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Institutional Peculiarities of Small Business in Russia's Regions


  • Basareva Vera



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.

Suggested Citation

  • Basareva Vera, 2002. "Institutional Peculiarities of Small Business in Russia's Regions," EERC Working Paper Series 02-02e, EERC Research Network, Russia and CIS.
  • Handle: RePEc:eer:wpalle:02-02e

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    References listed on IDEAS

    1. 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.
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    4. 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 719-748, August.
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    6. BRUNETTI, AYMO AART OLIVER & Kisunko,Gregory & Weder,Beatrice Silvia, 1997. "Institutional obstacles to doing business : region-by-region results from a worldwide survey of the private sector," Policy Research Working Paper Series 1759, The World Bank.
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    More about this item


    Russia; small business; self-employment; risk of entrepreneurship; regional elite; a system of simultaneous equations;

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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