Inter-Regional Price Convergence and Market Integration in Russia

The paper analyzes a spatial pattern of goods market integration in Russia. By the spatial pattern is meant a state of each individual region of the country: whether it is integrated, and if not, whether it moves towards integration. Time series of the cost of the basket of 25 basic foods across 75 regions of Russia for 1994-2000 with monthly frequency are used as the empirical stuff. With the use of nonlinear cointegration relationship that includes asymptotically subsiding trend capturing movement towards integration, 36% of Russian regions are found to be integrated with the national market; 44% of them are non- integrated, but are tending to integration with the national market; and 20% of regions are non-integrated and having no such a trend. It is found that s-convergence of regional prices takes place, implying that, despite the presence of regions not tending to integration, the predominant trend is the improvement in market integration.