Labor productivity is an important factor in economic growth. It is important to understand how employees’ provision of basic funds will improve the efficiency of their labor activity, to what extent it will affect the socio-economic indicators of the territory’s development, and whether the region’s specific features is of any significance. In this article, we want to demonstrate the opportunities of using production functions tools to distinguish territories whose contribution to improving productivity through provision of fixed assets will contribute to the economic growth, or regions where it is necessary to pay attention to other factors. The purpose for the article is to assess the impact of labor productivity on the economic growth in the region through construction of production functions.
Production function tools are used to estimate the size of agglomeration economies and spatial effects, determine convergence/divergence rate of regional efficiency using the Solow growth model. For the purposes of the study, we modified the Cobb-Douglas production function. The study was performed among 83 Russian regions during 1995–2015. Official data from the Federal State Statistics Service of Russia (www.gks.ru), including statistical books “Russian Regions. Socio-economic indicators” for 2002–2017”, are used as initial information. The analysis results indicate that the profile of each region in different economic sectors largely determines labor productivity. Differences in labor productivity are explained by the development of high-tech and knowledge-intensive industries. In research has revealed that only in two out of 83 Russian regions capital to labor ratio does not affect labor productivity. The highest capital to labor ratio is demonstrated by Moscow, the Moscow, Belgorod and Orenburg oblasts, Republic of Bashkortostan, Yamalo-Nenets Autonomous district, and in Saint Petersburg. When implementing economic policies aimed at improving labor productivity in these regions it is advisable to take into account the high significance of investment in fixed assets and the need for increased capital to labor ratio for the development. The research results can be useful for the development and implementation of regional policies as they demonstrate the mechanism of influence of key determinants of economic growth, help determine whether the increment of fixed assets is the key to improving labor productivity and ensuring high economic growth rates
labor productivity, regional economy, russian regions, capital to labor ratio, production functions