Econometric Modeling of the Impact of Ethnic Diversity on Economic Diversification: Analysis of Russian Regions

Abstract

The Russian economy is often characterized by dependence on the extraction of natural resources, which leads to high risks in the event of an unstable situation in the international market and volatility in commodity prices. Modern literature notes the significant role of economic diversification in leveling risks for the national economy, which confirms the relevance of the problem and the need to study the determinants of economic diversification. The purpose of the study is to assess the impact of the ethnic diversity of Russian regions on the diversification of the economy. At the same time, the effect of this influence is differentiated based on the results of quantile regression by separating regions with a high, medium, and low level of economic diversification. The hypothesis of the study is the assumption that the ethno-cultural heterogeneity of the regions of the Russian Federation contributes to the diversification of their economy. The regions of Russia differ to a large extent in terms of socio-economic indicators, as well as the national composition. At the same time, different ethnic groups have their own religion, language and traditions, which affects both the conduct of economic activity and the characteristics of production. For econometric modeling, panel data were used for 85 regions of Russia for the period 2000–2019. For analysis, indicators of economic diversification and ethnic diversity were calculated based on the Theil decomposition index and the ethnolinguistic fractionalization index, respectively. Taking into account the high heteroscedasticity in regional data, the method of single-stage quantile regression is used. The results of the study indicate the negative impact of the ethnic diversity index and the number of official languages on the diversification of the economy. However, the indicator of the number of major religions contributes to economic diversification. The results obtained complement the existing literature on economic diversification and ethnic diversity in the context of Russian regions, and can be used to develop public policy in the field of supporting national minorities and expanding economic diversity in Russia.