Advanced Search
MyIDEAS: Login to save this paper or follow this series

Barriers to Investment by Russian Firms: Property Protection or Credit Constraints?

Contents:

Author Info

  • Susan J. Linz

    ()

Abstract

A multitude of explanations for low investment by Russian firms have been offered: high inflation, high interest rates, falling production, falling GDP, an underdeveloped banking system, a confiscatory tax regime, calls for the re-nationalization of industry, excessive regulations, and an underdeveloped legal system, among others. This paper's basic premise is that investment in Russia will not occur if firms are unable to ensure the security of their property and property rights; that is, if the risk of destruction or expropriation is high. Nor will investment occur if access to investment funds is limited. Data collected from 264 Russian firms in the spring and fall 2001 are used to construct a security index and credit index in order to evaluate the relative importance of property protection and access to financing on the investment activities of manufacturing, retail, and other service sector firms in Moscow, Rostov, Taganrog, and Vladivostok. For the firms participating in this survey, the reported percentage of profit reinvested is significantly higher among firms which responded positively to questions about the effectiveness of police and courts in protecting their property and property rights, and significantly lower among firms which made above-average payments (official and unofficial) for property protection. Unofficial payments alone lower investment by 20%. Firms with access to credit reported reinvesting a significantly greater share of their profits. All other things equal, firms in Moscow, and firms in food processing and food distribution reinvested a significantly greater share of their profits. Manufacturing firms reported reinvesting a significantly smaller share of their profits in comparison to retail shops or other service sector companies. These results do not vary with the amount of collateral a firm has; that is, whether the firm owns or leases its premises.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp469.pdf
Download Restriction: no

Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 469.

as in new window
Length: 37 pages
Date of creation: 01 May 2002
Date of revision:
Handle: RePEc:wdi:papers:2002-469

Contact details of provider:
Postal: 724 E. University Ave, Wyly Hall 1st Flr, Ann Arbor MI 48109
Phone: 734 763-5020
Fax: 734 763 5850
Email:
Web page: http://www.wdi.umich.edu
More information through EDIRC

Related research

Keywords: Russia; investment; property protection; credit; transition cost;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Pissarides, Francesca & Singer, Miroslav & Svejnar, Jan, 2003. "Objectives and Constraints of Entrepreneurs: Evidence from Small and Medium-Size Enterprises in Russia and Bulgaria," CEPR Discussion Papers 4142, C.E.P.R. Discussion Papers.
  2. Simon Johnson & Daniel Kaufmann & John McMillan & Christopher Woodruff, 2003. "Why Do Firms Hide? Bribes and Unofficial Activity after Communism," Public Economics 0308004, EconWPA.
  3. Susan J Linz & Gary Krueger, 1998. "Enterprise Restructuring in Russia's Transition Economy: Formal and Informal Mechanisms," Comparative Economic Studies, Palgrave Macmillan, vol. 40(2), pages 5-52, July.
  4. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
  5. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
  6. Alejandro Gaviria, 2002. "Assessing the Effects of Corruption and Crime on Firm Performance: Evidence from Latin America," INVESTIGACIÓN ECONÓMICA EN COLOMBIA 001902, FUNDACIÓN PONDO.
  7. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
  8. Frye, Timothy & Shleifer, Andrei, 1997. "The Invisible Hand and the Grabbing Hand," American Economic Review, American Economic Association, vol. 87(2), pages 354-58, May.
  9. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  10. Simon Johnson & John McMillan & Christopher Woodruff, 1999. "Contract Enforcement in Transition," CESifo Working Paper Series 211, CESifo Group Munich.
  11. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  12. Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July.
  13. Joel Hellman & Mark Schankerman, 2000. "Intervention, corruption and capture: the nexus between enterprises and the state," Working Papers 58, European Bank for Reconstruction and Development, Office of the Chief Economist.
  14. Frye, Timothy & Zhuravskaya, Ekaterina, 2000. "Rackets, Regulation, and the Rule of Law," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(2), pages 478-502, October.
  15. Simon Johnson & John McMillan & Christopher Woodruff, 1999. "Property Rights, Finance, and Entrepreneurship," CESifo Working Paper Series 212, CESifo Group Munich.
  16. Joel Hellman & Mark Schankerman, 2000. "Intervention, Corruption and Capture: The Nexus between Enterprises and the State," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(3), pages 545-576, November.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wdi:papers:2002-469. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laurie Gendron).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.