IDEAS home Printed from https://ideas.repec.org/a/far/spaeco/y2018i3p88-114.html
   My bibliography  Save this article

Instability of Financial Return of Regional Economies and Its Determinants

Author

Listed:
  • Marina Yurievna Malkina

    (Lobachevsky State University of Nizhni Novgorod)

Abstract

The study is dedicated to assessment of instability of financial return in Russian regions in 2004–2016 and its sources. Instability of financial return was calculated as the variance of the ratio of the balanced financial result to GRP, disaggregated by 11 main economic activities. The portfolio approach by G. Markowitz and W. Sharpe was used for assessment of contribution of various sectors to the overall instability, division of the total risk into intra-sectoral and inter-sectoral components, and identification of directions of optimization of the regional sectoral structures using specified target functions and constraints. In addition, this paper discussed the advantages and limitations of application of the portfolio approach for the analysis of volatility of regional economies. As a result of the study, the evaluations of financial return, risk and efficiency of the Russian regions economies were obtained. The sectorial structure of the volatility of financial return in the Russian regions was determined. We revealed that the financial sector and the real estate operations sector were on an average the main risk enhancers in the Russian regions. The agriculture and fishing, as well as infrastructure industries were main risk mitigators. However, the largest absolute contribution to the financial stability of the Russian regions was made on average by the sectors of extractive and manufacturing industries. The division of risk into intra-sectoral and inter-sectoral components allowed drawing conclusions about the different nature of the diversification of regional economies. Meanwhile, the relationship between the instability of financial return and the generalizing coefficients of diversification has not been confirmed. Based on the comparison of the contributions of various sectors to the overall financial return and risk and calculation of the index of two structures similarity, the degree of deviation of the GRP sectoral structure of its optimal state was determined and the directions for its optimization in the Russian regions were identified. The solution of three optimization tasks (minimizing the risk at a given financial return, maximizing the return at a given risk and minimizing the coefficient of variation of financial return) in the model with built-in constraints allowed to obtain optimal sectoral structures for the three selected regions and to assess their effectiveness from the standpoint of achieving specified functions

Suggested Citation

  • Marina Yurievna Malkina, 2018. "Instability of Financial Return of Regional Economies and Its Determinants," Spatial Economics=Prostranstvennaya Ekonomika, Economic Research Institute, Far Eastern Branch, Russian Academy of Sciences (Khabarovsk, Russia), issue 3, pages 88-114.
    • Handle: RePEc:far:spaeco:y:2018:i:3:p:88-114
    DOI: 10.14530/se.2018.3.088-114
    as

    Download full text from publisher

    File URL: http://www.spatial-economics.com/images/spatial-econimics/2018_3/SE.2018.3.088-114.Malkina.pdf
    Download Restriction: no
    File URL: http://spatial-economics.com/eng/arkhiv-nomerov/2018g/98-2018-3/870-SE-2018-3-88-114
    Download Restriction: no
    File URL: https://libkey.io/10.14530/se.2018.3.088-114?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jan Kluge, 2018. "Sectoral diversification as insurance against economic instability," Journal of Regional Science, Wiley Blackwell, vol. 58(1), pages 204-223, January.
    2. Paul B. Siegel & Jeffrey Alwang & Thomas G. Johnson, 1994. "Toward An Improved Portfolio Variance Measure Of Regional Economic Stability," The Review of Regional Studies, Southern Regional Science Association, vol. 24(1), pages 71-86, Summer.
    3. N. V. Zubarevich, 2016. "Crises in post-Soviet Russia: Regional projection," Regional Research of Russia, Springer, vol. 6(2), pages 95-104, April.
    4. Simona Bigerna, 2013. "The Regional Growth-Instability Frontier in Italy," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 41(4), pages 463-464, December.
    5. Siddharth Chandra, 2002. "A Test of the Regional Growth-Instability Frontier Using State Data," Land Economics, University of Wisconsin Press, vol. 78(3), pages 442-462.
    6. Thomas Garrett, 2009. "Evaluating state tax revenue variability: a portfolio approach," Applied Economics Letters, Taylor & Francis Journals, vol. 16(3), pages 243-246.
    7. J. C. Dissart, 2003. "Regional Economic Diversity and Regional Economic Stability: Research Results and Agenda," International Regional Science Review, , vol. 26(4), pages 423-446, October.
    8. Marina Malkina, 2017. "Influence of the Industrial Structure of Economy on the Risk Level of Russian Regions' Tax Systems," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 65(6), pages 2025-2035.
    9. Siddharth Chandra, 2003. "Regional Economy Size and the Growth–Instability Frontier: Evidence from Europe," Journal of Regional Science, Wiley Blackwell, vol. 43(1), pages 95-122, February.
    10. Roberto Ezcurra, 2011. "Unemployment Volatility and Regional Specialization in the European Union," Regional Studies, Taylor & Francis Journals, vol. 45(8), pages 1121-1137.
    11. FU, Shihe & DONG, Xiaofang & CHAI, Guojun, 2010. "Industry specialization, diversification, churning, and unemployment in Chinese cities," China Economic Review, Elsevier, vol. 21(4), pages 508-520, December.
    12. Shu-hen Chiang, 2009. "The effects of industrial diversification on regional unemployment in Taiwan: is the portfolio theory applicable?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(4), pages 947-962, December.
    13. N. N. Mikheeva, 2017. "Diversification of regional economic structure as growth strategy: Pros and cons," Regional Research of Russia, Springer, vol. 7(4), pages 303-310, October.
    14. Marion Jansen & Carolina Lennon & Roberta Piermartini, 2016. "Income volatility: whom you trade with matters," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 127-146, February.
    15. James A. Kurre & Clifford H. Woodruff III, 1995. "Regional Economic Fluctuations: Portfolio Variance And Industrial Instability Across Metro Areas," The Review of Regional Studies, Southern Regional Science Association, vol. 25(2), pages 159-186, Fall.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marina Malkina, 2019. "How Change in Industry Mix Can Improve the Financial Performance of Regional Economies: Evidence from the Portfolio Approach," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 67(6), pages 1561-1575.
    2. Xin Mai & Roger C. K. Chan & Chaoqun Zhan, 2019. "Which Sectors Really Matter for a Resilient Chinese Economy? A Structural Decomposition Analysis," Sustainability, MDPI, vol. 11(22), pages 1-17, November.
    3. Jan Kluge, 2018. "Sectoral diversification as insurance against economic instability," Journal of Regional Science, Wiley Blackwell, vol. 58(1), pages 204-223, January.
    4. Randall Jackson, 2015. "Are Industry Clusters and Diversity Strange Bedfellows?," The Review of Regional Studies, Southern Regional Science Association, vol. 45(2), pages 113-129, Fall.
    5. Jan Kluge, 2018. "Eine diversifizierte Wirtschaft als Versicherung gegen Krisen," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 25(05), pages 21-26, October.
    6. Kurt A. Hafner, 2020. "Diversity of industrial structure and economic stability: evidence from Asian gross value added," Asia-Pacific Journal of Regional Science, Springer, vol. 4(2), pages 413-441, June.
    7. Randall Jackson, 2015. "Fellows Address: Are Industry Clusters and Diversity Strange Bedfellows?," Working Papers Working Paper 2015-04, Regional Research Institute, West Virginia University.
    8. Steven Deller & Philip Watson, 2016. "Did Regional Economic Diversity Influence The Effects Of The Great Recession?," Economic Inquiry, Western Economic Association International, vol. 54(4), pages 1824-1838, October.
    9. Watson, Philip & Deller, Steven, 2017. "Economic diversity, unemployment and the Great Recession," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 1-11.
    10. Jan Kluge & Sarah Lappöhn & Kerstin Plank, 2023. "Predictors of TFP growth in European countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(1), pages 109-140, February.
    11. William Spelman, 2006. "Growth, Stability, and the Urban Portfolio," Economic Development Quarterly, , vol. 20(4), pages 299-316, November.
    12. Steven C. Deller & Tessa Conroy & Philip Watson, 2017. "Women business owners: a source of stability during the great recession?," Applied Economics, Taylor & Francis Journals, vol. 49(56), pages 5686-5697, December.
    13. Jing Chen, 2018. "Interpreting Economic Diversity as the Presence of Multiple Specializations," Working Papers Working Paper 2018-02, Regional Research Institute, West Virginia University.
    14. Bigerna, Simona & Bollino, Carlo Andrea & Polinori, Paolo, 2021. "Oil import portfolio risk and spillover volatility," Resources Policy, Elsevier, vol. 70(C).
    15. Roberto Ezcurra & Vicente Rios, 2015. "Volatility and Regional Growth in Europe: Does Space Matter?," Spatial Economic Analysis, Taylor & Francis Journals, vol. 10(3), pages 344-368, September.
    16. Aleksandra L. Osmolovskaya-Suslina & Sofiia R. Borisova, 2023. "Non-resource Revenues to the Consolidated Budget: Analysis by Types of Economic Activity," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 6, pages 8-26, December.
    17. O. V. Kuznetsova, 2022. "The Transformation of the Spatial Structure of an Economy in the Crisis and Post-Crisis Periods," Regional Research of Russia, Springer, vol. 12(4), pages 451-458, December.
    18. Pérez Odeh, Rodrigo & Watts, David & Flores, Yarela, 2018. "Planning in a changing environment: Applications of portfolio optimisation to deal with risk in the electricity sector," Renewable and Sustainable Energy Reviews, Elsevier, vol. 82(P3), pages 3808-3823.
    19. Jing Chen, 2017. "Geographical Scale, Industrial Diversity and Regional Economic Stability," Working Papers Working Paper 2017-03, Regional Research Institute, West Virginia University.
    20. Marina Malkina & Rodion Balakin, 2020. "Risks of Regional Tax Systems and Their Portfolio Decomposition: The Case of Modern Russia," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 68(6), pages 995-1009.

    More about this item

    Keywords

    financial instability; sectoral structure of economy; portfolio approach; risk decomposition; region; Russia;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:far:spaeco:y:2018:i:3:p:88-114. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sergey Rogov (email available below). General contact details of provider: https://edirc.repec.org/data/ecrinru.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.