Urbanization and Economic Development in Russia Evgeniya Kolomak, Institute of Economics and IE SB RAS The HSE Center for MSSE XIII April International Academic Conference

Plan World tendencies Case of Russia Urbanization and economic development Review of the empirical estimates Empirical estimates for Russia

World tendencies Role of cities in the world is growing. Two tendencies are observed: higher growth rate of urban population; faster growth of big cities.

World urban and rural population, billion people

Number of cities in the world where population is more than 1 million people

Share of citizens living in cities where population is bigger than 1 million people

Case of Russia Russia has rather high level of urbanization; in 2010 share of urban population was 73,7%; in 1990 urban population reached 73% and fluctuates around this level during 20 years; probably the urbanization process in Russia has reached an equilibrium.

Growth rate of urban and rural population, %

Components of changes in urban population in Russia

Structure of urban settlements in Russia

Population of cities and towns in Russia

Distribution of urban population among cities of different size, % less 20 thousand 20,79,68,76,75,24,65,2 5, ,9 thousand 14,618,017,615,513,212,312, ,9 thousand 18,413,212,911,311,211,811,6 11, ,9 thousand 20,232,529,633,332,329,829,6 28, ,9 thousand -3,715,912,015,314,912,9 16,1 more 1000 thousand 26,123,015,221,222,826,628,6 26,9

Urbanization differs in Russian regions Macro-regions: North-West - 86,7%, Central - 82,9%, Far-East -75,8%, Ural - 74,5%, North-Caucasus - 55,6%. Subjects of Federation: Moscow and Sankt-Petersburg – 100%, Murmanskaya, Magadanskaya, Kemerovskaya – about 90% Republic Altaiy - 24,0%, Kalmikiya - 38,5%, Dagestan - 42,0%,

Urbanization and economic development "State of the World's Cities 2010/2011" UN- HABITAT reports that: 1) the rates of economic growth and urbanization levels have a positive correlation; 2) productivity in the biggest cities of the world is significantly higher than the national average. This statistics suggests that urbanization can stimulate economic growth.

Benefits associated with urbanization: scale effects; low transport and transaction cost;; effects of clusters and networks; advanced and flexible labor market; diverse market of goods and services; advantages in creation and dissemination of innovations.

Costs associated with urbanization: high burden on the immobile factors of production (land, water, air), environmental degradation and pollutions; development of transport infrastructure lags behind and requires significant resources; reduction of housing affordability, what reduces the attractiveness and quality of life in the cities; sharp income inequality and growth in absolute and relative poverty; high inter-regional inequality, emergence of depressed areas and “economic deserts” around cities.

Social capital: benefit or cost of the urbanization? Argument in favor of cost: small size of a settlement, isolation, lack of alternatives and static relationships, strong social ties force to fulfill the commitments and made reputation mechanism effective. At the same time in the large and dynamic societies, relationships are anonymous, informal norms and rules are less effective.. Argument in favor of benefit : advanced education, culture and communication infrastructure provide opportunities for active purposeful interactions and form a range of social networks.

Social capital: case of Russia (Public Opinion Foundation, 63 СФ РФ, 2007) Indicator of social capital Share of urban population Most people can be trusted 0,104* Dealing with people you should be careful -0,160** In our country harmony and cohesion dominate among people 0,121* In our country disagreement and disunity dominate among people -0,183* Among the inner circle of people harmony and cohesion dominate 0,024** Among the inner circle of people disagreement and disunity dominate -0,0280***

Empirical Estimates double increase in the size of cities elevates the productivity of firms in different countries by 3 to 8 percent (Rosenthal S., Strange W., 2004); Japan - 3,4% (Nakamura R., 1985), the USA - 6% (Ciccone A., Hall R., 1996), France, Germany, Italy, Spain and the Great Britain - 4,5% (Ciccone A., 2002); The Eastern Europe and Central Asia demonstrate agglomeration effect higher that OECD countries (Békés G., Harasztosi P., 2010; Vakhitov V., 2010).

«… size of settlement and investment risks always demonstrate statistically significant correlation with any indicator of firm’s competitiveness» (Russian Industry at Crossroads, HSE, 2008)

Tested hypotheses: 1.Urbanization stimulates growth of regional productivity in Russia. 2.The positive effect of urbanization on the regional productivity in Russia is decreasing and at some level becomes an impeding factor. 3.Large cities demonstrate higher performance and create positive externalities for the overall regional development.

Data Covered period ; Regions – subjects of Federation; Number of regions – 79; Source of data – Federal State Statistics Service (Rosstat).

Model Q=A∙F(K,L,U,S) Q – value-added (gross regional product) A —total factors productivity, K — capital (fixed production capital), L — labor (population), U — urbanization (share of urban population), S — agglomeration potential of urban settlements (average size of city). Q it /L it =A+b∙K it /L it + c 1 ∙U it +c 2 ∙U it 2 +d∙S it +μ i +ε it H1: c 1 >0 H2: c 2 <0 H3: d>0 Problem of endogeneity needs to be addressed (IV estimates).

Results of the estimates VariableCoefficientStandard errorP-value Capital0,4430,0070,000 Share of urban population 21,027,0380,003 Square of share of urban population –0,1950,0470,000 Average size of city0,0130,0020,000 Number of observations711 Number of regions 79 R 2 within 0,89

Conclusions Despite the high level of urbanization in Russia and a number of negative effects of the concentration of resources in cities, the resources of urbanization are not exhausted in Russian economy. The potential of changes in the structure of urban settlements in favor of large cities exists.

Thank you for the attention!