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Economic Growth in Russia's Regions (2000-2012): The Role of Human Capital and Governance

Priority areas of development: economics
2014
Department: Center for Regional Studies
The project has been carried out as part of the HSE Program of Fundamental Studies.

The HSE fundamental research grant, “Human Capital, Governance and Growth,” in 2014 has focused on examining a broad range of human capital indicators for Russia’s 83 regions. 

This review identifies our key preliminary methodological approaches and  points of view that contribute to our study. The measurement of human capital, social capital, and their contribution to welfare and growth remains an important challenge in current empirical work. Economists, for reasons of data constraints, tend to use cost and output indicators of educational attainment. Our work draws on broader indicators as part of our longer term interdisciplinary exploration of the association between governance, human capital and regional growth in the Russian Federation. 

That is, we add to the classical output and cost of education and training orientation indicators regional indicators of spatial, sociological and demographic characteristics. The interdisciplinary approach is justified below.

Because of this broad exploratory orientation, we do not produce robust regression results at this time. We focus in a preliminary way on our emerging model of the impact of human capital, by which we include, controversially, administrative, or management capital, along with other indicators we can observe. Because it is at this preliminary stage, our research reflects correlation analysis, from which exercise, future publications will narrow the number and scope of significant indicators found by this exporatory analysis. We aim, in other words, to decompose some embedded factors, including historical accumulation, in steady growth results in Russia’s regions over the past two decades—a period of macroeconomic volatilitly and dynamic transformation.

Our data are from official Russian sources provided by RosSTAT. From our new administrative, social and economic database for 83 regions of the Russian Federation, we develop variables for tracing and measuring regional human capital in a broad conceptualization. We justify this approach by two major concerns:

1) We use the most recent conceptualization of what to measure in regard to the accumulation of  human capital according to OECD studies, which direct us toward much broader range of variables of interest for regional human capital accumulation than has classically been used in econometric research. Thus we incorporate welfare and economic and social development as well as known levels of investment (institutional) risk and the regional knowledge knowledge base, as  summarized in the 2013 OECD publication on Human Capital measures (KBC 2013). This broad range of variables allows us at this initial stage to develop and compare the value of each indicator separately and in combination with others for the development of a more parcimonious measure in future work.

2) We choose variables that have practical and policy relevance for sectors of the economy where higher skilled workers are employed, for population movement relevant to shifts in human capital, and for attesting to the role of non-commercial enterprises and government programs in social and economic development. Because we seek practical and policy applications, we incorporate methods developed not only in economics but in other fields and for various sectors. For example, company practice requires measurement of human capital in the work force, including skills as an outcome of education and training. This can be broken down into general and specific human capital (one with rewards to the economy and the other, controversially, rewarding only the particular firm). We also follow government-developed measures of human capital, health and welfare, and other indicators of society’s economic potential.

To the above we add physical, social and economic characteristics of a region for understanding how and to what extent human capital responds to context . This overlap draws us close to sociologists’ preference for the term social capital, which means networking and organizations that help generate human capital. Context contributes to the rewards for particular characteristics and levels of human capital, which accumulate in different environments over time. In that sense, human capital is is inseparable from context (Ashton & Green 1996). Social capital (networks, organizational relations and connections) affects many aspects of productivity, including health (Blakey, Lochner & Kawachi 2002, Veenstra 2001, Veenstra et al 2005, Wilson et al 2004).

Context is specific and spatial: an index of human capital will be local and regional. This is an important reason for our approach to the study of the impact of human capital from our database on Russia’s regions: much like a laboratory for experimental analysis, within one country, the geographic and demographic diversity among the regions will itself be a context variable, which we are exploring.

To summarize, including classically narrow measurable factors from educational attainment and employment and currently less directly measurable factors considered, nevertheless, of great importance (health, including physical capacities, cognitive function and mental health) and also the regional environmental (geography, finance, economy) factors. Finally, we seek to understand these factors also in regard to the accumulation of social capital (organizations, networks), or context, which generates returns to the above factors.

The policy implications of the study of human capital become more elusive the more broadly conceived the term and more numerous the variables. Nevertheless, it is now widely understood that interdisciplinary contributions to human capital cannot be ignored.  We aim in the final stages of the research project to have a better understanding of all of the proxy variables and focus on those that are most important. The policy importance of our focus here is widely acknowledged, as in the World Economic Form Insight Report (2013):

With talent shortages projected to become more severe in much of the developed and developing world, it will be imperative to turn our attention to how these shortages can be met in the short term and prevented in the long term. For the individual, as well as for societies and economies as a whole, investing in human capital is critical; even more so in the context of shifting population dynamics and limited resources.

Publications:


Yanovskiy K. M., Shestakov D., Leonard C. S. How Democracy Could Cause Economic Growth: The Last 200 Years / SSRN. Series Social Science Research Network "Social Science Research Network". 2014. No. P16, P50, N40, O40.
Ilina I. N., Ribina E. G., Plisetskiy E. Assessing the investment potential of housing markets in the regions and cities of Russia / Пер. с рус. // The Cement and Its Applications. 2014. P. 1-4.
Leonard C. S., Pitt-Watson D. Privatisation in Russia and its Continuing Controversies // European Financial Review. 2014. P. 68-70.
Leonard C. S., Ilina I. N., Evgeniy Plisetskiy. Russian Regional Resilience: Cooperation and Resource Abundance: A Case Study of Khanty-Mansi Autonomous Okrug, in: The Challenges for Russia's Politicized Economic System. Оксфорд : Routledge, 2015. P. 220-238.
Хорева О. Б., Рахманова О. В. Особенности реализации семейной и молодежной политики в некоторых регионах России // В кн.: Развитие населения и демографическая политика. Памяти А.Я. Кваши / Под общ. ред.: М. Б. Денисенко, В. В. Елизаров. Вып. 23. М. : МАКС Пресс, 2014. С. 209-220.