Modelling of a Regional Industry Specialisation: The Impact of Agglomeration Economies on Labour Productivity

Localisation economies are known to boost the regional economy and its growth potential. The emergence of these effects is due to localised knowledge flows, the closeness to markets, and the diversity of services and industries. Localisation economies have the potential to increase the productivity of firms. While many studies have been conducted at the industry or regional level, this paper adds to the existing literature by investigating the impact of agglomeration economies on labour productivity with the case of Russian regions during the period 2009-2018. Our findings suggest contradicting results toward existing studies. We have found a negative impact of externalities on labour productivity. This is due to the Russian business and economic peculiarities and institutional factors, such as disrupted territorial-industrial complexes, uncompetitive industries, under-developed infrastructure, and lack of state funding.