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The Impact of Human Capital on the Convergence of Russian Regions

Student: Nuriya Buranshina

Supervisor: Larisa I. Smirnykh

Faculty: Faculty of Management

Educational Programme: Master

Year of Graduation: 2014

<p>According to the standard neoclassical framework with homogeneous labor, migration should accelerate economic convergence. Neoclassical theory assumes that economy converges to the steady state.&nbsp; As the result of exogenous shocks or imperfection of the adjustment mechanism&nbsp;&nbsp; the economy of the regions deviates from steady state, which leads to their uneven development. The mobility of factors of production increases the convergence of economic development of the regions. People move from poor to rich destinations in order To improve their income position,, thereby increasing capital intensity, productivity, and wages in the poorer origin and reducing it in the rich regions</p><p>Within new economic geography models, a broad range of agglomeration mechanisms cause increasing rather than decreasing wages and income in the rich destination region whereas the region of origin &ndash; due to the lack of economies of scale &ndash; falls behind.</p><p>In both theories, human capital plays an important role in regional convergence.&nbsp; However, for Russia this issue is not fully studied.&nbsp; Previous estimates of convergence are not taken into account all the characteristics of human capital and, consequently, was undervalued contribution. In addition, they had the emphasis either on regional differences in the returns of investment in human capital, or on the impact only migration on the convergence.</p><p><em><u>Hypothesis of the research: </u></em></p><p>1. Human capital increases the convergence of Russian regions.</p><p>2. Interregional migration increases the convergence regions of Russia (the neoclassical hypothesis).</p><p>3. Immigrants with high levels of human capital have positive impact on the convergence of Russian regions.</p><p>4. Human capital increases the convergence only in some groups of regions.</p><p>Empirical model:</p><p><img height="35" src="clip_image002.gif" width="9" />&nbsp;log <img height="37" src="clip_image004.gif" width="40" />= а + b log<img height="27" src="clip_image006.gif" width="47" />&nbsp;+ &gamma;<sub>m</sub>m<sub>it </sub>+ &gamma;<sub>h1</sub>h<sub>it </sub>+&gamma;<sub>u</sub>u<sub>it </sub>+v<sub>it</sub> ,</p><p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; b = <img height="39" src="clip_image008.gif" width="49" />&nbsp;,</p><p>y<sub>it </sub>- GDP per capita or income in region i at the moment t;</p><p>T - the time period;&nbsp;</p><p>m<sub>i t</sub>&ndash; the net migration rate&nbsp; in region i at the moment t;</p><p>h<sub>it </sub>&ndash; the human capital in the region i at the moment t;</p><p>u<sub>it</sub> &ndash; control variables;</p><p>v<sub>it </sub>- error.</p><p>We use official data of Russian statistical data service (Rosstat) for 79 Russian regions and eleven years from 2000 to 2011. We drop the Republic of Ingushetia,&nbsp; due to the unavailability of data, as well as 9 autonomous districts (Nenets, Komi-Perm, Taimyr/Dolgano-Nenets, Khanty-Mansijsk, Yamalo-Nenets, Aginsk Buryat, Evenk, Ust-Ordyn Buryat, and Koryak) which are administrative parts of other regions</p><p>The analysis was conducted on panel data, using the following methods:</p><ol><li>Regression with fixed effects (panel);</li><li>Regression with random effects (panel);</li><li>Generalized Method of Moments (panel);</li><li>Quantile regression;</li><li>Cluster analysis.</li></ol><p><strong><em>3. The main results</em></strong></p><p>The analysis of data found positive impact of regional stock of human capital and migration from other countries on the economic growth of regions, and also a negative relationship between the number of employed in research and development and development and GRP of the region.</p><p>Also the hypothesis about conditional &beta;-convergence of Russian regions was confirmed.</p><p>However, the impact of regional human capital is ambiguous and insignificant.</p><p><u>Hypothesis 1</u> about the impact of human capital was rejected, as the inclusion in the regression variables of human capital has no influence on the speed of convergence or diminishes it.</p><p><u>Hypothesis 2</u>&nbsp; was not confirmed, the variable interregional migration is insignificant in all analyzed regressions.</p><p><u>Hypothesis 3</u> was not rejected; the increase in migration of persons with a high level of human capital (higher education) does not affect the regional convergence of Russian regions.</p><p><u>Hypothesis 4 </u>was confirmed.</p>

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