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Institutional Subversion: Evidence from Russian Regions

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  • Slinko, Irina
  • Yakovlev, Evgeny
  • Zhuravskaya, Ekaterina

Abstract

What are the effects of institutional subversion on small business development, fiscal policies, economic growth, and firm performance? This Paper provides an empirical investigation of institutional subversion in Russia’s regions. We develop a complete account of preferential treatments to the largest regional firms in texts of regional legislation during 1992-2000. The concentration of preferential treatments is used as a proxy for legislative subversion. Based on cross-section and panel data analysis, we find that regional institutional subversion has an adverse effect on small business growth, tax collection, social public spending, and federal tax arrears. Robustness of these results is verified by looking at a proxy for potential subversion based on size concentration in regional economies. The alternative approach produces similar results. Regional political influence generates substantial gains to firms both in the long and the short run. These firms exhibit faster growth in sales, market share, profitability, employment, and capital compared to their counterparts who are not politically connected. Yet, firms that exercise political influence have lower labour productivity.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4024.

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Date of creation: Aug 2003
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Handle: RePEc:cpr:ceprdp:4024

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Keywords: capture; institutional subversion; reforms; russia;

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References

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  1. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2003. "Opportunistic Political Cycles: Test in a Young Democracy Setting," Working Papers w0024, Center for Economic and Financial Research (CEFIR).
  2. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  3. Sonin, Konstantin, 2010. "Provincial protectionism," Journal of Comparative Economics, Elsevier, vol. 38(2), pages 111-122, June.
  4. Edward L. Glaeser & Andrei Shleifer, 2002. "The Injustice of Inequality," NBER Working Papers 9150, National Bureau of Economic Research, Inc.
  5. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
  6. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 162, Princeton, Woodrow Wilson School - Public and International Affairs.
  7. Ekaterina Zhuravskaya, 2000. "Incentives to provide local public goods: fiscal federalism, Russian style," Working Papers w0001, Center for Economic and Financial Research (CEFIR).
  8. Olivier Blanchard & Andrei Shleifer, 2000. "Federalism with and without Political Centralization: China versus Russia," NBER Working Papers 7616, National Bureau of Economic Research, Inc.
  9. J. David Brown & John S. Earle, 2000. "Competition and Firm Performance: Lessons from Russia," William Davidson Institute Working Papers Series 296, William Davidson Institute at the University of Michigan.
  10. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August.
  11. Guido Friebel & Sergei Guriev, 2000. "Should I Stay or Can I Go? Worker Attachment in Russia," Working Papers w0008, Center for Economic and Financial Research (CEFIR).
  12. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November.
  13. Konstantin Sonin, 2003. "Why the Rich May Favor Poor Protection of Property Rights," Working Papers w0022, Center for Economic and Financial Research (CEFIR).
  14. Lavrov, Aleksei & Litwack, John & Sutherland, Douglas, 2001. "Fiscal federalist relations in Russia: a case for subnational autonomy," MPRA Paper 26537, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Haaparanta, Pertti & Juurikkala, Tuuli & Lazareva, Olga & Pirttilä, Jukka & Solanko, Laura & Zhuravskaya, Ekaterina, 2003. "Firms and public service provision in Russia," BOFIT Discussion Papers 16/2003, Bank of Finland, Institute for Economies in Transition.
  2. Zakolyukina Anastasia, 2006. "Bankrtuptcy in Russia: External Management Performance," EERC Working Paper Series 06-09e, EERC Research Network, Russia and CIS.
  3. Tuuli Juurikkala & Olga Lazareva, 2004. "To Divest or not to Divest? Social Assets in Russian Firms," ERSA conference papers ersa04p637, European Regional Science Association.
  4. Ufere, Nnaoke & Perelli, Sheri & Boland, Richard & Carlsson, Bo, 2012. "Merchants of Corruption: How Entrepreneurs Manufacture and Supply Bribes," World Development, Elsevier, vol. 40(12), pages 2440-2453.
  5. World Bank, 2005. "Russian Federation : From Transition to Development, A Country Economic Memorandum for the Russian Federation," World Bank Other Operational Studies 8628, The World Bank.
  6. Ariane Lambert-Mogiliansky & Konstantin Sonin & Ekaterina Zhuravskaya, 2003. "Capture of Bankruptcy: Theory and Russian Evidence," Working Papers w0038, Center for Economic and Financial Research (CEFIR).
  7. Kaufmann, Daniel, 2003. "Governance Redux: The Empirical Challenge," MPRA Paper 8210, University Library of Munich, Germany.
  8. Ponomareva, Maria & Zhuravskaya, Ekaterina, 2004. "Federal Tax Arrears in Russia: Liquidity Problems, Federal Redistribution or Russian Resistance?," CEPR Discussion Papers 4267, C.E.P.R. Discussion Papers.
  9. Ickes, Barry W. & Ofer, Gur, 2006. "The political economy of structural change in Russia," European Journal of Political Economy, Elsevier, vol. 22(2), pages 409-434, June.
  10. Phyllis Dininio & Robert W. Orttung, 2004. "Explaining Patterns of Corruption in the Russian Regions," William Davidson Institute Working Papers Series 727, William Davidson Institute at the University of Michigan.

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