Russia's Common Market Takes Shape: Price Convergence and Market Integration Among Russian Regions

Abstract

This paper analyzes the spatial structure of goods market integration in Russia, characterizing regions into three states: (a) integrated, (b) not integrated but trending toward integration, and (c) not integrated and not trending toward integration. Using time series of the cost of a staples basket across 75 regions of Russia for 1994-2000, I exploit a nonlinear cointegration relationship with an asymptotically subsiding trend to capture movement toward integration. The analysis suggests that 36% of Russian regions were integrated with the national market over 1994-2000, 44% were in the process of integrating with the national market, and 20% of regions were not integrated and not trending toward integration.

Keywords: market integration, law of one price, price dispersion, convergence, Russian regions

JEL Classification: C32, P22, R10, R15