Oil and Gas: A Blessing for the Few. Hydrocarbons and Inequality within Regions in Russia

Abstract

Building on earlier work on regional inequality in Russia the article seeks to demonstrate that the regional oil and gas abundance is associated with high within-region inequality. It provides empirical evidence that hydrocarbons represent one of the leading determinants of an increased gap between rich and poor in the producing regions. The discussion focuses on a possible cluster of geographic, economic and political factors underlying the phenomenon.

Notes

We would like to express our gratitude to Michael Bradshaw, Peter Duncan, Bassam Fattouh, Christine Fernandes, Christopher Gerry, Carol Leonard, Pasquale Scaramozzino, Paul Segal, Laixiang Sun, Victor Winston and the seminar participants at the Oxford Institute of Energy Studies, University of Oxford, and the School of Oriental and African Studies, University of London for valuable comments and criticism. All remaining errors are ours.

Over the period 2000–2006 the income-based Gini index had remained at the level of 0.40–0.41 (Goskomstat Rossii 2006); see also Svedberg et al. (2006).

Popov (2001) makes a similar argument.

Also, given the international volatility of resource prices, the resource-based economy may ultimately be likely to suffer seriously in the case of price shocks (Sachs & Warner 2001).

On the impact of inequality on poverty in Russia, in regional perspective, see Kolenikov and Shorrocks (2005). However, due to data limitations their estimations are based on one year only.

However, it is far from obvious to what extent the shift towards the east (to Siberia and the Russian Far East) represented an efficient development path. The Soviet Union's central planners did not have effective optimisation criteria at their disposal. The geographical allocation of investment was disputed during the Soviet period (Schiffer 1985).

For the discussion on the differences between the concepts of regional inequality and regional polarisation, see Fedorov (2002).

A well publicised case of an oil oligarch who became a governor of one of the Russian regions (Chukotka) was that of Mr Roman Abramovich, who was also one of the two controlling shareholders of Sibneft (with Boris Berezovsky), before the sale of the company to Gazprom in September 2005.

See also Yenikeyeff (forthcoming).

However, in the 2000s, economic power was typically consolidated in the hands of federal corporate groups to the cost of regional corporate groups, many of which lost their autonomy.

The results discussed here are based on an earlier empirical study by Yakovlev and Zhuravskaya (2004).

Gazprom figures for 2002–2006, available at: http://www.gazprom.com/documents/Stat_Report_Eng.pdf, accessed 14 January 2009; and Gazprom's Financial Reports, available at: http://www.gazprom.com/eng/articles/article20163.shtml, accessed 14 January 2009.

Rostelecom's Financial Reports, available at: http://www.rostelecom.ru/en/centr-invest/financial/public/, accessed 14 January 2009.

It makes a significant difference if the richest 20% of the population takes 60% of total income, or if it takes 30%. Correspondingly, at the other end of the income distribution, we have more inequality if the poorest 20% of the population receives 5% of total income, compared with when it receives 10%.

We ran our models both without Moscow and with a Moscow dummy variable and found little difference between the results. All are available on request. Consistent with the previous discussion, it is important to note that Moscow remains a major beneficiary of hydrocarbon-related rents.

For discussion of this, see, for instance, Reuveny and Li (2003).