Localization and Diversification of Russian Economy: Regions’ and Industries’ Peculiarities

Alexander Vladimirovich Zyuzin (), Olga Demidova and Tatiana Dolgopyatova ()
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Alexander Vladimirovich Zyuzin: National Research University Higher School of Economics

Spatial Economics=Prostranstvennaya Ekonomika, 2020, issue 2, 39-69

Abstract: This paper studies the influence of industry localization and region economy diversification on firm profitability in Russia and provides quantitative estimation to such an influence. In this paper two main hypotheses are tested: (a) industry localization and region economy diversification improve enterprise profitability and (b) both localization and diversification influence smaller companies rather than bigger ones. Localization effects are estimated via Ellison-Glaeser index. Diversification is measured with Herfindahl-Hirschman index (HHI). The data set consists of 650 thousand of observations and approximates the full set of commercial real sector Russian companies in 2017. The indicator ‘number of employees’ is used for Ellison-Glaeser and HHI indexes calculation but this indicator contains missing values. To avoid distortions in the indexes’ magnitudes missing values are estimated in multiple ways that given closely same results. All companies were divided into four groups by scale (big, medium, small and micro). The regression models for testing two main hypotheses are estimated separately for each group. Method of regression estimation is OLS. It was found that profitability increases with the degree of industry localization and the effect is stronger for bigger companies. An increase of Ellison-Glaeser index by 0,1 results in 0,7–7,5% rise of sales margin. The effect from region diversification was found only for small and micro companies. HHI growth of 0,1 increases sales margin by 1,5–2,6%

Keywords: regional diversification; industry localization; sales margin; Russian regions (search for similar items in EconPapers)
JEL-codes: C21 R11 R12 R15 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:far:spaeco:y:2020:i:2:p:39-69

DOI: 10.14530/se.2020.2.039-069

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