Drivers of Concentration of Economic Activity in Russia's Regions

The uneven distribution of economic activity in Russia promotes the differentiation of its constituent entities by level of development. Regions are independent participants of economic relations, and they often act as competitors rather than partners. Agglomeration effects arise in more successful regions and contribute to the concentration of resources, manufacturing enterprises, service providers, skilled workers, and scientific and technological knowledge. The aim of the study, the results of which are reflected in the paper, is to identify the factors and assess their impact on the concentration (dispersion) of economic activity on the basis of Russia's regions. The paper describes the benefits of agglomeration processes from the standpoint of economic geography, allocation theory and international trade theory. The concentration of economic activity in Russia's regions is estimated by the Herfindahl-Hirschman index of industrial production taking into consideration the volume of investments in fixed capital and the number of people employed in the economy in Russia's regions in 1990-2013. It is determined that fixed capital investments have the propensity to concentrate, but react strongly to economic crises. Labor resources, by contrast, are distributed relatively evenly, and their concentration in certain regions is increasing steadily. The article considers key factors such as wage growth, distance to large cities, direct foreign investment, road network density, the degree of development of the services sector in the region. The factor model is constructed using the least squares method. The authors conclude that the growth of wages in the region (relative to national average) has a negative effect on the concentration of economic activity. There is a positive correlation between the growth of direct foreign investment and the density of hard surface roads. The development of services has the greatest positive impact on agglomeration processes in Russia's regions. The paper confirms the point of the new economic geography concerning the negative impact that the region's remoteness from major markets exerts on the development of agglomeration process. The authors agree with foreign researchers on the fact that the emergence and development of agglomeration process is influenced by increasing returns to scale, transport costs and labor migration. But the very indirect factors included in the model are influenced by economic actors in the regional socio-economic policy.