“Inequality and Poverty Dynamics Across the Russian Regions in 1992-2000” Ruslan Yemtsov, World Bank

1. “Inequality and Poverty Dynamics Across the Russian Regions in 1992-2000”Ruslan Yemtsov, World Bank Natalia Miteva PUAF 699I Maryland School of Public Policy

2. Contents • Yemtsov, “Inequality and Poverty Dynamics Across the Russian Regions in 1992-2000”: Main Findings • Regional Inequality in Russia • Data and Economic Literature • Analysis • Question 1: More Inequality Between the Unequal? • Question 2: More Equally Unequal? • Factors Determining Regional Inequality • Analysis Summary • Other Literature : Increasing Inequality in Transition Economies

3. Main Findings • Inequality in Russia is trended towards an internationally high level • The share of inequality coming from the between-regions component is large, growing, and accounting for 1/3 of total income inequality • The dynamics of poverty in Russia will increasingly depend on inter-regional differences in the average incomes • There is evidence of convergence in inequality for main welfare indices

4. Map of Russia’s Regions

5. Regional Inequality in Russia: Data and Economic Literature • When measured by the ratio of top-to-bottom decile of regions, regional economic inequalities in Russia in 1997-2000 are at par with differences between countries in the EU, and much bigger than those between states in the US.

6. Regional Inequality in Russia: Data and Economic Literature • Authors agree that the transition period has been characterized by economic inequality among Russia’s regions • Studies used the coefficient of variation (in industrial output, housing availability, and consumption of food items) as an inequality measure, but did not account for the total # of population in the regions • Distinction between regional inequality and regional polarization (Fedorov, 2002)

7. Question 1: More Inequality Between the Unequal? • Although there has been some variation in income inequality across regions in 1994-1999, average income inequality in a region in 1999 was not higher than in 1994 • No increase in regional variation in income inequality either • However, the range of income inequality across regions suggests that, while in some regions in Russia people can be equally poor, in other they are unequally well-off

8. Decomposing Inequality to Within- and Between-Regions Inequality decompositions using Theil indices for per capita real money incomes (selected indicators)

9. Question 2: More Equally Unequal? Is there convergence in inequality among the Russian regions? The literature suggests: • No absolute convergence for nominal per capita income between 1985 and 1999 • Only weak convergence in regional gross products and industrial output per capita (1994-99) • But some evidence of conditional convergence for per capita income • And strong conditional convergence in gross regional products and industrial output

10. Question 2: More Equally Unequal? • Testing for inequality convergence across regions: regressing observed changes over time in inequality (measured by Gini) on its initial values* • Result: some evidence of convergence (graph) • Evidence suggests the convergence process is slow

11. Factors Determining Regional Inequality • Endowments and initial conditions of the regions • Restructuring policies (advanced reformers vs. lagged regions) • Economic shocks • Transfers (transfer dependent vs. “independent” regions)

12. Factors Determining Regional Inequality -- Empirical Results Regional trends in inequality depend on initial conditions (Gini strongly related to its initial level) Effect on inequality

13. Regional Inequality in Russia: Analysis Summary • The analysis for means convergence in Russia has failed to reveal strong evidence of absolute convergence, although the regions are slowly moving towards different steady state growth rates and per capita incomes • A decomposition of inequality shows evidence of increasing between-region inequality over time • Inequality dynamics are affected by a combination of many factors, which determine how fast the regions move to a distribution determined by market forces

14. Other Literature Yemtsov and Mitra, “Increasing Inequality in Transition Economies: Is There More to Come”? World Bank, 2006 Adds to the story of inequality in Russia

15. Between-Group Inequality Relative importance of between-group inequality over time in Russia

16. Rising Inequality in Russia and China: Is There a Lesson in the Similarity? China: Increases in Gini coefficients for per capita incomes SSB – State statistical bureau based on HH survey; CASS – Economic Institute of the Chinese Academy of Social Science Survey Russia: Gini indices for per capita income

17. Rural-urban gap: Determinants of inequality in China different – driven by rural-urban gap (37% in 2000) In contrast, the FSU saw a reversal of this gap in the transition years Wage inequality: In 1989, returns to education negligible in China but not in Russia Later, an increasing education premium became a stronger driver of wage increases in China, albeit from a lower base In Russia, it played a smaller role in explaining wage inequality Rising Inequality in Russia and China: Is There a Lesson in the Similarity?

18. Increasing Inequality in Transition Economies: Conclusion Would faster growth in the transition countries of Eastern Europe and the FSU be accompanied by an increasing inequality on a scale similar to that in China? Probably not.

19. “Inequality and Poverty Dynamics Across the Russian Regions in 1992-2000”Ruslan Yemtsov, World Bank Natalia Miteva PUAF 699I Maryland School of Public Policy