Novye Issledovaniâ Tuvy (Sep 2019)
A small remote economy: theoretical framework and empirical observations
Abstract
Since the 1990s the subject of the influence of the geographical factor on the economic dynamics and, hence, inter-country and inter-regional inequality attracts close attention in the economic literature. The problems of isolated remote regions within a country are relevant for countries distinguished by their size of territory and diversity of natural conditions, such as Russia, Canada, Australia, and the USA. Research in the field of “economics of isolation and remoteness” carried out on the basis of national economies of the world resulted in the creation of concepts and approaches that are applicable to the level of the region, to the extent that the region can be considered as analogous to the national economy. The article is devoted to the analysis of theoretical substantiations of the effects of remoteness and the results of their empirical tests. The effects discussed are illustrated by the example of 4 remote republics: Altai, Tuva, Buryatia and Khakassia. An overview of the discussion on the topic “Death of distance” has demonstrated that the role of distance in shaping the spatial structure of economy does not decrease despite of the development of transportation and telecommunication technologies. The microeconomic analysis reveals that a firm behavior in the course of choosing its location is based by the interaction between transportation costs and the type of economies of scale. At the macroeconomic level these 2 factors define how the parameters of remoteness and of the size of national or regional economy affect the indicators of production and welfare. Depending on the ratio of the 2 parameters, multidirectional effects are possible: generally, the remoteness of reduces production efficiency, decreases competition and complicates the spread of innovation, while the growing size of local market may reap economies of scale in production. For these reasons, remote regions are distinguished by their specific sectoral structure of economy that is characterized by a small number of specialization sectors and hypertrophied proportion of public sector due to the difficulties in delivering public goods. Basic recommendations in the field of regional policy aimed to overcome the isolation of remote regions come down to promoting infrastructural development, supporting local demand and developing human capital, but potential positive influence of such policies is restricted by structural specifics of local economies while long-term impacts of enhancing transport accessibility weaken protective effects of remoteness.
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