Russia’s Regions: Governance and Well-Being, 2000-2008

Abstract

This paper assesses the impact of the quality of governance on economic performance in Russia’s 81 regions (Oblasts, Republics, Krais and Okrugs) from 2000 to 2008, a period of rapid economic advancement. Defining governance broadly as how authority is exercised, and using as a proxy a measure of the investment risk by region, this paper contributes to the literature on identifying the economic impact of governance. Our results find a significant association between governance in Russia’s diverse regions and economic well-being, that is, we find a performance gap in government practices. Specifically, our study shows that the main components of effective governance are the ability of the government to run effective public health programs aimed at decreasing the overall mortality rate among the working-age population, to create fair labor market conditions for all individuals who are still capable of working, and to improve the investment climate in the region leading to a higher level of investment in fixed assets. Our results implicitly suggest that effective governance comprises the tangible aspects of policymaking such as the adoption of effective public health, investment and labor policies and most importantly, for the regions of Russian Federation, although effective governance can be also an artifact of unobserved and unmeasurable managerial attributes of the local government to implement federal and region level laws and regulations.

Keywords: governance, Russian regions, well-being, economy, Russia, investment, investment risk, mortality, public health, labor market

JEL Classification: O47