Cross-Industry Analysis of Russian Enterprise Performance: Do Concentration and Diversification Matter?
https://doi.org/10.18288/1994-5124-2021-4-42-83
Abstract
This paper studies and quantifies the influence of industry localization and regional economic diversification on firm performance in different industries. The main idea is that industry localization and regional economic diversification improve enterprise performance and the influence might be found for most industries. In this paper, the Ellison-Glaeser index is applied to measure localization effects and the Herfindahl-Hirschman index is used to measure diversification. The dataset consists of 650,000 observations and approximates the full set of Russian real sector commercial companies in 2017. All companies were aggregated into eight groups by respective industry. Firm performance is measured via sales margin and net profit margin. Since the performance is highly dispersed, the regression analysis includes both OLS and quantile regression (QR) models for each group. It was found that the Mining industry had been affected neither by localization nor by diversification. Localization effects are significant and positive for Agriculture, Fishing, and Forestry; Wholesale, Retail and Food Services; Manufacturing; Transport; and IT, Broadcasting, and Telecommunication. The increase in profitability for them ranges from 1% to 4% per 0.1 change in the Ellison-Glaeser index. Localization is harmful for Construction, and Services and Minor Industry companies (7-fold drop in sales margin for Construction). Diversification is significant and decreases the sales margin of all the companies, and the effect ranges from 1.01% to 1.22% per 0.1 change in the Herfindahl-Hirschman index. These findings hold despite the choice of analysis tool (QR versus OLS); however, the study of different quantiles sheds light on the effects specific for some industries.
Keywords
regional diversification,
industry localization,
sales margin,
net profit margin,
Russian regions,
enterprise performance,
real sector industries,
missing values estimation
JEL: C21, R11, R12, R15
Supporting agencies: The author sincerely thanks Vladimir Salnikov and the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) for providing access to the ample dataset used here. The author is also grateful to HSE professors—Olga Demidova, Tatyana Dolgopyatova and Hartmut Lehmann—for their feedback and support.
About the Author
A. V. Zyuzin
National Research University Higher School of Economics
Russian Federation
Russian Federation
Alexander V. Zyuzin — PhD student
11, Pokrovskiy bul., Moscow, 109028
References
1. Aleksandrova E., Behrens K., Kuznetsova M. Manufacturing (Co)Agglomeration in a Transition Country: Evidence from Russia. Journal of Regional Science, 2020, vol. 60, no. 1, pp. 88-128. DOI:10.1111/jors.12436.
2. Audretsch D. B. Agglomeration and the Location of Innovative Activity.2. Oxford Review of Economic Policy, 1998, vol. 14, no. 2, pp. 18-29.
3. Audretsch D. B., Feldman M. R&D Spillovers and the Geography of Innovation and Production. American Economic Review, 1996, vol. 86, no. 3, pp. 630-640.
4. Baptista R., Swann P. Do Firms in Clusters Innovate More?4. Research Policy, 1998, vol. 27, no. 5, pp. 525-540.
5. Baumgardner J. R. Physicians’ Services and the Division of Labor Across Local Markets.5. Journal of Political Economy, 1988, vol. 96, no. 5, pp. 948-982.
6. Cassey A. J., Smith B. O. Simulating Confidence for the Ellison-Glaeser Index.6. Journal of Urban Economics, 2014, vol. 81, pp. 85-103. DOI:10.1016/j.jue.2014.02.005.
7. Ciccone A., Hall R. E. Productivity and the Density of Economic Activity.7. American Economic Review, 1996, vol. 86, no. 1, pp. 54-70.
8. Cohen J. P., Morrison Paul C. J. Agglomeration, Productivity and Regional Growth: Production Theory Approaches. In: Handbook of Regional Growth and Development Theories, Capello R., Nijkamp P. (eds.). Cheltenham, Edward Elgar, 2009, pp. 101-117.
9. Davidson N. B., Mariev O. S. The Impact of Spatial Concentration on Enterprise Performance. Economy of Region, 2015, no. 4, pp. 95-105. DOI:10.17059/2015-4-8.
10. Dumais G., Ellison G., Glaeser E. L. Geographic Concentration as a Dynamic Process. The Review of Economics and Statistics, 1997, vol. 84, no. 2, pp. 193-204.
11. Duranton G., Puga D. Micro-Foundations of Urban Agglomeration Economies. In:11. Handbook of Regional and Urban Economics: Cities and Geography, Henderson J. V., Thisse J. F. (eds.). North Holland, Elsevier Inc., 2004, vol. 4, pp. 2063-2117.
12. Ellison G., Glaeser E. L. Geographic Concentration in U.S. Manufacturing Industries:12. A Dartboard Approach. Journal of Political Economy, 1997, vol. 105, no. 5, pp. 889-927.
13. Henderson J. V. Marshall’s Scale Economies.13. Journal of Urban Economics, 2003, vol. 53. no. 1, pp. 1-28.
14. Hervas-Oliver J. L., Sempere-Ripoll F., Rojas Alvarado R., Estelles-Miguel S. Agglomerasition Country: Evidence from Russia. Journal of Regional Science, 2020, vol. 60, no. 1, pp. 88-128. DOI:10.1111/jors.12436.
15. Holmes T. J. Localization of Industry and Vertical Disintegration. The Review of Economics and Statistics, 1999, vol. 81, no. 2, pp. 314-325.
16. Jacobs J.16. The Death and Life of Great American Cities. New York, NY, Random House, 1961.
17. Kolomak E. A. Evolution of Spatial Distribution of Economic Activity in Russia.17. Regional Research of Russia, 2015a, vol. 5, no. 3, pp. 236-242. DOI:10.1134/S2079970515030065.
18. Kolomak E. A. Spatial Externalities as a Source of Economic Growth.18. Region: Economics and Sociology, 2010, no. 4, pp. 73-87. (In Russ.)
19. Kolomak E. A. Urbanization Resource in Russia.19. Prostranstvennaya ekonomika [Spatial Economics], 2015b, no. 4, pp. 59-74. (In Russ.)
20. Lavrinenko P. A., Mikhailova T. N., Romashina A. A., Chistyakov P. A. Agglomeration. Effect as a Tool of Regional Development. Problemy prognozirovaniya [Studies on Russian Economic Development], 2019, vol. 30, no. 3, pp. 50-59. (In Russ.)
21. Loecker J. De, Warzynski F. Markups and Firm-Level Export Status. American Economic Review, 2012, vol. 102, no. 6, pp. 2437-2471. DOI:10.1257/aer.102.6.2437.
22. Lu Y., Tao Z., Yu L. Agglomeration and Markup. University Library of Munich, MPRA Paper, no. 38974, 2012.
23. Malmberg A., Malmberg B., Lundequist P. Agglomeration and Firm Performance: Economies of Scale, Localisation, and Urbanisation Among Swedish Export Firms. Environment and Planning A: Economy and Space, 2000, vol. 32, no. 2, pp. 305-321.
24. Marshall A. Principles of Economics. L., Macmillan, 1920.
25. Martin P., Mayer T., Mayneris F. Spatial Concentration and Plant-Level Productivity in France. Journal of Urban Economics, 2011, vol. 69, no. 2, pp. 182-195.
26. Mikhailova T. N. Transformation of the Industrial Geography of the Russian Federation. Rossiyskoe predprinimatelstvo [Russian Journal of Entrepreneurship], 2016, vol. 17, no. 3, pp. 351-358. DOI:10.18334/rp.17.3.2223. (In Russ.)
27. Morrison Paul C. J., Siegel D. S. Knowledge Capital and Cost Structure in the U.S. Food and Fiber Industries. American Journal of Agricultural Economics, 1998, vol. 80, no. 1, pp. 30-45.
28. Nakamura R. Agglomeration Economies in Urban Manufacturing Industries: A Case of Japanese Cities. Journal of Urban Economics, 1985, vol. 17, no. 1, pp. 108-124.
29. Quigley J. M. Urban Diversity and Economic Growth.29. Journal of Economic Perspectives, 1998, vol. 12, no. 2, pp. 127-138.
30. Rosenthal S. S., Strange W. C. Evidence on the Nature and Sources of Agglomeration Economies. In: Handbook of Regional and Urban Economics: Cities and Geography, Henderson J. V., Thisse J. (eds.). North Holland, Elsevier Inc., vol. 4, 2004, pp. 2119-2171.
31. Rosenthal S. S., Strange W. C. The Micro-Empirics of Agglomeration Economies. In: A Companion to Urban Economics, Arnott R. J., McMillen D. P. (eds.). Hoboken, NJ, Wiley-Blackwell, 2006. DOI:10.1002/9780470996225.
32. Shaver J. M., Flyer F. Agglomeration Economies, Firm Heterogeneity, and Foreign Direct Investment in the United States. Strategic Management Journal, 2000, vol. 21, no. 12, pp. 1175-1193.
33. Vorobyev P. V., Kislyak N. V., Davidson N. B. Spatial Concentration and Firm Performance in Russia. EERC Working Paper Series, no. 10/05e, 2010.
34. Wheaton W. C., Lewis M. J. Urban Wages and Labor Market Agglomeration.34. Journal of Urban Economics, 2002, vol. 51, no. 3, pp. 542-562.
35. Zyuzin A. V., Demidova O. A., Dolgopyatova T. G. Localization and Diversification of Russian Economy: Regions’ and Industries’ Peculiarities. Prostranstvennaya ekonomika [Spatial Economics], 2020, vol. 16, no. 2, pp. 39-69. DOI:10.14530/se.2020.2.039-069. (In Russ.)
Review
For citations:
Zyuzin A.V. Cross-Industry Analysis of Russian Enterprise Performance: Do Concentration and Diversification Matter? Economic Policy. 2021;16(4):42-83. https://doi.org/10.18288/1994-5124-2021-4-42-83
Views:
76
Email this article 