FACTORS OF ENTREPRENEURIAL

ACTIVITY IN RUSSIA: INSTITUTIONS

OR LOCATION

Speaker:

Stepan Zemtsov,

PhD, senior researcher

Authors:

S. Zemtsov, V. Barinova, J. Tsareva

Laboratory for corporate strategies and firm behavior

studies, Russian Presidential Academy of National

Economy and Public Administration, RANEPA

Innovation Economics Department, Gaidar Institute for

Economic Policy, IEP

Dublin

05.06.2017

RSA Annual Conference 2017

PURPOSE

2

The relevance of our research:

• Economic crisis and sanctions - need to encourage SME’s activity

• Small and medium enterprises (SMEs) is an important object of public

support in Russia

• The uneven development of SMEs - need for regionally differentiated

policy

The purpose of the research:

• To identify regional factors of entrepreneurial activity in Russia in 1998-

2014

The (null) hypothesis:

• Geographical position can be an important factor for entrepreneurial

activity (NEG)

SME’S IN RUSSIA

3

0

10

20

30

40

50

60

70

80

90

100

0

500

1000

1500

2000

2500

3000

3500

4000

4500

50001998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Th

ou

sa

nd

fir

ms

Individual entrepreneurs

Medium-sized enterprises (101-250empl.)

Small businesses (16-100 empl.)

Micro-enterprises (<15 empl.)

Small enterprises, including micro

The share of small firms in the numberof companies (right scale), %

The proportion of SMEs andentrepreneurs in the number oforganizations, %

SMEs Small Micro

Employment structure

WHAT IS ENTREPRENEURIAL ACTIVITY?

4

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0

5

10

15

20

25

30N

um

ber

of

firm

s per

1000 E

AP

The number of small businesses per EAPThe number of small (no micro) enterprises per EAPThe correlation between the number of small and microThe coefficient of regional variation (right-hand scale)

• The problem of micro enterprises (‘one-day’ firms) – is it entrepreneurship?

• Entrepreneurial activity growth was mostly statistical (methodology changed in 2007)?

• Regional convergence – equal conditions for SMEs?

GEOGRAPHY?

5

REGIONAL ENTREPRENEURSHIP CULTURE?

EMBEDDENESS

6

The correlation coefficient between the entrepreneurial activity in the target year

(2000-2014) and previous years (t0 - this year, t1 - the previous year, etc.)

2014 и 2013

2014 и 1998

Average

Entr_act – number of small firms per 1000 EAP

WEntr_act – spatial affects of entrepreneurship (Klotz, 2004)

Inst – institution (Yakovlev, Zhuravskaya, 2011; Nielsen, 2014)

Human_cap – human capital (Fritsch, Wyrwich, 2014; Acs, Armington, 2004)

Market_pot – market access (Head, Mayer, 2004; Hanson, 2005)

Support – government support (Storey, 2008)

' '' ''

, , , ,

'' ''' '''' '''''

, , , , ,

ln _ ln _ ln _ ln

ln _ ln _ ln

i t i i t i i t n i i t

i i t i i t i i t i i t i t

Entr act const WEntr act Entr act Inst

Human cap Market pot Support

Factor Indicator

Institutions Investment Risk Evaluation RAEX

The index of bank services availability in the region (Bank of Russia)

Human capital Unemployment rate, %

The average number of years of education,%

Market potential The amount of available markets, trillion rubles.

SMEs’ governmental

support

The amount of governmental subsidies to support SMEs per enterprise, million rubles.

Control variables

Population density, persons / sq. m. км km

Urbanization (share of urban citizens)%

The share of the mining industry in the GRP%

INVESTMENT RISKS

MARKET POTENTIAL

iz

z

ij

j

iid

GDP

d

GRPGRPMP

05,001,0

GOVERNMENT SUPPORT

11

GMM. Number of observations: 6000

First year lag of dependent variable (embeddedness)0,708 ***

(0,040)0,691***

(0,041)

Spatial effects (neighborhood) of dependent variable 0,155 ***

(0,043)0,144 ***

(0,044)

Investment risks−0,299 ***

(0,048)−0,315***

(0,049)

Unemployment0,073***(0,021)

0,067***(0,021)

Population density-0,481(0,299)

Urbaniztion-0,267(0,366)

Constant0,028 ***

(0,003)0,025***(0,003)

The first-order serial correlation test-4,170

(0)-4,159

(0)

The second-order serial correlation test-1,19 (0,2)

-1,19 (0,2)

The Sargan test for overidentification45,833(0,104)

46,257(0,097)

1998-2007 Economic growth

с

с

12

2008-2014 Uncertain economic situation

GMM. Number of observations: 355

First year lag of dependent variable (embeddedness)0,325***(0,059)

0,387***(0,064)

Spatial effects (neighborhood) of dependent variable 0,212**(0,096)

-0,005(0,107)

The index of bank services availability 0,132*(0,073)

0,180**(0,088)

Unemployment-0,138**(0,055)

Market potential0,490**(0,208)

Population density-0,385(0,385)

Urbanization-0,200***

(0,056)

Mining industry share in GRP 0,013

Constant0,013*(0,008)

-0,020(0,014)

The first-order serial correlation test -3,2 (0,0) -2,9 (0,0)

The second-order serial correlation test -0,03 (1) -0,7 (0,5)

The Sargan test for overidentification20,041(0,129)

19,786(0,137)

с

с

с

CONCLUSION

13

• The high proportion of micro-enterprises in trade and services

can be related to ‘one-day’ firms

• Russian regions differ substantially in entrepreneurial activity

and have different dynamics

• There is no stable regional pattern but there are distinguished

groups of regional leaders and outsiders, regions with growing

and falling activity during 1998-2014

• There is a relationship between institutional development and

entrepreneurial activity

• There should be more active institutional and infrastructural policy

• Unemployment changes its influence

• Geographical location is more important during crisis

• No links between direct public support of SMEs and the

business activity at the regional level

Thank you for your attention!

Stepan Zemtsov,

PhD/senior researcher

E-mail: zemtsov@ranepa.ru

URL:

https://www.researchgate.net/profile/Stepan_Zemtsov

http://www.ranepa.ru/prepodavateli/sotrudnik/?742http://istina.msu.ru/profile/spzemtsov/

Laboratory for corporate strategies and firm behavior studies

Russian Presidential Academy of National Economy and Public

Administration, RANEPA

Innovation Economics Department

Gaidar Institute for Economic Policy, IEP

SME CRITERIA

Prior to 2008 - small businesses (<25% of a property) in the industry - up

to 100 people, SH. and R & D - 60, in retail trade - up to 30, in the

wholesale trade, etc. -. 50

2007 - Federal Law N 209 "On the development of small and medium

enterprises in the Russian Federation" (<49%) for employment: up to 15

people - Micro, 16-100 - small, 101-250 - medium (in terms of revenue,

respectively, 60 million rubles, 400 and 1,000)

2016 - RF Government Decree N 265: revenue, respectively, 120 million

rubles, 800, and 2000