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The Aleksanteri Institute

Unioninkatu 33 (P.O. Box 42)
00014 University of Helsinki

Past Aleksanteri Conferences

Susanne Wengle (University of Notre Dame, USA)

Understanding the Local Effects of Capital Inflows to Rural Economies; The Russian Case

Russia is one of the world’s largest agricultural producers and Russian farmland is abundant, fertile, relatively inexpensive, and comparatively well connected to international markets. The Russian countryside has thus seen a significant influx of domestic and foreign capital since the early 2000s. This paper will document and seek to explain the rural transformation that has followed these capital inflows. How capital inflows affect rural communities is often explained with the variable of institutional strength, an explanation aligned with the "good governance" approach to economic development: capital inflows have positive developmental effects, if strong domestic institutions vet land deals and regulate economic actors. Transparent, accountable, participatory institutions can create long-term time horizon that productivity- enhancing investors require. Yet, Russia’s institutions do not neatly fit the continuum of strong versus weak institutions: it is neither an indebted, weak developing country nor does it have what are considered “good” institutions. At the same time, we do see significant productivity and production increases in a number of vital agricultural sectors (e.g. wheat, sugar beets, oilseeds, pork and poultry). This paper highlights the role of political projects in shaping local outcomes. Vladimir Putin’s “food security” agenda entailed a multitude of policy measures aimed at boosting domestic production. While Russian institutions were thus not generally improving for all actors, political privilege and targeted support created “umbrellas” that protected the property rights of a few select actors and made investments with long-term time horizons possible. Instead of thinking about governing institutions as exogenous or independent variables that determined the local effects of international trends, we should thus pay more attention to political priorities and selective public support measure to understand rural transformations following capital inflows. This kind of political support privileges some actors as agents of change, while others are sidelined—hence transforming local economies.