Recommendations for the use of an investment multiplier to ensure balanced development of the regional economy

Eremin Vladimir Vladimirovich PhD in Economics Leading Scientific Associate, Center for Monitoring and Assessment of Economic Security of the Institute of Economic Policy and Economic Security Problems, Department of Economic Security and Risk Management, Faculty of Economics and Business, Financial University under the Government of the Russian Federation 125009, Russia, g. Moscow, ul. Tverskaya, 22B, str. 3 villy9@rambler.ru Other publications by this author

Introduction

The tightening of sanctions pressure and the desire of unfriendly states to close "loopholes" in sanctions against Russian cross-border payments, Russian exports and Russian imports have created rather unusual (compared with the period up to 2022) conditions for the functioning of the Russian economy. The non-standard nature of these conditions lies in the sanctions reduction in the efficiency of economic activity in Russia. An increase in the number of intermediaries in cross-border payment chains leads to a decrease in the profitability of Russian exports and an increase in the cost of Russian imports ^[1]. A similar effect is exerted by the complication of logistics chains, an increase in the number of intermediaries on them ^[2],[3].

In our opinion, the purpose of sanctions pressure is not to provoke a rapid collapse of the Russian economy, but rather to reduce its effectiveness. As a result, to combat such sanctions pressure, it is necessary to increase the efficiency of the economy of the Russian Federation.

Increasing efficiency will support such an anti-inflation strategy as increasing own production and product supply. Note that this approach was proposed by the President of Russia. In particular, at a meeting on economic issues on October 28, 2024, the President recalled that one of the priorities of the budget for 2025-2027 is the need to "develop the supply-side economy, increase the volume of output of goods and services here in Russia, launch new investment projects and create modern jobs in all sectors and sectors of the economy" ^[4]. Import substitution of the supply of foreign products with the domestic supply is necessary ^[5].

Resources are needed to solve the task set by the President. In turn, the creation of these resources is carried out through investments in the formation of the resource potential of the Russian regions. At the same time, the resource potential is understood as a set of combinations of resources that can be used within the framework of regional production ^[6].

All of the above allows you to form the following logical chain. To counteract sanctions, it is necessary to increase domestic supply, which requires the appropriate resource potential of the economies of the Russian regions. In turn, the formation of resource potential requires investments, which also require resources ^[7],[8]. For example, metal and human resources are needed to create machine tools. For regional development, it is necessary to form an appropriate infrastructure ^[9] In such a situation, increasing the efficiency of investments will have a double effect. On the one hand, it will increase the efficiency of the formation of the resource potential of the region, on the other hand, the efficiency of regional (and hence national) production.

Multiplier and investment efficiency.

As mentioned above, the non-standard nature of the current economic situation requires a non-standard approach to improving the efficiency of investments in the formation of the region's resource potential. Inflation, which is growing against the background of an increase in the key rate by the Bank of Russia ^[10],[11], indicates that in addition to existing instruments for regulating economic activity, new instruments are needed that can stimulate the economy without generating additional inflationary impulses.

In our opinion, such a tool should be based on the multiplicative effect. This effect is understood as the ratio of the change in the gross regional product (GRP) to the change in the investments that caused this GRP dynamics ^[12]. The investment multiplier is used as a relative indicator characterizing the effect of the multiplier effect. This is a coefficient showing the number of GRP growth units per additional investment unit ^[13]. By changing the multiplier value, it is possible to control the effect of investments in the formation of the resource potential of the region. So, if the value of the regional investment multiplier is 1.23, then every 100 rubles of additional investment in the formation of the region's resource potential, all other things being equal, will lead to an increase in the region's GRP by 123 rubles. If the value of the regional investment multiplier increases to 1.38, then every 100 rubles of additional investment in the formation of the region's resource potential, all other things being equal, will lead to an increase in regional GRP by 138 rubles. Provided there are sufficient resources for such growth.

This illustration proves the possibility of increasing the efficiency of investments (the return on these investments in the form of GRP growth) by increasing the value of the regional investment multiplier. At the same time, it should be noted that the investment multiplier can take not only positive, but also negative values ^[14]. In particular, as a result of the lack of resources and the inflation provoked by this shortage. Consequently, investments in some types of regional production can weaken the value of the regional multiplier, while in others they can strengthen it. This forms the basis for managing the size of the regional investment multiplier by changing the structure of these investments to form the resource potential of the regional economy. Because by investing in types of production with a predominantly negative multiplier effect, it is possible to reduce the value of the regional investment multiplier and, as a result, the dynamics of GRP. By investing in types of production with a predominantly positive multiplier effect, it is possible to stimulate the growth of the regional multiplier of investments and, as a result, GRP.

It is proposed to determine the degree of influence of regional production types on the value of the regional investment multiplier according to model (1):

(1)

where MOL is the value of the investment multiplier in the economy of the analyzed region .;

n is the number of products of the regional economy.;

vl i is a coefficient that characterizes the strength and direction of the impact of investments in a particular type of regional production on the value of the regional investment multiplier

Share i is the share of a specific production (by product type) in the regional economy.

The negative value of VL I indicates a negative impact on the multiplier value of investments in the formation of resource potential for the i-th type of production. A positive value of vl I indicates a positive effect.

Based on model (1), it can be concluded that changing the values of the dol i indicators will allow changing the value of the MULT indicator. In turn, changing the value of the MULT indicator for the analyzed region will change the value of its GRP. Since the CARTOON shows the amount of return (GRP changes) per unit of investment, its increase characterizes an increase in this return. That is, to increase the efficiency of investments in the formation of the resource potential of the region.

Dependence of the investment multiplier of the Ryazan economy on the structure of investments in the resource potential of production of various types of products

Based on statistical data characterizing the real regional economy, we will form a model (1) for the economy of a particular region. In the article ^[15], the author calculated the value of the investment multiplier for the economies of two regions – the Ryazan and Ivanovo regions,

He analyzed the impact of the degree of sectoral diversification of regional economies on the value of the regional multiplier of investments in these regions. Let's deepen this analysis by moving from analyzing the impact of the degree of sectoral diversification to analyzing the degree of influence of specific types of production on the value of the regional investment multiplier. The results of this analysis will make it possible to form recommendations on the use of the investment multiplier to ensure balanced economic development in the analyzed region. To do this, we will select one of the two regions analyzed in the article ^[15]. In this case, it is the Ryazan region, as a region with an average value of GRP per capita for the economies of the Central Federal District of Russia, analyzed in the article ^[15].

The initial data for the analysis are data characterizing the structure of the economy of the Ryazan region by the types of products produced in it. And also – data on the values of the investment multiplier for the Ryazan region, calculated in ^[15]. The totality of these data is selectively presented in Table 1. The selective nature of the data presentation is related to its large volume.

Table 1 – Production structure (%) and the value of the investment multiplier for the economy of the Ryazan region, selected (2005-2021)

Source: compiled by the author according to ^[15],[16]

Based on the data selectively presented in Table 1, we will form a model (1) for the economy of the Ryazan region. The values of the vl i coefficients obtained as a result of constructing the multiple regression equation are shown in Figure 1.

Figure 1 – Values of the vl i coefficients obtained by model (1) for the economy of the Ryazan region

Source: compiled by the author according to Table 1

The resulting model is statistically significant, since, in particular, it is characterized by the following values:

- R square – 0.99855;

- the normalized R square is 0.85383;

- significance of F – 6.66E-08.

Recommendations on the use of the investment multiplier to ensure balanced economic development of the Ryazan region

Having obtained the values of vl I, we will consider recommendations on the use of the investment multiplier to ensure a balanced development of the economy of the Ryazan region.

At the same time, by balanced development we mean development based on balancing investments in the formation of the resource potential of the region, which have a negative impact on the value of the regional multiplier, investments that have a positive impact on the value of this indicator.

Within the framework of this approach, based on the data in Table 1, the most optimal areas of investment in the economy of the Ryazan region (in terms of the impact on the value of the regional investment multiplier) are:

- production of machinery, vehicles and equipment (0,125);

- manufacture of electrical, electronic and optical equipment (0.0825);

- production of food, beverages, and tobacco products (0.055).

The following investment directions are the least optimal in terms of the impact on the value of the investment multiplier of the Ryazan economy:

- textile and clothing industry, manufacture of leather and their leather products (-0,119);

- production of paper and paper products, printing (-0.074);

- production of other non-metallic mineral products (-0.064);

- production of coke and petroleum products, rubber products, chemical production (-0.0327).

To develop recommendations, we will introduce scenario conditions. Let's assume (taking into account the fact that in 2021 the GRP of the Ryazan region amounted to 531.96 billion rubles) that investments in the formation of the resource potential of the analyzed region amount to 3 billion rubles. Let's say the leadership of the region decided to direct 25% of these investments to the formation of the resource potential of textile and clothing production. Investment agreements with potential investors for this amount have been signed and are not subject to cancellation. Let another group of investors be willing to invest 30% of the considered investment amount in food production. The remaining 45% of the investment amount, according to the proposed scenario, can be invested in any type of production. The necessary investors exist for this.

Based on the proposed scenario, it is necessary to make recommendations on which type of production, other than the two discussed above, the remaining 45% of the investment amount should be invested in order to maximize the return on investment in the form of an increase in the volume of Ryazan GRP.

Based on the data in Figure 1, the remaining area of investment that can maximally counteract the negative impact on the multiplier value of the first 25% of investments is the production of machinery, vehicles and equipment. It is recommended to invest the remaining 45% of investments in this production. We will base this on calculations based on data from 2021, taking into account that the value of the investment multiplier for this year, calculated for the economy of the Ryazan region, and presented in table 1, is 1.487.

If all 100% of the analyzed investments were aimed at expanding the resource potential of textile and clothing production, then, according to Figure 1, this would reduce the value of the Ryazan multiplier for the analyzed investments to:

1,487 - 0,118667 =1,3683

As a result, the GRP increase in the Ryazan region as a result of the analyzed investment distribution would be:

3 billion rubles × 1.3683 = 4.105 billion rubles.

Or

(531.95 billion rubles + 4.105 billion rubles) / 531.95 billion rubles ×100%-100% = 0.7717%

This is a minimal increase in GRP, provided that all investments are directed towards the formation of the resource potential of production with the maximum negative impact on the value of the regional investment multiplier.

At the same time, the direction of part of the investments in the formation of the resource potential of food production will partially compensate for this negative impact. If all investments are directed to textile and food production in the ratio of 25% / 30%, that is, 45.45455% of investments will be directed to textile production, and 54.54545% of investments will be directed to food production, this will form the following multiplier value:

1,487+0,4545455×(-0,118667)+ 0,545454×0,054988=1,463054

At the same time, the increase in GRP would be:

3 billion rubles × 1.463054=4.3892 billion rubles.

Or

(531.95 billion rubles + 4.3892 billion rubles) / 531.95 billion rubles ×100%-100% =0.8251%

The obtained indicators exceed those calculated above, since the distribution of part of the investment in the formation of the resource potential of production, which has a positive impact on the multiplier value, will partially offset the negative impact of the other part of the investment on this value.

The proposal to allocate the remaining 45% of investments in the production of machinery, vehicles and equipment will further offset the negative impact on the multiplier of part of the investment. As a result, in this case, the multiplier value would be:

1,487+0,25×(-0,118667)+0,3×0,054988+0,45×0,125201=1,53017

At the same time, the increase in GRP would be:

3 billion rubles ×1.53017=4.59051 billion rubles.

Or

(531.95 billion rubles +4.59051 billion rubles)/531.95 billion rubles ×100%-100% =0.863%

Conclusions

The calculations presented in the article prove that different sectoral distribution structure of the same amount of investments in the formation of the resource potential of the region forms different values of the investment multiplier and, as a result, different volumes of regional GRP growth. In the calculations presented in this paper, a different sectoral distribution of the constant amount of investments in different types of production in the Ryazan economy would increase the value of the regional investment multiplier from 1.3683 to 1.53017. Consequently, the efficiency of investments as a result of such an increase would increase by:

1,53017 / 1,3683 ×100%-100% =11,83%

That is, expressed in rubles, the volume of regional GRP growth per ruble of investment would increase by 11.83%. This proves the possibility of increasing the efficiency of investments in the formation of the resource potential of the region by purposefully influencing the value of the regional investment multiplier.

The calculations presented in the article, as well as the order in which they are carried out, form the basis of an algorithm for creating a policy for the development of the region's economy based on the multiplicative effect. These calculations prove the possibility of using an investment multiplier to develop measures to counteract sanctions from unfriendly states aimed at reducing the efficiency of the Russian economy. It should be noted that a multiplicative increase in return on investment, that is, an increase in the result with constant investments, is able, to a certain extent, due to an additional increase in the supply of products and their production factors, to combat inflation, which has a fairly large-scale negative impact on the domestic economy.