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

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