the world bank regional development in russia: challenges and dilemmas regional and territorial...
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The World Bank
Regional Development in Russia: Challenges and Dilemmas
REGIONAL AND TERRITORIAL DEVELOPMENT: THE WORLD BANK’S EXPERIENCE
Zeljko Bogetic
Europe and Central Asia Region
The World Bank
European Commission’s “Open Days”
Brussels, October 8, 2008
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OUTLINE
• I. Geography matters
• II. A policy dilemma
• III. Policy message
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PART I. Russia: Geography matters
• Very low economic density
• Very large distances
• Barriers to market access
The World Bank Source: Fay, Felkner and Lall 2008
DISTANCE RULES--1D COUNTRY:
Russian Population Density
Population per Square Kilometer
The World Bank Source: Fay, Felkner and Lall 2008
Economic Distance: Market Access Based on Euclidean Distance
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Road Network Used for Travel-Time Estimations of Market Access by Municipal Rayons
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Barriers to Doing Business and Market Access in Russia Are Relatively HighEase of Doing Business, 2008
0 20 40 60 80 100 120 140 160 180
Closing a Business
Enforcing Contracts
Trading Across Borders
Paying Taxes
Protecting Investors
Getting Credit
Registering Property
Employing Workers
Dealing with Licenses
Starting a Business
Doing Business
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Regional policy choices: high stakes game
• Russia’s specificities imply that the benefits of appropriate regional policy choices can be high.
• By contrast, wrong policy choices are likely to carry high economic costs
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Concentration
• Economic mass is spatially concentrated in Russia– A similar situation can be observed in 25% of
countries. For instance, Botswana, Brazil, Norway, Russia, and Thailand produce half + GDP on 5% land
• BUT: Spatial concentration in Russia still has a way to go
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PART II. A policy dilemma
• How to Encourage Concentration in Growth Centers and Achieve an Equitable Distribution of Basic Social Services?
– Market forces favor concentration
– But policy may be concerned with “balanced growth”
• Way out: agglomeration, interconnectivity, social integration
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• Concentration of economic activity is
unavoidable and desirable for Russia
• Spatial inequality in living standards and access to basic social services is undesirable
• Russia needs both economic prosperity through a higher concentration and a more equitable distribution of basic social services across its vast territory, subject to its budget constraint
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• An efficient regional policy should not force economic production in regions without sufficient demand (e.g., USSR, pre-reform China).
• A policy to establish production facilities in sparsely populated areas is very likely to involve high public costs and will likely fail to achieve the stated objective.
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PART III. WHAT ROLE FOR POLICY?How to Encourage Concentration in Growth Centers and Achieve an
Equitable Distribution of Basic Social Services?
Key to success: Integration both within Russia and with other countries
Policy instruments for achieving greater integration:• Supporting existing growth centers, providing for
infrastructure, and develop interconnectivity between them and with neighboring regions.
• Enabling a free flow of factors of production: labor and capital across space. An efficient migration policy.
• Integration of poorer and isolated regions assumes the provision of a minimum package of basic social services. Economic concentration with inter-regional connectivity and social
integration, across space
The World Bank Source: Fay, Felkner and Lall 2008
Strengthening Transport/Logistics Links between Lagging Regions and Adjacent Growth Centers is a Possible Way to Provide for Efficient Spatial Integration of Russian Regions
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Russian Regions Differ Significantly According to the Level of Economic Development
0
100000
200000
300000
400000
500000
600000
700000
среднее значение
Per capita GRP, 2005 (rubles)
average
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But They Also Differ Significantly In Terms of Access to Basic Social Services
Infant mortality rate (per 1,000 of live births), 2005
0
5
10
15
20
25
среднее значение
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• Large differences between Russian regions suggest that there is no single, best approach to regional economic policy and reforms.
• Regional and municipal policy must take into account regional and local conditions.
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Integrating Lagging and Leading Areas Can Help Integrate Russian Economic and
Social Space
• Three sets of measures for integration– Institutions– Infrastructure – Incentives
• Three mechanisms for implementation– Taxes – Public spending – Regulation
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A Framework for Spatial Integration Policy
Instruments Integration Policies
Institutional Policies Infrastructure Policies
Incentive Policies
Taxes Clarification of tax assignments across levels of government; intergovernmental transfers
Tax expenditures (fiscal incentives, subsidies)
Spending Education and health sector expenditures
Development of interregional highways, airports, and ICT
Public and local roads, irrigation, power supply, and innovation
Regulation Land and housing market reform, banking reform, macroeconomic and trade policies, and national price and wage equalization
Infrastructure competition policies
Industry location regulations, and investment climate
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Policy Instruments for Russia’s Lagging Regions Region Circumstance Non-isolated Isolated
Sparsely populated lagging regions
Institutions• Land market reform • Education sector development • Public service provision in health, water supply, and
sanitation
Isolated: Republic of Tyva, and Altai RepublicNon-isolated: Republic of Karelia
Densely populated lagging regions
Institutions• Infrastructure (a
combination of spatially blind and integrative policies)
• Road construction• ICT
Regions in European Russia, and regions in South Russia (Stavropol Krai)
Institutions, infrastructure and incentives
(a combination of spatially blind, integrative and focused policies and programs)
• Construction of local roads
• Irrigation • Workforce training, and
employment support(Chita Oblast, Buryat
Republic, and Far East regions)
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The Role of Government in Regional Development Policy
Regional development policy is a task for all levels of government. It requires coordination of federal, regional and local development programs.
At the federal level• Macroeconomic policy and the rule of law• National projects of federal significance (construction of interregional
railways and highways, airports, and ports)• Overall investment climate• Trade policy• Tax policy • Public expenditure policy aimed at revenue redistribution (pensions,
intergovernmental transfers).At the regional and local levels: • Regional and local investment climate• Land markets• Regional and local infrastructure• Improving the quality of life: health, education and other social services
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SUMMARYKey Propositions:
• Geography matters but it’s not destiny (e.g., Canada, Sweden, Japan);
• Success requires avoiding major mistakes (e.g., forcing production in regions with a limited market access and a low
economic density);
• Regional development strategies that run counter to market forces are unlikely to be successful;
• Effective regional development strategy in Russia should be guided by twin objectives:
(i) support of existing growth centers and inter-regional connectivity and;
(ii) integration of social conditions across Russia, subject to the fiscal constraints.
