Human Capital and Knowledge-Intensive Industries Location: Evidence from Soviet Legacy in Russia

Abstract

Do human capital endowments trump location for knowledge-intensive industries? This article takes advantage of a natural experiment created by the end of the Soviet planned economy in 1991, which had geographically distributed R&D manpower according to planned needs as opposed to a distribution determined by a market economy. It examines the extent to which the planned economy created a path-dependence in the location of post-Soviet human-capital intensive production. The study finds that regions with more R&D personnel in 1991 did better in the development of modern market-oriented knowledge-intensive business services, like engineering and IT. Several explanations are offered for this path-dependence, with an emphasis on human capital externalities being the most plausible.