INNOVATION AS A FACTOR OF REGIONAL ECONOMIC GROWTH: EVIDENCE FROM RUSSIA

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1 INNOVATION AS A FACTOR OF REGIONAL ECONOMIC GROWTH: EVIDENCE FROM RUSSIA Svetlana Rastvortseva Abstract The am of ths research s to determne whch factors of nnovaton are relevant to generate economc growth at the regonal level and whch to reap the benefts. The new growth theores suggest that the source to ncrease returns may be agglomeratons as geographcal concentratons of knowledge. The paper analyses the concentratons of knowledge as agglomeratons of expendture on Research and Development, and on scence and technology. It entals the number of scentsts and engneers, scentfc and technologcal personnel of nnovaton enterprses n the varous Russan regons. The Exploratory Factor Analyss method s used to examne the structure of the nnovaton nputs and outputs. The paper emprcally evaluates the mpact of nnovaton factors on the economc growth n the regons and proposes a strategy to mprove the effcency of the regonal nnovaton system. Key words: nnovaton system, economc growth, regons of Russa JEL Code: O32, O41, R12 Introducton The Russan economy strongly depends on natural resources. Any changes n the world state of affars put n jeopardy the stablty of nether economc, nor socal development. Change n conducted polcy n the drecton of nnovaton should fx ths stuaton. Russa has a sgnfcant scentfc, research, nnovatve potental, effcent use of whch wll mprove the compettveness of the economy. Exactly ths nnovatve development must be a key factor n the economc growth of the country, ncludng regons. It s mportant to reveal whch aspects of nnovatve development mpact on the economy. How soon can appear the effect of R & D, of nnovatons mplementaton, the aggregate of whch nnovatve components allows to acheve maxmum success n the economy. 251

2 The am of the research s to determne whch factors of nnovaton system are most relevant to generate economc growth at regonal level and whch factors are needed f regons are to reap the benefts of nnovaton system. 1 Theoretcal background The regonal nnovatve potental s represented by resources, moblzed to acheve an nnovatve purpose, nsttutonal mechansm. As a structural element of the economc potental t s close to the concept of "scentfc and techncal potental." Hs purposeful orentaton s the producton of new knowledge, deas, dscoverng new technologes and search of ways for ther mplementaton. Functonal orentaton of nnovatve potental conssts n provdng wth condtons, under that other potentals: labor, natural resources, fnancal, nformaton could be realzed n the most completely way. Recent studes show that n the modern economy, based on the use of the achevements of STP, the formaton of a suffcent nnovatve potental s the startng pont for mprovng development effectveness n the regon. We can explan ths relatonshp n the followng way. In market condtons nnovatve technologes are n demand only n the presence of competton. It forces companes to create new compettve advantages, ncludng related to nnovatons. Usng the nnovatve potental can be compared wth qualtatve shft producton possblty curve, as n ths case real prospects for mprovng the qualty of products arse, the ratonal use of human and materal resources, mprove productvty and effcency n general. F. Kvatraro attempt to supplement Schumpeter studes. He conducts an emprcal analyss of changes n the development effcency of the 20 Italan regons for the perod The analyss shows, that the effcency depends on the regonal transton to the knowledge-based economy. At the same tme, scentst has dscovered the followng pattern. Early ndustral terrtores are fully nvolved n the global movement towards an economy based on knowledge. In the late ndustral regons due to slow expanson of producton effcency growth and actve mplementaton of nnovatons occurs wthn the ndustral economc sectors (Quatraro, 2009). A. Skba consders regonal nnovatve development as the man drecton of ncrease the effcency. He analyzes the dfferent vews on the problem of determnng the effcency of scentfc and technologcal progress (Skba, 2008). B. Cherkovets thnks that socoeconomc development of the natonal economy s determned by ts effcency. Effcency, by 252

3 turn, depend on "... the heght of productvty n the publc materal producton. We can assume, that the man resource (or resources) of nnovatve economc development n the country les n the sources and factors of labor productvty growth" (Cherkovets, 2009, p. 30). Theoretcal research on the geographc and economc dmenson of nnovaton dvded nto some streams. The frst stream of research consders the dstrbuton of nnovaton actvtes and employment. A second stream of lterature s papers about regonal nnovaton complexes or clusters. The thrd one deals wth the role of geographc agglomeraton n technologcal nnovaton and economc development (table 1). Tab. 1: Basc economcs approaches deals wth nnovaton and economc development Theory Dfferences n growth rates may result from ncreasng returns to knowledge Convergence of countres dependng on ther steady-state level whch n turn s condtonal on savngs, populaton growth and the producton functon. Dmnshng returns to captal mply that n the absence of technologcal change, growth would stop. As emprcally long-run growth does not stop, technologcal progress was assumed to be exogenous. Technology s consdered to be exogenous, t should be excluded from the models Technology should be brought nto the models through the ncluson of R&D theores Holdng constant expanson, n absence of technologcal progress, dmnshng returns to scale wll brng about convergence Dscoveres mmedately spllover to the entre economy as knowledge s non-rval Authors Romer,1986; Lucas, 1993; Grossman and Helpman, 1990 Solow, 1956; Swan, 1956 Barro, 1997 Romer, 1990; Grossman and Helpman, 1994; Barro and Sala--Martn, 1995 Aghon and Howtt, 1998 Arrow, 1962; Sheshnsk, 1967 The new growth theores suggest the source of ncreasng returns may be agglomeratons as geographc concentratons of knowledge. The agglomeratons of knowledge provde a means to facltate nformaton searches, ncrease search ntensty and ease task coordnaton (Rastvortseva, 2014). Geographc locaton may provde knowledge 253

4 spllovers and the generaton of nnovaton and yelds hgher rates of technologcal advance and economc growth (Feldman, 1999). 2 Geographc concentratons of nnovatons and economc growth Natonal compettveness, by Porter, s determned as a result of the country's ablty to nnovate n order to acheve and preserve the advantageous poston n comparson wth other natons. The level of compettveness and economc effcency of the Russan regons development s dfferent. So, n 2013, the maxmum value of GDP per capta was n the Nenets Autonomous Dstrct rubles per head, the mnmum - n the Chechen Republc rubles per head (Fg. 1). Fg. 1: GRP per head n Russa n 2013 Source: Calculatons based on Russan Federaton Federal State Statstcs Servce To analyze the agglomeratons of expendture on research and development, expendture on scence and technology, amount of scentsts and engneers, amount of scentfc and technologcal personnel, output of nnovaton products, amount of nnovaton enterprses n Russan regons I am gong to use Herfndahl-Hrschman ndex and Gn ndex (table 2). 254

5 Tab. 2: Methodologcal tools for assessment of the geographc concentraton of nnovatons Index Calculaton Notaton Herfndahl-Hrschman ndex of nnovaton concentraton (HHI) s share of regon n total ndcator of nnovatve development Gn ndex (G) G 1-2 k 1 Source: (Rastvortseva, 2014). dx dy n k 1 dx dy where dx s share of group n the total populaton sze; dy s share of group n the total feature sze; n dy s an accumulated share of group n the total feature sze. Internal costs on R & D - the actual cost of performng R & D wthn the country n monetary terms (ncludng funded from abroad, but excludng the payments made abroad). Ther assessment s based on the statstcal accountng of costs for R & D on organzatons own forces durng the reportng year ndependently by source of fnancng 15. Let us consder the dynamcs of nternal expendtures on R & D n Russan regons n by assessng Herfndahl-Hrschman ndex and Gn ndex (Fg. 2-3). Fg.2: Dynamcs of Herfndahl-Hrschman ndex on ndcator for nternal expendtures on R & D n Russan regons n Fg.3: Dynamcs of Gn ndex on ndcator for nternal expendtures on R & D n Russan regons n Source: Calculatons based on Russan Federaton Federal State Statstcs Servce 15 Methodologcal notes n Regons of Russa. Economc and Socal Performance. 2014: Stat. book / Rosstat. - Moscow, p., p

6 Fg. 2-3 show a hgh degree of concentraton of expendtures on R & D n certan regons of Russa n In the same perod maxmum stratfcaton of regons on ths ndcator was also observed (Fg. 2). In general, the graphcs have a smlar dynamcs, except for the perod and Let us note that n 2007, 2008 and 2013 there was an ncrease n the degree of concentraton of R & D expendtures n the presence of the general declne n regonal nequalty n terms of smlar ndcator. Thus, n 2007 the shares of the Khanty-Mans Autonomous Dstrct (wth the growth of R & D expendtures by 2 tmes), the Krasnoyarsk Terrtory (by 1.62 tmes), Irkutsk regon (by 1.61 tmes), Volgograd regon (by 1.61 tmes), Republc of Bashkortostan (1.46 tmes) and some other regons have sgnfcantly ncreased. Let us consder the dynamcs of technologcal nnovatve (food, process) costs n Russan regons n by assessng Herfndahl-Hrschman ndex and Gn ndex (Fg. 4-5). Expendture on technologcal nnovaton - actual expendtures n monetary terms, related to the mplementaton of varous knds of nnovatve actvty, carred out wthn the organzaton (branch, regon, country). Current and captal expendtures are taken nto account as part of the cost of technologcal nnovaton 16. Fg. 4: Dynamcs of Herfndahl-Hrschman ndex on ndcator for technologcal nnovatve (food, process) costs n Russan regons n Fg.5: Dynamcs of Gn ndex on ndcator for technologcal nnovatve (food, process) costs n Russan regons n Source: Calculatons based on Russan Federaton Federal State Statstcs Servce The dynamcs of the two ndcators, whch are shown n Fgures 4-5, prove that the concentraton of technologcal costs n certan regons of Russa s almost always 16 Methodologcal notes n Regons of Russa. Economc and Socal Performance. 2014: Stat. book / Rosstat. - Moscow, p., p

7 accompaned by growth of dvergence. The excepton s 2008 (the growth of expendture concentraton was accompaned by a decrease of nequalty) and 2013 (decrease of concentraton took place amd growng Gn ndex). In general, the technologcal expendtures are less concentrated n the regons, than cost of R & D. Let us consder the dynamcs of R & D staff n Russan regons n by assessng Herfndahl-Hrschman ndex and Gn ndex (Fg. 6-7). Fg. 6: Dynamcs of Herfndahl-Hrschman ndex on ndcator for R & D staff n Russan regons n Fg.7: Dynamcs of Gn ndex on ndcator for R & D staff n Russan regons n Source: Calculatons based on Russan Federaton Federal State Statstcs Servce The concentraton of R & D staff s hgh enough n the Russan regons and has a tendency to grow. 61% of all scentfc staff works n the four leadng regons on ths ndcator: Moscow (32.66% n 2013), Moscow regon (11.81%), St. Petersburg (10.84%) and Nzhny Novgorod regon (5.71%). Let us consder the dynamcs of Herfndahl-Hrschman and Gn ndces for the release of nnovatve goods and servces n the regons of Russa n (Fg. 8-9). 257

8 Fg. 8: Dynamcs of Herfndahl-Hrschman ndex on ndcator for nnovatve goods and servces n Russan regons n Fg.9: Dynamcs of Gn ndex on ndcator for nnovatve goods and servces n Russan regons n Source: Calculatons based on Russan Federaton Federal State Statstcs Servce Another tendency s observed n the analyss of the concentraton dynamcs of the nnovatve goods and servces release. In the perod up to 2008 and n 2010 there was a process of dspersal of producton - perpheral regons have been actvely nvolved n the producton of nnovatve products. However, snce 2010 producton has been movng towards the central regons of the country, and ncrease n regonal dspartes on ths ndcator s observed. 3. The data and the estmaton procedures The data used n ths study comes manly from a Russan Federaton Federal State Statstcs Servce, Statstcal Data Book Regons of Russa. Economc and Socal Performance for The data has been collected n 83 regons, wth the excepton of the Republc of Crmea and Sevastopol. To assess the mpact of nnovatve factors on regonal economc development, we wll use a power-mode regresson model wth constant elastcty: where ˆ m b Y x, 1 Ŷ t s GRP, predcted n the tme perod t; t, (1) α s absolute term of equaton; x s nnovatve factors, ncluded n the regresson model; b s equaton parameters - regresson coeffcents, partcular elastcty coeffcent of GRP on nvestgated factors; s seral number of the factor; m s number of factors, ncluded n the model. 1 t 258

9 In lnear representaton the model looks n the followng way: ln m Yt ln b lnx, t 1. (2) 1 As a productve ndcator we denote the gross regonal product for Takng nto account the fact, that the effect of nnovatve factors appears after a tme, we consder the factor ndcators for the prevous perod In the course of the sample some emssons have been elmnated: n terms of nternal expendtures on R&D - Moscow, the Moscow regon, St. Petersburg, Nzhny Novgorod regon; n terms of GRP - Khanty-Mans Autonomous Dstrct, n terms of other ndcators - the regons wth ther zero values due to lmtatons of the lnearzaton of the power-mode model. 4. Emprcal results The results of the conducted analyss regardng modelng par regresson are presented n Tab.3. Tab.3: The results of the emprcal analyss-characterstc of par regresson models Internal expendtures on R & D Expendtures on technologcal nnovatons The number of staff engaged n R & D The volume of nnovatve goods, works and servces Innovatve actvty of organzatons b 0,441* 0,394* 0,469* 0,227* 0,298 R 2 0,538 0,702 0,502 0,488 0,024 Adj R 2 0,532 0,698 0,496 0,481 0,011 F ,7 69,7 1,8 * Sgnfcant at the 5% level The results of the emprcal analyss prove that the most sgnfcant factors for the development of the economy are the costs of technologcal nnovatons and nternal costs of R & D. In order to determne the best combnaton of effectve factors, we carry out a stepwse regresson (Table.4). 259

10 Tab. 4: Results of the emprcal analyss (stepwse regresson) Model 1 Model 2 Model 3 Model 4 Internal expendtures on R & D 0,112 0,112 0,096 0,118 Expendtures on technologcal nnovatons 0,325* 0,325* 0,250* 0,270* The number of staff engaged n R & D -0,004 0,037 0,010 The volume of nnovatve goods, works and servces 0,058 0,057 Innovatve actvty of organzatons -0,232 R 2 0,715 0,715 0,728 0,741 Adj R 2 0,707 0,703 0,713 0,722 F 90,3 59,4 46,9 39,5 * Sgnfcant at the 5% level Results of the analyss, presented n the table, show that all nnovatve factors have a postve effect on the regonal economc development (GRP), except for the nnovatve actvty of enterprses, whose nfluence on the GRP s not statstcally sgnfcant. Moreover, for a gven volume of observatons ncluson n the regresson model the cost factor for technologcal nnovatons only s justfed, whle the ncluson of other factors s surplus. These results could be nterpreted n two ways. On the one hand, the regons, spendng more money on research and development and technologcal mprovements, get great effects for economc growth. On the other hand, the more successful regons can afford themselves to spend more on the development of scence and technology. We tend to keep the second poston. In regons wth a hgh level of compettveness and economc effcency the best condtons for the occurrence and development of modern technologes and nnovatve enterprses are created. Ths s confrmed by the negatve nfluence of the factor nnovatve actvty of the companes - n the more successful regons, the share of nnovatve actve enterprses lower, because regon does not develop due to them, but relyng on ndustry, servce sector and... the extractve ndustry. The study allowed us to dentfy postve trends n Russan regons development. We conducted a smlar analyss for the prevous perods, what showed that the correlaton between the nnovaton development and economc development ndcators s very weak or non-exstent. Thus, we see, that n 2012 appears a stable relatonshp between the development of nnovatve and economc sectors. We hope that ths forebode the transton from the development of the Russan economy, based on the performance to the development, based on the nnovatve growth. 260

11 Concluson Growth of nnovatve resources concentraton s not always accompaned by ncrease of nequalty among regons on relevant ndcators. It testfes the occurrence n certan regons n new centers of nnovaton. Innovatons are beng the most actvely mplemented n such regons as Moscow and St. Petersburg, Moscow regon and Nzhny Novgorod regon. The crss mpacts negatve on the development of nnovaton n non-central regons. Consequently, only the stable development of the economy wll contrbute to the dspersal of nnovatons n all regons of Russa. The most sgnfcant factors for the development of the economy are the costs of technologcal nnovatons and nternal costs of R & D. The more successful regons can afford themselves to spend more on the development of scence and technology. A stable relatonshp between the development of nnovatve and economc sectors n Russan regons appears n The fndngs of the artcle are useful for polcy applcatons and polcy-makers by provdng them wth a better understandng of the mpact of key nnovatve determnants of regonal growth, the length of tme needed for these factors to generate growth and whch combnatons of factors are most successful. References Quatraro, F. (2009). Innovaton, structural change and productvty growth: Evdence from Italan regons, Cambrdge Journal of Economcs, 33, Skba, A. (2008, October 1). Economc development as a result of renovaton. The Economst, 10, Cherkovets, V. (2009, June 1). Innovatve reproducton as a crss resource. The Economst, 6, How regons grow trends and analyss. (2009). Pars: OECD. Lucas, R. (1993). Makng a Mracle. Econometrca, 62, Grossman, G., & Helpman, E. (1993). Endogenous Innovaton n the Theory of Growth. Journal of Economc Perspectves, 8 (1), Grossman, G., & Helpman, E. (1990). Trade, Innovaton, and Growth. The Amercan Economc Revew, 2 (80), Barro, R., & Martn, X. (1995). Economc Growth. New York: McGraw-Hll. Barro, R. (1998). Determnants of economc growth a cross-country emprcal study. Cambrdge, Mass.: MIT Press 261

12 Romer, P. (1990). Endogenous Technologcal Change. Journal of Poltcal Economy, 99, Aghon, P., & Howtt, P. (1998). Endogenous growth theory. Cambrdge, Mass.: MIT Press. Naydenov A.S. (2011, Aprl 11-13). Influence of soco-economc consequences of World Economc Crss on a Shadow Economy. Vulnerablty, Uncertanty, and Rsk. Analyss, modelng, and management. Proceedng of the ICVRAM 2011 and ISUMA 2011 Conference. Hyattsvlle, Maryland, Rastvortseva S. (2014, September 1-9). Analyses of regonal specalzaton and geographcal concentraton of ndustry n Russa. SGEM2014 Conference on poltcal scences, law, fnance, economcs and toursm, 3, Feldman, M. (1999). The new economcs of nnovaton, spllovers and agglomeraton: a revew of emprcal studes. Economcs of Innovaton and New Technology, 8, 5-25 Krugman, P. (1991). Increasng Returns and Economc Geography. Journal of Poltcal Economy, 99, Contact Rastvortseva Svetlana Belgorod State Natonal Research Unversty Russa, Belgorod, ul. Pobedy, 85 Rastvortseva@bsu.edu.ru 262