Innovation-Export Diversification Nexus in Russian Regions: Does Trade Globalization, Business Potential and Geopolitics Matter?

Abstract

Russia's regions exhibit a limited degree of export diversification, mostly due to the overwhelming dominance of hydrocarbon exports and their consequential impact on public income within the regions. Nevertheless, in light of the current geopolitical tensions and economic uncertainty, Russia is compelled to prioritize the diversification of its export. Amidst this backdrop, this study empirically scrutinizes whether innovation can to some extend augment export diversification of Russia's regions, substantiating the significance of factors such as trade globalization through Russia's WTO accession, regional-level business potential, and the economic ramifications of the 2014 sanctions. Data were collected for 66 Russian regions ranging from 2009 to 2019. Given the considerable heterogeneity in data across the regions and over the time period, this study applies the Method of Moments Quantile Regression (MMQR) to investigate the panel dataset. The major findings of this study reveal that innovation propels export diversification in the Russian regions under different macroeconomic scenarios, where the role of innovation is pivotal at the middle to highest quantiles. This study also observes that Russia’s entry into the WTO platform propels innovation-led export diversification of the country. Additionally, this study observes a strong magnitude of innovation-export diversification dynamics in the Russian regions with high business potential. Moreover, this study finds that the economic sanction imposed in 2014 enforces export diversification through innovation in the Russian regions. The fresh insights that this research delivers might assist policymakers in adopting practical approaches to stimulate innovation within the private sector and foster export diversification in the Russian regions.