Urbanization and Economic Development in Russia

1. Urbanization and Economic Development in Russia EvgeniyaKolomak, Institute of Economics and IE SB RAS The HSE Center for MSSE XIII April International Academic Conference

2. Plan • World tendencies • Case of Russia • Urbanization and economic development • Review of the empirical estimates • Empirical estimates for Russia

3. World tendencies Role of cities in the world is growing. Two tendencies are observed: • higher growth rate of urban population; • faster growth of big cities.

4. World urban and rural population, billionpeople

5. Number of cities in the world where population is more than 1 million people

6. Share of citizens living in cities where population is bigger than 1 million people

7. Case of Russia • Russia has rather high level of urbanization; • in 2010 share of urban population was 73,7%; • in 1990 urban population reached 73% and fluctuates around this level during 20 years; • probably the urbanization process in Russia has reached an equilibrium.

8. Growth rate of urban and rural population, %

9. Components of changes in urban population in Russia

10. Structure of urban settlements in Russia

11. Population of cities and towns in Russia

12. Distribution of urban population among cities of different size, %

13. Urbanization differs in Russian regions • Macro-regions: North-West - 86,7%, Central -82,9%, Far-East -75,8%, Ural - 74,5%, North-Caucasus - 55,6%. • Subjects of Federation:Moscow and Sankt-Petersburg – 100%,Murmanskaya, Magadanskaya, Kemerovskaya – about 90%Republic Altaiy - 24,0%, Kalmikiya -38,5%, Dagestan -42,0%,

14. Urbanization and economic development • "State of the World's Cities 2010/2011" UN-HABITAT reports that: 1) the rates of economic growth and urbanization levels have a positive correlation; 2) productivity in the biggest cities of the world is significantly higher than the national average. • This statistics suggests that urbanization can stimulate economic growth.

15. Benefits associated with urbanization: • scale effects; • low transport and transaction cost;; • effects of clusters and networks; • advanced and flexible labor market; • diverse market of goods and services; • advantages in creation and dissemination of innovations.

16. Costs associated with urbanization: • high burden on the immobile factors of production (land, water, air), environmental degradation and pollutions; • development of transport infrastructure lags behind and requires significant resources; • reduction of housing affordability, what reduces the attractiveness and quality of life in the cities; • sharp income inequality and growth in absolute and relative poverty; • high inter-regional inequality, emergence of depressed areas and “economic deserts” around cities.

17. Social capital: benefit or cost of the urbanization? • Argument in favor of cost: small size of a settlement, isolation, lack of alternatives and static relationships, strong social ties force to fulfill the commitments and made reputation mechanism effective. At the same time in the large and dynamic societies, relationships are anonymous, informal norms and rules are less effective. . • Argument in favor of benefit : advanced education, culture and communication infrastructure provide opportunities for active purposeful interactions and form a range of social networks.

18. Social capital: case of Russia (Public Opinion Foundation, 63 СФ РФ, 2007)

19. Empirical Estimates • double increase in the size of cities elevates the productivity of firms in different countries by 3 to 8 percent (Rosenthal S., Strange W., 2004); • Japan - 3,4% (Nakamura R., 1985), the USA - 6% (Ciccone A., Hall R., 1996), France, Germany, Italy, Spain and the Great Britain - 4,5% (Ciccone A., 2002); • The Eastern Europe and Central Asia demonstrate agglomeration effect higher that OECD countries (Békés G., Harasztosi P., 2010; Vakhitov V., 2010).

20. «… size of settlement and investment risks always demonstrate statistically significant correlation with any indicator of firm’s competitiveness» (Russian Industry at Crossroads, HSE, 2008)

21. Tested hypotheses: • Urbanization stimulates growth of regional productivity in Russia. • The positive effect of urbanization on the regional productivity in Russia is decreasing and at some level becomes an impeding factor. • Large cities demonstrate higher performance and create positive externalities for the overall regional development.

22. Data • Covered period 2000-2008; • Regions – subjects of Federation; • Number of regions– 79; • Source of data – Federal State Statistics Service (Rosstat).

23. Q=A∙F(K,L,U,S) Q – value-added (gross regional product) A—total factors productivity, K —capital (fixed production capital), L — labor (population), U — urbanization (share of urban population), S —agglomeration potential of urban settlements (average size of city). Qit/Lit=A+b∙Kit/Lit+ c1∙Uit+c2∙Uit2+d∙Sit+μi+εit H1: c1>0 H2: c2<0 H3: d>0 Problem of endogeneity needs to be addressed (IV estimates). Model

24. Results of the estimates

25. Conclusions • Despite the high level of urbanization in Russia and a number of negative effects of the concentration of resources in cities, the resources of urbanization are not exhausted in Russian economy. • The potential of changes in the structure of urban settlements in favor of large cities exists.

26. Thank you for the attention!