The Factor Mobility in the Russian Economy

Abstract

On the basis of regional economic data of the Russian Federation the authors implement an empirical test of the theoretical concept according to which factors of production – labour and capital – try to get to the region where their incomings – wages and returns on capital – are the highest, revealing the tendency to their spatial equalization. The result is ambiguous. On the one hand, there are the highest growth rates of wages in regions with the highest growth rates of capital as a consequence of the increase in the marginal product of labor. On the other hand, the initial differences in regional endowments of capital and labour do not generate resource movements. This reveals the paradox: the capital growth rates are the highest in regions with relatively high (in comparison with national median level) initial wages which imply a comparatively high capitallabour ratio and a small marginal product of capital. One of such regions, Khabarovsky Krai, is analyzed in details. The authors study two economic sectors in the region – capital-intensive and labour-intensive. It is found that the demand for output of the labour-intensive sector grows faster than that of the capital-intensive sector, resulting in such a reallocation of resources among sectors, which causes the increase of capital-labour ratio and wages in both sectors and in region as a whole. So the paradox can be explained by intra-regional factor movements which were not taken into account in testing of spatial (inter-regional) factor movements and of production factor incomings

Keywords

• factor mobility
• production function
• capital-labour ratio
• capital-intensive sector
• labourintensive sector
• wages
• the Russian Federation subject