Impact of geopolitical risks on inter-regional economic disparity in Russia

The current state policy in Russia aims to ensure a balanced economic development of the Russian regions in the context of macroeconomic instability. Coincidently, one of the most serious challenges for regional policy is high heterogeneity of Russian regions in terms of economic development. Currently, the Government of the Russian Federation implements a number of strategic programs aimed at reducing the interregional inequalities by stimulating economic growth in lagging and geostrategic territories and maintaining the level of economic development in most prosperous regions. Nevertheless, geopolitical tensions and world economy instability significantly influence both Russian economy and individual regional economies. Given the significant differences among Russian regions by socioeconomic indicators, natural resources endowment, and degree of participation in international trade, external risks can differently affect the dynamics of the regional economic development and widen the inter-regional disparity in Russia. The purpose of this study is to assess the impact of geopolitical risks and economic policy uncertainty on interregional economic disparity in Russia. The main hypothesis of the study suggests that regional heterogeneity enhances with the growth of geopolitical turbulence. The study uses panel data for Russian regional sample ranging from 2000 to 2021. The econometric framework applies the quantile regression methodology with fixed effects. The results of the study demonstrate that geopolitical risks significantly impact the economies of more developed regions, while entities with a lower economic development turned out to be less affected. The uncertainty of economic policy, in turn, negatively affects the regions with the highest level of GRP per capita. The inter-regional economic disparity reduces due to lower participation of the most developed regions in international trade and the emerging obstacles to economic development. The results obtained highlight the importance of stabilizing individual regional economies and the necessity to consider the growing geopolitical threats in the planning and implementation of regional economic policy.