Small business in Russia: institutions, market potential, taxes and digitalization

ABSTRACT

In this paper we use an institutional approach and apply a regional perspective to explore how market potential, formal institutions, taxes, access to finance, regional policy instruments, and digitalization have affected small business activity in 83 Russian regions during 2008–2018. We use various regional data sources and official statistics to study the effects of regional business environments on entrepreneurship. Our results suggest that Russia’s business environment, including policy measures in taxation, is important in explaining small business activity, however digital transformation and the role of market potential can be better controlled by entrepreneurs in terms of what skills to learn and where to locate their businesses. In addition, we discuss the effect of exogenous shocks and changes in the business environment, along with dynamics, challenges, and perspectives of entrepreneurship in Russia.

KEYWORDS:

• Entrepreneurship
• business environment
• institutions
• SMEs
• Russia
• regions
• public support
• digital transformation

Acknowledgments

The authors thank M. Fritsch, A. Chepurenko, unknown reviewers, and the participants of the International Science Exploration Event 2019, the Leontief Readings 2020 and the RANEPA International conference in 2021 for valuable comments and advice. The article was completed within the RANEPA state assignment.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Serial entrepreneurs most often create their new firms in the same regions where the previous ones are located. Therefore, there may be fewer entrepreneurs than registered firms in the leading regions, but these entrepreneurs may be more productive.

2. In Russia, these are two different categories that both refer to informal employment. Moreover, sole proprietorships can hire additional employees, and self-employed can be both in a legal form (after tax authority registration) and unreported (shadow economy). Many individual enterprises (sole proprietorships) are created for the purpose of tax evasion. In the informal sector, there are other development factors, and entrepreneurial ecosystems are mainly considered within the framework of formal productive business. Therefore, these categories were not considered in our study.

3. The random effects model is useful when all objects are extracted randomly from some general set. For regional samples fixed effects estimation are commonly used (Dougherty, 2011).

4. https://rosstat.gov.ru/folder/210/document/13,223

5. All kinds of crimes are included. Hipp et al. (2019) found that not only economic but also violent crime rate may affect business activity. Moreover, violent crimes force potential entrepreneurs to leave their place of residence.

6. https://www.fedstat.ru/indicator/36224

7. https://www.fedstat.ru/indicator/42571

8. https://cbr.ru/about_br/publ/nadzor/

9. https://www.nalog.ru/rn77/related_activities/statistics_and_analytics/forms/. Data on SME support (subsidies) is available only since 2012. Accordingly, we use it for the period 2012–2018.

10. https://www.glavbukh.ru/art/55851-tablitsa-ponijennyh-stavok-usn-v-2021-godu-po-regionam

11. http://www.consultant.ru/document/cons_doc_LAW_190568/

12. http://eng.russez.ru/ A discrete variable that takes on the values 0, 1, 2, or 3, depending on the number of SEZs in the region.

13. https://www.fedstat.ru/indicator/34078

14. https://rosstat.gov.ru/folder/210/document/13,204

15. For such a large country as Russia, it is important to take into account inter-regional differences in prices. To do so, we use the cost of living, which expresses the purchasing power of the ruble and the real households’ incomes in different territories

16. https://rosstat.gov.ru/folder/13,397

17. https://rosstat.gov.ru/accounts

18. https://rosstat.gov.ru/labour_force

19. https://rosstat.gov.ru/folder/210/document/13,204