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Inequality and Poverty Dynamics Across the Russian Regions in 1992-2000 Ruslan Yemtsov, World Bank Natalia Miteva PUAF 699I Maryland School of Public Policy

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Contents Yemtsov, Inequality and Poverty Dynamics Across the Russian Regions in 1992-2000: Main Findings Regional Inequality in Russia –Data and Economic Literature –Analysis Question 1: More Inequality Between the Unequal? Question 2: More Equally Unequal? –Factors Determining Regional Inequality –Analysis Summary Other Literature : Increasing Inequality in Transition Economies

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Main Findings Inequality in Russia is trended towards an internationally high level The share of inequality coming from the between-regions component is large, growing, and accounting for 1/3 of total income inequality The dynamics of poverty in Russia will increasingly depend on inter-regional differences in the average incomes There is evidence of convergence in inequality for main welfare indices

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Map of Russias Regions

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Regional Inequality in Russia: Data and Economic Literature When measured by the ratio of top-to-bottom decile of regions, regional economic inequalities in Russia in 1997-2000 are at par with differences between countries in the EU, and much bigger than those between states in the US.

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Regional Inequality in Russia: Data and Economic Literature Authors agree that the transition period has been characterized by economic inequality among Russias regions Studies used the coefficient of variation (in industrial output, housing availability, and consumption of food items) as an inequality measure, but did not account for the total # of population in the regions Distinction between regional inequality and regional polarization (Fedorov, 2002)

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Question 1: More Inequality Between the Unequal? Although there has been some variation in income inequality across regions in 1994-1999, average income inequality in a region in 1999 was not higher than in 1994 No increase in regional variation in income inequality either However, the range of income inequality across regions suggests that, while in some regions in Russia people can be equally poor, in other they are unequally well-off Republic of Karachaevo- Cherkessk Moscow Gini0.212 (lowest)0.626 (highest) Poverty rate64.6%23.3%

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Decomposing Inequality to Within- and Between-Regions 199419951996199719981999 Total inequality: per capita incomes 0.2970.2820.3160.3370.3140.329 of which Between regions: per capita incomes 0.0730.0760.0830.0790.0880.103 Between regions as a share of total: p.c. incomes 25%27%26%23%28%31% Contribution of Moscow and St. Petersburg as a share of total inequality in p.c. incomes 32%35%34%28%29%31% Gini index for per capita incomes 0.4240.4180.4370.4450.4320.441 Gini index w/o Moscow and St. Petersburg 0.3480.3310.3530.3780.3640.367 Inequality decompositions using Theil indices for per capita real money incomes (selected indicators)

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Question 2: More Equally Unequal? Is there convergence in inequality among the Russian regions? The literature suggests: –No absolute convergence for nominal per capita income between 1985 and 1999 –Only weak convergence in regional gross products and industrial output per capita (1994-99) –But some evidence of conditional convergence for per capita income –And strong conditional convergence in gross regional products and industrial output

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Question 2: More Equally Unequal? Testing for inequality convergence across regions: regressing observed changes over time in inequality (measured by Gini) on its initial values* Result: some evidence of convergence (graph) Evidence suggests the convergence process is slow

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Factors Determining Regional Inequality Endowments and initial conditions of the regions Restructuring policies (advanced reformers vs. lagged regions) Economic shocks Transfers (transfer dependent vs. independent regions)

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Factors Determining Regional Inequality -- Empirical Results Regional trends in inequality depend on initial conditions (Gini strongly related to its initial level) Communists being in charge Price controls Regions which inherited large industrial sectors Economic shocks Variables characterizing the business environment and the degree of restructuring Wage arrears Transfers Effect on inequality

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Regional Inequality in Russia: Analysis Summary The analysis for means convergence in Russia has failed to reveal strong evidence of absolute convergence, although the regions are slowly moving towards different steady state growth rates and per capita incomes A decomposition of inequality shows evidence of increasing between-region inequality over time Inequality dynamics are affected by a combination of many factors, which determine how fast the regions move to a distribution determined by market forces

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Other Literature Yemtsov and Mitra, Increasing Inequality in Transition Economies: Is There More to Come? World Bank, 2006 Adds to the story of inequality in Russia

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Between-Group Inequality Relative importance of between-group inequality over time in Russia

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Rising Inequality in Russia and China: Is There a Lesson in the Similarity? RuralUrban Data198819952001-2198819952001-2 Ravallion and Chen (2004) SSB0.2970.3340.3650.2110.2830.323 Khan and Riskin (1998, 2004) CASS0.3380.4160.3750.2330.3320.318 China: Increases in Gini coefficients for per capita incomes SSB – State statistical bureau based on HH survey; CASS – Economic Institute of the Chinese Academy of Social Science Survey 1987-90199219951997199920012003 Eurostat data0.2590.2890.381 0.3990.3960.404 Russia: Gini indices for per capita income

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Rising Inequality in Russia and China: Is There a Lesson in the Similarity? Rural-urban gap: –Determinants of inequality in China different – driven by rural-urban gap (37% in 2000) –In contrast, the FSU saw a reversal of this gap in the transition years Wage inequality: –In 1989, returns to education negligible in China but not in Russia –Later, an increasing education premium became a stronger driver of wage increases in China, albeit from a lower base –In Russia, it played a smaller role in explaining wage inequality

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Increasing Inequality in Transition Economies: Conclusion Would faster growth in the transition countries of Eastern Europe and the FSU be accompanied by an increasing inequality on a scale similar to that in China? Probably not.

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Inequality and Poverty Dynamics Across the Russian Regions in 1992-2000 Ruslan Yemtsov, World Bank Natalia Miteva PUAF 699I Maryland School of Public Policy

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