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Spatial Concentration of Industrial Production in Russia: Testing the Home Market Effectûíêà

Natalia Dzhurka ()

Spatial Economics=Prostranstvennaya Ekonomika, 2018, issue 3, 19-42

Abstract: The article studies the influence of internal demand on the spatial distribution of processing industries in Russia. According to the models of trade theory, the increasing returns to scale give rise to the home market effect, meaning a more than proportional relationship between the share of the region in demand for the goods and the share of the region in production of those goods. Davis and Weinstein suggested the equations for empirical testing of the home market effect taking into account alternative mechanisms of spatial concentration of industrial production (with or without increasing returns). The specifics of these equations are the following. First, they simultaneously test the influence that comparative advantages of the regions and the scale of territorial markets have on industrial production. Second, they represent a system of nested dependencies that combine the data of different levels of aggregation, which allows building the suggestions on the reproducibility of the results if using detailed information. Third, they characterize the scale of the markets based on the data on intraregional consumption (absorption) and consequently contribute to the development of the results received as part of estimations of market potentials with the help of proxy-variables – income and GRP. The estimations of Davis and Weinstein equations received for ten branches of processing industry of Russia have confirmed the significance of influence that idiosyncratic demand has on the concentration of industrial production. Spatial distribution of branches groups formed by homogeneity of factor expenses structure is on average 67.5% caused by comparative advantages of the regions, but for the majority of the branches this percentage is significantly lower due to home market effect. More than proportional relation between production and demand is seen in three branches out of ten: oil processing and chemical production, wood processing, electric equipment production. The conclusion is that there is no home market effect in branches such as transport production, textile production, which does not match the studies in other countries. This is explained by the structure of demand that in this case stimulates import in the region rather than output

Keywords: processing industry; spatial concentration; home market effect; production factors; regions of Russia (search for similar items in EconPapers)
JEL-codes: C53 C82 R12 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.14530/se.2018.3.019-042

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Handle: RePEc:far:spaeco:y:2018:i:3:p:19-42