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Institutional Peculiarities of Small Business in Russia's Regions

  • Basareva Vera

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    It is generally accepted that new-enterprise formation is critical for generating growth in post-socialist economies. This process has been intensive in Russia, with considerable regional variation. In this study, this variation is estimated, drawing on the theory of conditional and unconditional convergence. It is shown that in the 1991–1993 period, Russia's regions tended toward convergence, while from 1994 to 1999 they tended toward divergence, and in regions where this process had been weak, it became still weaker. How can mechanisms underlying the regional variation in the establishment of small enterprises be determined? The conceptual framework of this study, which seeks to explain the choice of determinants and interpret the obtained results, is focused on two models: a simple model of relative demand-supply determining the aggregate segment of small businesses and a model of individuals' rational behavior in the labor market. It is confirmed that labor demand in the segment of small entrepreneurship depends on the relation of earnings in new versus wage sector, on the initial savings of the population and on the population's risk-aversion. Credibility of local governments and relatively high economic potential of regional institutions stimulated labor demand in the small business segment. An empirical test of the theoretical propositions is made on the 1990–1992 data.

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    Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number 02-02e.

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    Length: 55 pages
    Date of creation: 28 Nov 2002
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    Handle: RePEc:eer:wpalle:02-02e
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    1. Berkowitz, Daniel & DeJong, David N., 2002. "Accounting for growth in post-Soviet Russia," Regional Science and Urban Economics, Elsevier, vol. 32(2), pages 221-239, March.
    2. Baumol, William J, 1990. "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 893-921, October.
    3. Timothy J. Bartik, 2010. "Small Business Start-Ups in the United States: Estimates of the Effects of Characteristics of States," Book chapters authored by Upjohn Institute researchers, in: Zolton Acs (ed.), Entrepreneurship and regional Development, pages 155-169 W.E. Upjohn Institute for Employment Research.
    4. Brusco, Sebastiano, 1982. "The Emilian Model: Productive Decentralisation and Social Integration," Cambridge Journal of Economics, Oxford University Press, vol. 6(2), pages 167-84, June.
    5. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-35, June.
    6. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
    7. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    8. David J. Cooper & Daniel M. Berkowitz, 1997. "Start-ups and Transition," William Davidson Institute Working Papers Series 84, William Davidson Institute at the University of Michigan.
    9. Vladimir Popov, 2000. "Shock Therapy Versus Gradualism: The End Of The Debate (Explaining The Magnitude Of Transformational Recession)," Comparative Economic Studies, Palgrave Macmillan, vol. 42(1), pages 1-57, April.
    10. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
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