International Trade as a Limiting Factor in Democratization: an Analysis of Subnational Regions in Post-Communist Russia

Abstract

The paper investigates the interplay of economic development and democratization in Russian regions. It introduces the new concept of a limiting factor, i.e., a particular resource with a highly localized source that is crucial for economic development. Based on both econometric analysis and detailed case studies, the paper shows that for a large subset of Russian regions, access to trade with the countries of the former Soviet Union constitutes a limiting factor, which on one hand is necessary to sustain economic growth but on the other strengthens the likelihood of a nondemocratic outcome in local regime transition. We also provide some tentative conjectures regarding other instances of a limiting factor that can be found worldwide both currently and historically.

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Notes

  1. 1.

    The limiting factor concept was introduced in ecological economics to describe a case where productivity (e.g., a crop yield) is determined by the least available factor.

  2. 2.

    For example, Teorell (2010) looks at how democratization is affected by trade with key democratic and hegemonic nondemocratic countries and, although establishes a negative effect of the overall trade openness on democratization, does not find a significant effect of trade with particular countries.

  3. 3.

    Asset specificity has already been considered in studies on political regime transition, but in a context very different from that of this paper: to describe the extent of the “international” mobility of capital and labor (Boix 2003; Boix and Stokes 2003; Acemoglu and Robinson 2006; Ansell and Samuels 2010; Freeman and Quinn 2012).

  4. 4.

    Whether this is feasible in the long run is subject to intensive scholarly debate (e.g., Gehlbach and Keefer 2011), but in the short run, it may be feasible and may discourage investments in alternative industries.

  5. 5.

    Russian regions are relatively competitive internationally only if they possess substantial natural resources. If it is not the case, their machinery can typically be sold either to each other, due to technological complementarities, or to certain developing countries. The fact that uncompetitive manufacturing in conjunction with international trade can lead to autocratic consolidation has been explored, although from an entirely different view, by O'Donnell (1973).

  6. 6.

    It is interesting to note that our argument bears some similarity to the theory of vertical integration in economics, which is used to explain the existence of firms and also relies on the notion of asset specificity (see, e.g., Rajan and Zingales 1998). For other papers establishing the parallels between this theory and the logic of politics, see Lake (2009) and Congleton (2010).

  7. 7.

    The FSU countries are defined here as all former republics of the USSR with the exception of Latvia, Lithuania, and Estonia.

  8. 8.

    Much more so than in any market economy, where companies would attempt to escape such a massive concentration on a particular buyer or supplier to avoid complete dependence—in the Soviet Union, where the entire economy worked as a single factory, the problem was not considered.

  9. 9.

    The lower cutoff is determined by data availability and because the economic decline in Russia in the 1990s rendered Ivanovo textiles, our main empirical case, incapable of generating profits, even with access to the limiting factor (see discussion of the Russian economy of the 1990s in Gaddy and Ickes 2002). The upper cutoff is determined by the political reforms implemented by Putin: before 2006, most Russian regions were still ruled by governors who were popularly elected; the elections themselves were abolished in 2004. For a discussion of the timeframe see Appendix I of the Electronic Supplementary Material. All appendices are included in the Supplementary Information, which is available online and freely accessible at the authors' website (https://sites.google.com/site/libmanalexander/Appendix.pdf?attredirects=0&d=1) and SSRN (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2195818).

  10. 10.

    The annual variation in growth is generally considered to be strongly influenced by specific contemporaneous factors and is therefore not applicable for quantitative analysis. Because we are estimating the regressions for a relatively small sample, we checked the normality of the residuals using the Jarque–Bera test. The standard procedure is then to exclude observations until Jarque–Bera becomes insignificant and treat only the results robust to this procedure as being worth interpreting. In our case, our key findings passed this test in all cases.

  11. 11.

    The details on the control variables employed are reported in Appendix A of the Electronic Supplementary Material.

  12. 12.

    Furthermore, we implement a set of further robustness checks, reported in the Appendices C (additional controls), E (an alternative measure of FSU trade) and F (an alternative timeframe) of the Electronic Supplementary Material, which entirely confirm the main findings reported above: we estimate regressions for the period of 2000–2004 (i.e., before the elections of governors were abolished); use FSU trade per unit of GDP as an explanatory variable; exclude outliers; control for the industrial structure of trade, location, and climatic conditions of the regions, as well as degree of industrial decline in the 1990s.

  13. 13.

    The details on the data sources are reported in Appendix H of the Electronic Supplementary Material.

  14. 14.

    This information comes from an interview with Dr. Elena Kuzmina, a senior researcher at the Institute of Economics of the Russian Academy of Sciences and a recognized expert in Russia in the area of Russian Central Asian trade, conducted on 10 January 2011, Moscow. It was also verified by the mass media.

  15. 15.

    Generally speaking, foreign trade in Uzbekistan is controlled by the government (Melvin 2000; Spechler 2008). However, claims have also been made that a substantial amount of cotton deliveries from Uzbekistan to Ivanovo go through offshore firms (Tekstil'nyi Vestnik, 14 March 2006).

  16. 16.

    The interviews also stated that textile enterprises that could not access trade channels with the FSU became bankrupt, were shut down, and merged with larger enterprises.

  17. 17.

    Left-wing parties are not necessarily associated with nondemocratic or authoritarian rule. However, in the case of post-Soviet Russia, the Communist Party is a direct descendent of the Communist Party of the Soviet Union with approximately the same set of goals, political priorities, ideology, and governing style (see for example Hutcheson 2003). The governing style was meant to be an imitation of the hierarchical and authoritarian Soviet style.

  18. 18.

    For details on the development of Ivanovo in the 1990s, see Appendix I of the Electronic Supplementary Material.

  19. 19.

    The interview was recorded via telephone on 23 July 2010 (Moscow–Ivanovo). The failure of negotiations was explained though the traditional cultural lens of the interviewee: the absence of an important political leader in a delegation from Ivanovo to Uzbekistan was perceived by the accepting side as a lack of respect and a lack of a serious attitude.

  20. 20.

    Presumably, the interviewee meant the company was previously owned by the governor, Shuiskie Sitsy. However, we should be cautious because this statement represents an opinion rather than an unambiguous fact.

  21. 21.

    This outcome is not particularly surprising. Because Uzbekistan remains a country where both the economy and society are under strict governmental control, the presence of public officials at trade negotiations is to be expected. Furthermore, because Ivanovo had a somewhat weaker position in the network of mutual dependence (as described above), this region had to adjust. The reviews of the media and the interviews confirm that the regional government was fully aware of this task and was actively engaged in negotiations.

  22. 22.

    Interview held on 17 July 2009

  23. 23.

    See, for example, Tikhonov's interview in the Communist newspaper Pravda, 27 July 2003: most of the text is devoted to textiles. Tikhonov even supervised individual exhibitions and fairs in the textile industry (see Shveinaya Promyshlennost 2003, p. 1).

  24. 24.

    In a press interview after his resignation, Grishin openly stated that he believes Tikhonov to be supported by the powerful textile tycoons (literally, “people with big money”). Specifically, he mentioned Dmitriy Siganov and Arkadiy Zlatkin, as well as Yuriy Yablokov (Yakovlevskiy Textiles Plant). He also claimed that he expects that this alliance will not last long (Chastnki.ru, 2 February 2003). However, Grishin's prediction was not fulfilled; the textile industry seems to have continued to provide support to Tikhonov (Ivanovo-Voznesensk, 18 May 2004).

  25. 25.

    http://lenta.ru/articles/2004/08/03/kprf/, accessed 5 March 2011.

  26. 26.

    The Carnegie rating, which we will discuss below, places both of them among the top five Russian regions with respect to democracy.

  27. 27.

    With some exceptions regarding commodity exports and trade ties to Central and Eastern Europe, which, however, turned out to be much less persistent than trade with the FSU.

  28. 28.

    The role of trade with China, which is substantial for some Russian regions, also deserves attention. Similar to trade with the EU, it is not based on persistent technological complementarities and emerged only recently. In addition, a large portion of trade with China is informal cross-border transactions, which are difficult to monitor and control. In the case of Perm, this is unlikely to be the case: Chinese imports from Perm mostly consist of the products of the manufacturing and chemical industries. Nonetheless, the role played by China is by far less dominant for Perm than the role Uzbekistan plays for Ivanovo, and thus, no limiting factor effects are present.

  29. 29.

    The Carnegie index includes ten components measuring political pluralism, the competitiveness of elections, freedom of the media, regional political organization, independence of municipalities, openness of regional political life, composition of regional elites, advancement of civil society, corruption, and economic liberalization. Seven components seem to fit any generally acceptable definition of democracy; the independence of municipalities is important for subnational democratization; finally, corruption and economic liberalization can be argued to be related rather to economic than to political reforms; however, after we drop these two components, our results remain the same. For details see Appendix B of the Electronic Supplementary Material.

  30. 30.

    Appendix G of the Electronic Supplementary Material investigates the same problem using a different approach and comes to identical conclusions. As a further piece of evidence, we estimate a set of simultaneous equations explaining both economic growth and regime transitions in the Russian regions. The results are reported in Appendix D of the Electronic Supplementary Material and indicate that in Russia trade with the FSU simultaneously increases economic growth and reduces the level of democracy within individual regions, in line with our expectations. See also Obydenkova and Libman (2012).

  31. 31.

    Control over limiting factors can serve as yet another strategy for territorial control (Gibson 2005).

  32. 32.

    Thus, the dynamics of these regimes are influenced by (a) the ability of the political leaders to control the limiting factor and (b) the potential for economic growth driven by the limiting factor. In Belarus, in the same way, worsening political relations with Russia in the late 2000s contributed to a more cautious position on the part of Russia in terms of providing cheap energy (Moshes 2010) and the economic difficulties the country experienced in 2011, which could become a challenge for Lukashenka regime.

  33. 33.

    Numerous studies have examined the causal link from democracy to economic growth (Sirowy and Inkeles 1990; Przeworski and Limongi 1993; Helliwell 1994; Feng 1997; Tavares and Wacziarg 2001; Doucouliagos and Ulubasoglu 2008; Sloan and Tedin 1987; Barro 1996; Persson and Tabellini 2006); from economic growth to democracy (Lipset 1959; Boix 2003; Inglehart and Welzel 2005; Acemoglu and Robinson 2006); from political transition to growth (Rodrik 2000; Fidrmuc 2003; Rodrik and Wacziarg 2005; Papaioannou and Siourouins 2008; Persson and Tabellini 2008; Giavazzi and Tabellini 2005); from growth to political transition (Przeworski et al. 2000; Boix and Stokes 2003; Epstein et al. 2006); and from growth to a public demand for democracy (Evans and Whitefield 1995; Duch 1995; Minier 2006).

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Acknowledgments

The authors are grateful to the editors and two anonymous referees for very helpful comments and feedback on our paper. We also appreciate the insightful feedback from Carles Boix, Kathleen Collins, Stephen E. Hanson, Konstantin Sonin, and Nikolay Marinov. The paper had been presented at the conferences of the International Political Science Association (Madrid 2012), American Political Science Association (Seattle, September 2011), and the Council for European Studies (Boston, March 2012). We also acknowledge the financial support of the Ministry of Innovation and Science of Spain (Ramon y Cajal Programme) and Universitat Pompeu Fabra of Barcelona provided for this project.

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Libman, A., Obydenkova, A. International Trade as a Limiting Factor in Democratization: an Analysis of Subnational Regions in Post-Communist Russia. St Comp Int Dev 49, 168–196 (2014). https://doi.org/10.1007/s12116-013-9130-2

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Keywords

  • Limiting factor
  • Democratization
  • International trade
  • Nested analysis
  • Russian regions