Assessment of the Spatial Externalities of Major Cities on the Housing Market of Small and Medium-Sized Cities

Abstract—: The question of the positive influence of major cities on the balanced development of territory in Russia remains controversial. This paper assesses the spatial externalities of major cities in Russia on the housing market of small and medium-sized cities. Apartment prices are considered an indirect indicator of the socioeconomic situation of a city. We study not only the influence of the proximity of a major city, but also belonging to an agglomeration. The main hypotheses tested are: (1) agglomerations have a positive externality on small cities that are part of them; (2) major cities have a positive externality on the environment; (3) the externality of a major city is determined by the size of its market and the distance to it. The analysis method consists of empirical and regression estimates. The analysis ultimately confirmed the dominance of positive externalities in the interaction of major cities with small cities. Entry into an urban agglomeration increases the positive externality. The importance of belonging to an agglomeration is comparable to the role of the market component, which is formed due to cooperative ties between producers and consumers in the center of economic activity and small towns in a region. © 2021, Pleiades Publishing, Ltd.