Institutions, entrepreneurship, and regional development in Russia

Stepan Zemtsov

Journal of the New Economic Association, 2020, vol. 46, issue 2, 168-180

Abstract: The role of small and medium-sized enterprises (SMEs) in the Russian economy remains modest and declined in 2019. In 2020, due to the crisis and anti-covid-19 measures, the share of SMEs in GDP and employment will significantly decrease. Why is this happening, and is it worth supporting a seemingly insignificant sphere of the economy? The article describes the factors and patterns of entrepreneurship development in Russia and their relations with the regional development. The development of SMEs is negatively affected by uncertainty of the economic situation and decline in demand. High investment risks and a low level of trust narrow the possibilities for productive and opportunity entrepreneurship development. As a result, the share of informal employment and necessity entrepreneurship is high and will grow in Russia, especially in the least developed regions. Although in the pre-crisis years, there was a tendency toward an improvement in formal institutions, an increase in the availability of financing, but not in all regions. Informal institutions and norms change more slowly, they determine low involvement in entrepreneurial activity. A crisis can lead to a reduction in the number of entrepreneurs, which will have a negative long-term effect on sustainable regional development. The sectoral structure of the SME has diversified, and the share of internet services has grown. These processes because of forced digitalization during the epidemic may accelerate, especially in large agglomerations. Direct state support previously had little effect on the SME development due to the lack of awareness and distrust, small scale, so there is doubt that it will be able to radically change the situation in the current period. If the crisis and anti-epidemic measures continue in the summer, the worst negative consequences should be expected in the southern regions, where more than 50% are employed in the entrepreneurial sector, but entrepreneurial ecosystems and digitalization are poorly developed. Our calculations show a potential reduction in the number of small and medium-sized enterprises by 50-60%, which could lead to a decrease in gross regional product by an average of 3-10%.

Keywords: small and medium business; economic development; institutional conditions; trust; crisis; covid-19; state support; Russian regions; digitalization (search for similar items in EconPapers)
JEL-codes: L26 L53 O17 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:nea:journl:y:2020:i:46:p:168-180

DOI: 10.31737/2221-2264-2020-46-2-9

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