Priority Development Areas and Productivity Growth in Russian Cities

Abstract

This paper estimates the treatment effect of Priority Development Areas (PDA) on a total factor productivity growth in Russian monotowns. There are two basic sources of data: SPARK-Interfax for Russian companies for the period from 2014 to 2018 and the Ministry of Economic Development list of Priority Development Areas (PDA) for 2016 and 2017. The database includes information on 443512 unique firms from 8 sectors of economic activities. Thus, all indicators are aggregated due to the transition from the level of firms to the second level facility of OKATO (districts, regions, cities). The effect is measured by comparing cities with the same probability of receiving the PDA status. This approach solves the problem of endogeneity (if the PDA status is related to the characteristics of the city). The estimation results show higher total factor productivity growth in cities with Priority Development Areas compared to the cont­rol group selected by the matching procedure. The source of higher total factor productivity growth is an increase in efficiency among firms that have already operated in towns with Priority Development Areas. There is no evidence of this policy’s effect on the entry/exit dynamic of firms. This approach has limitations: the effect of the PDA creation on economic development could not be extrapolated to the areas that differ in characteristics from the territories where PDA were created.