Giersch’s “Volcano” Model and its Application for the Analysis of Regional Disparities in Russia

Abstract

Relevance. Considerable regional disparities in Russia pose a threat to the country’s economic security, which makes the task of identifying and supporting underperforming regions especially urgent.

Research objective. The purpose of the study is to identify the struggling regions by using the "volcano" model. This model has not been previously used in studies on economic space features, which determines the novelty of the proposed research. We are also going to describe the possible ways to support these regions.

Data and methods. The study uses correlation analysis to investigate the dependence of GRP of 85 Russian regions on the degree of their remoteness from the ‘vent’ region – the Khanty-Mansi Autonomous Area–Yugra. The analysis was carried out on the basis of cross-sectional data for 2018-2020. The study relies on the data on GRP provided by the Federal State Statistics Service (Rosstat).

Results. The results of this study showed that, according to H.Giersch’s methodology, the Khanty-Mansi Autonomous Area-Yugra is the "vent" of the "volcano". By applying this methodology, we have also identified 13 struggling regions. An effective measure to support these regions is to transfer the federal component of the corporate income tax and VAT revenues to their budgets. Meanwhile, the volume of transfers provided to them from the federal budget should remain unchanged. Our calculations show that this measure can create a significant increase in GRP of the Russian regions at the aggregate level, exceeding considerably the losses of the federal budget.

Conclusions. The study has shown that the ‘volcano’ models is better suited for the analysis of such countries as Russia, because it makes the research less time-consuming in comparison with the growth poles theory. The results of this study can be used by policy-makers developing the state fiscal policy.