Essays On Russian Economic Geography: Measuring Spatial Inefficiency

Compared with other transition countries Russia faces the burden of extreme cold. This is not, however, strictly a function of geography. Soviet location policy directly affected the average (population weighted) temperature of the Russian economy. Soviet policy moved industry and population from the western part of the country to the east, effectively making Russia even colder than it was in the pre-Soviet era. Movements to the east have the significant impact on aggregate temperature because the isotherms on the Eurasian continent resemble lines of longitude, not latitude. Thus, the Russian economy entering transition faces not only the usual burden of an inhospitable Russian climate, but also suffers from the extra disadvantage due to the legacy of Soviet location policy. In this thesis I estimate the cost to Russian economy of the inefficient spatial allocation of its productive resources. Spatial inefficiency can result not only in added production and distribution costs — when regional comparative advantages are not exploited and unnecessary transportation and communication expenditures are incurred — but also the wrong allocation of labor brings inefficiency in consumption: there are extra costs associated with people living in unsuitable places. In the Russian context, “unsuitable” usually means “too far” and “too cold.” I focus on the “cost of cold,” or precisely, the cost of production being wrongly located in places with a climate too cold. The first essay is a counterfactual exercise. To obtain a benchmark of spatial efficiency, I construct an allocation of industry and population that would result in Russia in the absence of Soviet location policy. To design such an allocation, I impose Canadian behavior on Russian initial conditions. I estimate a spatial dynamic model on Canadian regional panel data in a multinomial logit framework. I then project the estimated relationship onto Russia. The result is a hypothetical allocation of population and industry, specific to Russia’s endowment and initial conditions, but free of any disadvantages stemming from Russian historical circumstances. This procedure, however, ignores the effect of WWII — a major exogenous shock to Russian economy with no precedent in Canada. We should expect that war would have an impact on industry allocation irrespective of economic or political system. To account for the possible effects of WWII I conduct a separate simulation exercise, taking into account the fact that the war was fought primarily in the west. The results of this exercise show that the eastern part of Russia is still significantly overdeveloped — in other words, WWII explains only a small part of the misallocation.

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