# COMPARATIVE ANALYSIS OF CONCENTRATION OF RUSSIAN INDUSTRIAL PRODUCTION AND POTENTIAL CONSEQUENCES

There are high levels of concentration of output in a few manufacturing sector in Russia.<sup>6</sup> The bottom quartile of sectors, ranked in order of their size in terms of operating revenue, contribute 0.6 percent of the total manufacturing output in Russia. In comparison, the top quartile contributes 80 percent (Refer to Table A11 a in Annex for a yearly breakdown). The levels of concentration of output within sector (between firms) in Russia is even more noteworthy. The average share of output for the bottom quartile of firms (in terms of operating revenue) in a manufacturing sector<sup>7</sup> is 0.06 percent. The share of the top quartile is 94.7 percent.<sup>8</sup> These relatively high levels of output concentrated in either a few sectors or in a handful of firms may lead to more volatile economic growth. High economic concentration makes an economy vulnerable and sensitive to the fate of fewer economic events such as changes in the price of the most prevalent commodity sold or goods produced. For example, some highly concentrated economies expand and contract in response to rises and dips in the price of the output that dominates total national economic output. In addition, these types of economies are more likely to produce spillover volatility from dominant fluctuating sectors to other sectors that are not directly affected by external events. Evidence shown here supports this characterization of growth volatility in Russia.

In turn, volatility may exacerbate the concentration of economic output. This study also suggests that volatility in growth may increase the likelihood of (premature) exit of new, emerging firms. This means that the structural change that new, emerging firms bring is stunted by high levels of economic volatility. As a result, the economy can experiences a vicious cycle of comparatively higher “premature death” of new firms due to economic volatility and increased volatility driven by an economic structure that remains undiversified or even more concentrated as a result of the high exit rate of new firms.

The reinforcing dynamics between volatility and concentration of output is also a possible explaniation of Russia’s relatively larger manufacturing firms. As the four graphs above indicate, the average size of Russian manufacturing firms, whether measured by annual operating revenue or by the size of their labor force, is larger than the average size of manufacturing firms in the rest of world or in Russia’s closest neighboring economies (Europe and Central Asia<sup>9</sup> ).<sup>10</sup> A relatively

> 6 The characteristics of the dataset used for the descriptive statistics presented here are further explained in the Annex.

> 7 When referring to sectors, these are defined by 4-digit NACE 1.1.  The higher the digit, the more disaggregated the sector data will be.

> 8 See Table A12 of the Annex.

> 9 The 28 economies included in the Europe and Central Asia (ECA) region are (in alphabetical order): Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, Kosovo, Kyrgyz Republic, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Serbia, Slovak Republic, Slovenia, Tajikistan, Turkey, Ukraine, Uzbekistan. Turkmenistan is not included.

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