Regional reallocation of Russian industry in transition

The paper starts by asserting that economic activity and industrial production in Russia are unevenly distributed in space and that this fact is directly related to uneven distribution of wages which influences the welfare of regions. The authors construct and apply a "new economic geography" model to explain regional reallocation of industrial employment in Russia in 1985-1995.

According to the authors, such a model can make qualitative predictions on how the regional industrial structure and the welfare of regions will be influenced by economic policy that involves changes in the following:

• labour mobility
• transportation cost of trade between regions
• regional differentials of production costs.

The paper reveals that to improve the uneven distribution, the Russian government plans to use three groups of instruments:

• eliminate barriers for mobility of goods, capital and labour within Russia
• invest in infrastructure in less developed regions
• use a system of social standards and appropriate federal transfers.

According to the authors, elimination of barriers for mobility on the one hand will lead to a decrease in transaction and transportation costs, but on the other hand may imply greater inequality. The authors claim that investing in the infrastructure of less developed regions may have a similar effect.

In the authors' opinion it is necessary to create regional programmes that would influence relative investment attractiveness of regions. At the same time it is important to remember that any "non-regional" policy can have regional side- effects.