Speed of Reform, Initial Conditions or Political Orientation? Explaining Russian Regions' Economic Performance

Abstract

Using a panel of 77 Russian regions we investigate the reasons behind large differences in regional growth performance for the period from the start of transition to the 1998 crisis. We consider politico-institutional characteristics, indicators of regional economic reform and initial conditions (including economic, geographical and structural features). Surprisingly, differences in institutional characteristics or economic reform explain relatively little of the observed difference in regional growth performance. For example, we find no evidence that a region's economic performance has been influenced by the political orientation of its leaders, or the political preferences of the population. In contrast, a region's initial industrial structure, as well as its natural and human resource endowments, had a large impact on its economic growth performance during the 1990s. It is important to note that our findings should not be interpreted as saying that reform in transition countries is generally less important than initial conditions, nor that reform in Russia was not or is not needed. Our focus on Russian regions captures only the aspects of reform that have (or have not) been initiated in the regions, and thus does not take into account the large—and arguably more important — part of the changes that have been undertaken at the national level. However, our study shows that regional differences in reform played a minor role in determining the relative economic performance of Russian regions in the 1990s, especially when compared with the impact of the initial conditions in which regions found themselves at the beginning of the transition.