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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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