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, %
1926
1939 1959 1970
less 20 thousand
20,7
9,6
20 - 49,9 thousand
14,6
50 - 99,9 thousand
6,7
5,2
5,3
18,0 17,6 15,5
13,2 12,3
12,1
12
18,4
13,2 12,9 11,3
11,2 11,8
11,6
11,4
100 - 499,9 thousand
20,2
32,5 29,6 33,3 32,3 29,8 29,6 28,3
500 - 999,9 thousand
-
more 1000 thousand
26,1
15,9 12,0
5,2
2002 2010
4,6
3,7
8,7
1979 1989
15,3 14,9
12,9
16,1
23,0 15,2 21,2 22,8 26,6 28,6 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" UNHABITAT 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
Most people can be trusted
Dealing with people you should be careful
In our country harmony and cohesion dominate among people
Share of
urban
population
0,104*
-0,160**
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 2000-2008;
• 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).
Qit/Lit=A+b∙Kit/Lit+ c1∙Uit+c2∙Uit2+d∙Sit+μi+εit
H1: c1>0
H2: c2<0
H3: d>0
Problem of endogeneity needs to be addressed (IV estimates).
Results of the estimates
Variable
Coefficient
Standard error
P-value
Capital
0,443
0,007
0,000
Share of urban
population
Square of share of
urban population
21,02
7,038
0,003
–0,195
0,047
0,000
0,013
0,002
0,000
Average size of city
Number of observations
711
Number of regions
79
R2within
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!