Academic journal article Asian Social Science

Spatial Differentiation and Market Potential of the Regions: The Case of Russia

Academic journal article Asian Social Science

Spatial Differentiation and Market Potential of the Regions: The Case of Russia

Article excerpt

Abstract

This paper investigates spatial differentiation between Russian regions in the context of business location factors. First, we selected a number of variables to describe key factors of business location in the regions. They include market potential of the region's retail markets, fixed asset investments, the number of economically active population, and average nominal monthly wage in the region. Segmentation of Russian regions on the basis of these variables allows comparison and selection of the regions from investors' standpoint. To segment Russian regions on the basis of the selected variables we use self-learning neural networks allowing assessment of several variables with the lack of some input data. Second, we classified Russian regions based on their market potential indicators and represented the results on the map of Russia. We presented a structure of Russian regions which accounts for spatial differentiation of the market potential.

Keywords: spatial differentiation, factors of business location, market potential, Kohonen's self-organizing maps, Russian regions

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1. Introduction

Russia has been transforming into a market economy since the early 1990-s. These changes have had different impacts on the socio-economic development of Russian regions. Some of them have successfully adjusted to new conditions and are experiencing economic growth and gain in living standards. Other regions still suffer economic stagnation and decline in their living standards.

As a result modern Russia is characterized by increased spatial differentiation and regional inequalities. This leads to such problems as economic slowdown, considerable outflow of population from unsuccessful regions to successful ones, growing separatist sentiment, disintegration processes, etc. To solve these problems we need to study spatial differentiation in modern Russia, to determine its features and sources. The results of this study can provide the basis for an effective economic policy both at the federal and regional levels.

Economic heterogeneity of territories, characteristic of the modern world, is an integral part of the economic area and the result of regional diversity. Spatial differentiation of economic development is an objective reality that exists both between countries and regions within one country. This is especially true for countries with a large area. The study of spatial differentiation in Russia's economic development has become very acute, as Russia is the world's largest country by area.

A lot of works within the framework of new economic geography have been devoted to the theoretical analysis of spatial economic development (Krugman, 1991; Matsuyama, 1991; Venables, 1996; Fujita et al., 1998; Krugman & Venables, 1995, 1996; Puga, 1999; Martin & Ottaviano, 1996, 1999; Baldwin, 1998; Markusen & Venables, 1997; Baldwin et al., 2003). Their conceptions are based on the Dixit-Stiglitz model of monopolistic competition (Dixit & Stiglitz, 1977).

In conditions of imperfect competition firms' decisions on geographical (territorial) location of a business are becoming particularly important. Under otherwise equal conditions firms, trying to reduce transport costs, choose locations closer to major markets with high potential demand for their products. Market potential plays a key role in the investor's decision making about locating production in this or that region.

Market potential (Harris, 1954) characterizes the level of regional market accessibility to businesses, consumers and other economic agents. Harris found out that, on the one hand, some industrialized regions of the USA had extremely high market potential. But on the other hand, not only regions with good market access were chosen for production location; concentration of production also improved access to the market. On this basis C. Harris deduced that market potential of a region is the main factor in production location. …

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