosno controlled by a German concern).

¹⁵However, more recently, several major automotive companies, including General Motors, Toyota and Nissan have, one by one, decided to build their car assemblies in St. Petersburg rather than in Leningrad oblast'—although both regions had competed for the deals. The choice of St. Petersburg is said to reflect the policy changes by the Matvienko city government which has offset the investment law of Leningrad oblast' and become more adaptable in working with major investors, but it may also reflect subjective factors such as a management desire to please President Putin, a St. Petersburg native. (The development implications of the competition between St. Petersburg and Leningrad oblast' are not considered in this article, although this could be an interesting research question.)

¹⁶NEGP crosses the territory of Leningrad oblast' from east to west and, starting at a gas-compression station near Vyborg on the Gulf of Finland, will stretch underwater to Germany, thus bypassing the transit countries. NEGP is a joint German – Russian venture between Gazprom, BASF and E.ON.

¹⁷The port project is realised as a public – private partnership; the total volume of investment into its construction is currently envisaged at $2 billion, of which the state contribution is around 40% (Borovkov 2006).

¹⁸Leningrad oblast' Government news website, available at: www.lenobl.ru, accessed 12 July2005.

¹⁹One of these is Kirpichnyi Zavod with a 400 ha site outside the town, while another is located in the inner town. The former was built in the 1980s to accommodate a branch of Russkii Dizel, a military-based manufacturer of ship's diesels, in Vsevolozhsk. There was a plan that it would also accommodate 18 plants with a total of 30,000 employees relocated from Leningrad (see ‘Tyazhelyi aluminii’, Novaya Gazeta, 25 – 28 April 2002). Following the economic collapse, the construction was discontinued.

²⁰It was opened in 2002. In 2004 the plant assembled 29,100 cars; this volume was expected to reach 60,000 cars per year in 2006.

²¹‘Promyshlennyi rost ne poidet na spad’, Promyshlenno-Stroitelnoe Obozrenie, 84, April 2005.

²²‘A. Lisin otstranen ot dolzhnosti’, Div'ya, 4 May 2005.