Price convergence and market integration in Russia

Following the price-liberalization reforms implemented by Russia in 1992, an initial period of disconnect between regional markets began to transform around 1994. This paper analyzes the spatial pattern of goods market integration that evolved within Russia in 1994–2000, classifying country's regions into three categories: integrated with a benchmark region, not integrated but tending towards integration, and not integrated and not tending towards integration. To quantify tendencies towards integration, an AR(1) model of regional price differentials is augmented with a trend term that is capable of displaying asymptotic decay (indicating price convergence). The results obtained suggest that only about one-fifth of Russia's regions appear as not integrated and showing no tendency towards integration over the sample period.