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1.1.5. The Role of Innovations in Differences in Regional Growth Numerous regional development models pay a great attention to innovational factor as a main cause of differences between regions development level. While studying into factors of regional development, Andersen and Mancinen (1981) employed the theory of knowledge creation and diffusion. The authors model regions with the neoclassical production function Qr=Fr(Cr,ar)10, where r amount of capital in region r, ar availability of knowledge in region r, is found according to formula ar=sexp{ drs}Ks, while drs distance between regions r and s, Ks accumulated amount of knowledge.

The model suggests that capital and knowledge grow in proportion to the aptness to savings r, while the distribution between share of investment in physical capital and R&D is determined by the share of the latter in the total capital accumulation:

- d rs & = (1 - ) Fr (C, e K ) r r r r s s - drs & Kr = Hr (Kr, r Fr (Cr,, r =1,,n r e Ks )) s where Hr positive, smooth functions, found in R+.

The authors demonstrated that this system sees an equilibrium for which the capital to knowledge ratio is constant. The analysis of dynamics of the system allows to show that with any distance drs reducing, the growth rate for all the regions rises in equilibrium. In the frame of assumptions of increasing return from economies of scale and the existence of spatial frictions, the model in question predicts that the bias of the R&D share in the total capital towards It is assumed that the use of labor is proportional to capital and it is exogenously determined by the output offer.

values higher than an equilibrium value may lead to an initial shortterm rise in the regional income inequality.

* * * Hence the regional growth theory as a whole is based on the prerequisites that the neoclassical theory of growth in macroeconomics that prevails nowadays. The distinctive feature of the regional growth theory lies with its greater emphasis put on issues of unevenness of growth in neighboring economies (regions). It should be noted that the macroeconomic growth theory practically ignores the external world and assumes availability of any foreign trade balance that combines with a sustained domestic growth.

Whereas the regional economy theory implies that a given region may not be considered in isolation from other regions of an integral national economy, it provides for certain constraints associated with a possible unevenness of growth and differences in initial conditions. To consider such constraints new models were designed, particularly, agglomeration, nucleusperiphery and random growth ones.

So, the above review of regional economy theories that deal with regional growth issues allows to fundamental conclusions that appear necessary for carrying out further research into growth in Russias regions:

1. The neoclassical growth theory and, accordingly, approaches to its empirical evaluation appear applicable to an analysis of factors and structure of growth in single regions;

2. Before researching into growth factors at the regional level, it is necessary to analyze the nature of regions uneven development rates, i.e. to test the hypothesis on convergence.

1.2. Issues of Regional Development in Russian Economic Literature Between 1997 through 2004 the Russian economic literature provided a number of research outputs albeit a very few ones, that concerned issues of economic growth in Russias regions. For instance, Pchelintzev (2001a) studied economic growth in RF between 19992001 and argued that the recovery growth had failed to overcome the inertia of the preceding crisis development, for that necessitated re-switching the national economy into the investment growth mode. The author argued that it had not happened at that moment. The paper provides an analysis of regional development under economic growth.

The author stresses that in the period in question growth rates in the areas of processing sectors for the first time proved to be greater than in the areas of mineral extraction and primary processing. He consequently draws a conclusion that the range of the slump-rise amplitude proved to be smaller in the regions that had succeeded in integrating themselves into the global market. He also notes that in 2000 interregional differences in growth rates diminished notably, with the regions of the processing sector being leaders in terms of growth rates. That has somewhat smoothed down disproportions that had arisen between them and the mineral areas back in 19921998.

The authors analysis allows the conclusion that despite the emergence of some new phenomena, the main trends of regional development in Russia in 19992000 remained the same:

- a passive adjustment of the territorial-sectoral structure inherited from the Soviet time to the global markets demands;

- degradation of the processing sector areas that had been forming the core of the national economy over nearly a century;

- preservation, and in some cases, intensification of the interregional differentiation;

- emergence of a new spatial hierarchy that is based upon the predomination of a small number of large trading and intermediary centers and regions centering on mineral exports.

So, the paper argues that while the economic growth of 1999 2000 have cushioned some manifestations of the systemic crisis, it has failed to overcome its inertia. More than that, since the second half 2000 industrial growth in the country once again has been followed by stagnation.

Lavrovsky (1999) attempted to measure a regional asymmetry in RF. The researcher understands asymmetric development as such a type of regional development over a certain period of time under which regions that enjoy a relative advantage by a specific indicator at the beginning of the period increase it further on, while those relatively backward regions further aggravate it. Understandably, the symmetric type of development implies that a gap between levels of regions indicators shortens. The authors analysis of asymmetry of regions development in terms of the indicator of economic growth is based on the following assumptions:

1. Regional development is uneven, and the dynamics of dispersion of regional indicators constitute the main manifestation of asymmetric development;

2. The type of regional development can be found only in the dynamics and only in respect to a specific indicator;

3. Asymmetric development entails an intensification of centrifugal tendencies, regions respective indicators distancing from each other, and an intensification of interregional differences, while symmetric development leads to convergence of the regions indicators.

To measure an asymmetry, the author employs the coefficient of variation of the respective indicator. He argues that the process of regional differentiation of major economic indicators in early 1990s was very intense, while the production reduction was uneven across the country. However, up to the mid-1990s systemic nationwide development factors predominated over local ones, i.e. the fall in industrial output practically had no regional borders. The situation changed shortly afterwards, and as early as in 1997 Russias regions split practically into two halves in terms of the sign of production increment. The paper consequently concludes that as far as a parameter of economic growth is concerned, the type regional development in Russia in the 1990s was unambiguously asymmetric. Plus, the authors evaluation of the dynamics of differentiation of regions by a number of macroeconomic indicators allowed him to argue that while a decline is accompanied by regional disparity, a growth goes hand in hand with regional equalization processes.

Seleznev (2002) conducts an evaluation of constraints to economic growth that are objectively determined by the state of Russias economy the account of which is of a substantial importance to justification for scenarios of economic development. The author particularly focuses on limited possibilities for selecting optional scenarios. Such possibilities are preset by the inertial nature of the economy and by reforms of the 1990s. The author also analyzes the regional structure of GDP from the perspective of intensity of negative processes in Russias economy that require a new strategy of growth.

The paper particularly stresses that the structure of GRP provides a comprehensive picture of recipients of, and donors to the federal budget. The author believes that such a structure evidences the bankruptcy of concepts of regions self-reproduction in conjunction with their natural, climatic and other parameters. The differentiation between regions socio-economic development levels accentuates an urgent need in a centralized administration of investment resource flows and expansion of the government entrepreneurial activity.

The author at the same time argues that progress in the municipal sector constitutes a substantial factor of galvanizing economic growth. However, it is impossible to mobilize this particular sectors potential, if it finds itself isolated from the government vertical of power and providing there exists a fully unsound downward arrangement of budgetary flows that implies an absolute pendency of the issue of procedures of the centralized allocations of investment funds with account of the municipal sectors interests and capacity.

Basing on his analysis of regional development tendencies in the 1990s, Pchelintzev (2001b) advocates the need for shaping an economic system of sustained development (reproductive economy) and considers some, mostly foreign trade and social, conditions of a transition towards sustained development.

The paper states that Russias regional development takes place in the frame of the economic model established in 199294 resulting from the liberalization of a non-equilibrium economy Russia had inherited from the USSR. The author argues that at first winners (of course relative to the overall slum) were areas that supplied minerals and fuel for export, while none of the old industrial centers (such as Moscow, St. Petersburg or Nizhny Novgorod), the home for the processing sector, no longer is in the top echelon of industrial areas. Accordingly, the mere concept of old industrial region has changed, and the coal and metallurgical areas have given this role to centers of the processing sector, research and technology areas.

The author suggests that this problematic situation can be resolved only providing a drastic change of the economic development strategy, which in a nutshell can be defined as a transition towards sustained development. He views this concept as an alternative to both the actual polarized global development underway and the doctrine of globalization. All this, the author argues dictates the need for the transition from the current resource-utilizing economy to the economy of their systemic reproduction. He believes that it is regions that should form the core engine of such a transition, and they should become subjects of the sustained development. This particular mission is explained by their objective role of arena for the reproduction (the room for the interaction between resource subsystems) and the presence of a series of subjective preconditions, such as territorial development experiences and the possibility for a broad application of the science of resource cycles and territorial-production complexes. The paper specifically accentuates that regions territorial and human capital development efforts would be futile, unless they fail to meet some external (relative to regions) conditions of sustained development.

Finally, the paper by N. Smorodinskaya, A. Kapustin and V. Malygin (1999) studies results of development of Kaliningrad Oblast as a free economic zone in 199498. The paper shows that by its macroeconomic indicators the Oblast was one of the least prosperous regions in RF, while along with a general trend of contraction in output volumes in all the sectors of its economy, there existed considerable differences in annual decline rates across the sectors.

Accordingly, the Oblasts specialization in the nationwide division of labor changed.

The authors conclude that so far as a complete opening of the regions economy has failed to ensure structural impulses to stabilize the economy and renew the growth. There were a number of reasons underlying this situation. First, the Oblast originally was one of the regions whose perverse sectoral production structure has proved to be most exposed to market competition forces. Second, while foreign trade benefits helped to solve the problem of food supplies to the Oblast by means of import, they nonetheless have failed to diminish the transportation component in production costs.

Third, the actually appreciated Ruble exchange rate has made import operations in the Oblast much more profitable vis--vis the rest of the mainland. As a result, instead of creating comparative competitive advantages for companies of the real sector and normalizing living standards of most local residents, the free trade regime has entailed an accumulation of additional deformations in the economic structure of the region.

In addition to the noted papers in leading Russian economic journals, we would like to specifically note the monograph Valovoy regionalny product: mezhregionalnye sravneniya I dinamika (Gross regional product: the interregional comparisons and dynamics) by A. Granberg and Yu. Zaitseva11 and the paper by N.


In their monograph, A. Granberg and Yu. Zaitseva provide a detailed analysis of the methodology of accounting single components of gross regional product both in static and dynamic terms.

They particularly suggest methodological approaches to adjustment of growss regional product on the basis of consideration of interregional differences in prices and the Ruble purchasing power. The paper evaluates the redistribution of GRP between Russias regions in the system region country the world (basing on the data). The authors have ultimately developed adjusted dynamic GRP series over the period 19962001 and built a classification (ranking) of the regions by their growth rates and contribution to Russias GDP. It should be noted, however, that while the research was built upon the evaluation of the final data on the volume and dynamics of GRP and its components, it ignored factors that underlie the structure and growth rates of a regional product.

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