DP5265 Russia's Regions: Income Volatility, Labour Mobility and Fiscal Policy

Author(s): Goohoon Kwon, Antonio Spilimbergo
Publication Date: October 2005
Keyword(s): fiscal policy, labour mobility, panel VAR, Russia
JEL(s): C33, E62, H77, J61, P52
Programme Areas: International Macroeconomics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5265

Russia's regions are heavily exposed to regional income shocks because of an uneven distribution of natural resources and a Soviet legacy of heavily skewed regional specialization. Also, Russia has a limited mobility of labour and lacks fiscal instruments to deal with regional shocks. We assess how these features influence the magnitude and persistence of regional income shocks, through a panel vector auto-regression, drawing on extensive and unique regional data covering the last decade. We find that labour mobility associated with regional shocks is far lower than in the US yet higher than in the EU-15, and that regional expenditures tend to expand in booms and contract in recessions. We discuss institutional factors behind these outcomes and policy implications.