Integration of the Russian market. Empirical analysis

This paper asks whether the Russian market is fully integrated or remains fragmented across different regions. It looks at whether prices in the goods market are converging or dispersing and compares this with the USA.

The paper studies the degree of integration in the goods market for each of 75 regions during the period of 1994-2000. The degree of integration is derived from the comparison of the national average to the cost of a 25-item consumer basket in a region.

The time-series analysis based on the monthly price data for the goods in the basket reveals that:

• the Russian market moved towards integration until 1999, when price convergence stopped
• 36% of the regions are found to be integrated with the national market, 44% of the regions are on the way whilst 20% showed no tendency toward integration
• where price divergence and non-integration occurs, it is due to geographic factors rather than economic policy factors

On the basis of these findings, the authors conclude that price convergence in Russia is near to being completed. It argues that although integration is not perfect, the behaviour of the contemporary Russian economy is not far from that of the US economy which is widely considered to be the most integrated in the world.