Modelling of the Influence of Regional Determinants on Export Diversification in Russia

Abstract

The dependence of Russian exports on hydrocarbon products negatively affects the country's economy due to the high volatility of oil and gas prices. The purpose of the study is to assess the degree of export diversification of Russia's regions and to determine the main determinants of export diversification. The hypothesis of the study is that in order to increase the number of exporters and the volume of international trade, the regions of Russia need to balance the structure of exports and actively develop small and medium-sized businesses. To identify regional determinants of export diversification in Russia, we use panel data for 83 entities of the Russian Federation for the period from 2001 to 2019. Within the analysis, we calculate the indicator of export diversification at the regional level using the Herfindahl and Theil indices and implement the quantile regression approach, which allows us to solve the heteroscedasticity problem and identify regions with high, medium, and low levels of export diversification. The study considers such regional characteristics as small and medium-sized businesses, the index of business potential and risk, the region's openness to international trade, the natural resources endowment, and also take into account the impact of sanctions imposed against Russia. The results of the study show that regions with the lowest level of export diversification have more opportunities to reduce the export concentration. The most significant factor contributing to export diversification is the number of small and medium enterprises in the region. At the same time, the analysis revealed that the vast majority of regional characteristics increase export concentration, for example, the extraction of natural resources, the import of technologies, the indicator of openness, risk and potential of companies. The results obtained complement the existing literature on export diversification in Russia and can be used to develop recommendations for improving government policy in terms of the reduction of oil and gas share in the overall exports structure.