FACTORS OF ENTREPRENEURIAL

ACTIVITY AND REGIONAL

DEVELOPMENT IN RUSSIA

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

Vienna

24.08.2016

56th ERSA Congress

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 and its relationship with regional development

The (null) hypothesis:

• There are no significant regional factors because of stochastic processes

in SME’s sector in 90th, lack of entrepreneurial culture and strong

redistributive budget policy in 2000th

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

POTENTIAL REGIONAL FACTORS

4

• Institutions and entrepreneurial culture

(Davidsson, Wiklund, 1997; Volha, 2005; Freytek, Thurik, 2006; Acs et al.,

2008; Thornton et al., 2011; Yakovlev, Zhuravskaya, 2011; Estrin, 2013;

Lijeblad, Norstrom, 2013; Fritsch, Wyrwich, 2014; Nielsen, 2014)

• Human capital and creativity

(Andersson, 1985; Florida, 2003; Lee et al., 2004; Acs, Armington, 2004;

Nielsen, 2014)

• Public policy towards entrepreneurship

(McQuaid, 2002; Wagner, Sternberg, 2004; Audretsch, 2004; Storey, 2008)

• Regional clusters

(Bresnahan et al, 2001; Feldman, 2001; Armington, Acs, 2002; Delgado et

al., 2010; Fritsch, 2011)

WHAT IS ENTREPRENEURIAL ACTIVITY?

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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?

REGIONAL PATTERNS OR STOCHASTIC PROCESS?

6

Groups of 15 regions, sorted by rank of entrepreneurial activity in 1998

The first group includes the regions with the highest rank, a group of 6 - with the lowest

Groups of 15 regions, sorted by rank of entrepreneurial activity in 1998

REGIONAL PATTERNS OR STOCHASTIC PROCESS?

7 Groups of 15 regions, sorted by rank of entrepreneurial activity in 2014

Group of regions with high rates for the entire period: St. Petersburg, Moscow,

Kaliningrad, Novosibirsk, Samara, Yaroslavl, Sverdlovsk, Magadan, Belgorod and Omsk

Group of regions that are constantly moved into a group with a higher rank: Tyumen,

Kirov, Ulyanovsk, Lipetsk, Pskov Region, Khabarovsk Territory and Khakasia

REGIONAL ENTREPRENEURSHIP CULTURE?

8

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

SIGNIFICANT VARIABLES

Rate of business institutions development - investment risk index (RAEX): criminal, corruption, social, ecological risks, etc.

Market potential (as an indicator of access to trade, investment, etc.) – volume of regional market, neighboring regional and national markets

Provision of banking services (as an indicator of access to capital and the development of market institutions)

-30

-20

-10

0

10

20

30

40

50

60

70

80

0,5 1 1,5 2 2,5 3 3,5

E_1_1

Inst_11_2

E_1_1 Юв Inst_11_2 (б ЯЮФСЮаЮЬ ЯЮ јЅє)

Y = 25,3 - 12,0X

0

10

20

30

40

50

60

70

80

5 10 15 20 25

E_1_1

EGP_5_1

E_1_1 Юв EGP_5_1 (б ЯЮФСЮаЮЬ ЯЮ јЅє)

Y = 4,53 + 0,987X

The proximity to major economies The rate of business institutions development

MARKET POTENTIAL

iz

z

ij

j

iid

GDP

d

GRPGRPMP

05,001,0

Market potential, trillions of rubles

PRELIMINARY RESULTS

Period, model 2002-2007, FE 2011-2014, FE

Constant 1,47*** 1,87***

Investment Risk (0 – 1) -0,40***

Market potential, trillion

rubles 0,11*** 0,06***

The provision of banking

services (0 – 1) 0,68***

R-squared 0,9 0,95

Dependent variable:

ln (number of small businesses (including micro) per 1,000

economically active population)

Indicators of state support (including cluster initiatives) have

almost no effect on entrepreneurial activity

ENTREPRENEURSHIP AND REGIONAL GROWTH

The positive impact of the start-up activity (entrepreneurship capital) on

regional performance and growth (Carree, Thurik, 2003; Acs et al, 2004;.

Audretsch, Keilbach, 2004; Van Stel et al, 2005;. 2008; Glaeser et al, 2014;.

Belitski et al., 2015)

3

1,

2

1,

1

,

,

,

,

titi

ti

ti

ti

tiEK

L

C

L

Y

Y – output (gross regional product, rubles)

i – region

C – capital (investment in fixed assets, rubles)

L – labour (economically active population (EAP), persons)

K – knowledge capital (number of potentially commercializable patents for

million employed urban citizens with higher education)

E – entrepreneurship capital (number of small enterprises, including micro,

per thousand EAP)

PRELIMINARY RESULTS

FE. 1998-2014

Constant 4,1*** (0,1)

Investment in fixed assets in the prices of

2014, mln rubles per EAP 0,33*** (0,02)

Number of potentially commercializable

patents per million of employed urban

citizens with higher education

0,03*** (0,01)

The number of small enterprises,

including micro, per thousand EAP 0,13*** (0,02)

R-squared 0,96

Dependent variable: GRP per EAP, rubles

All variables are log transformed

CONCLUSION

14

• 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

• No links between direct public support of SMEs and the

business activity at the regional level

• Entrepreneurial activity together with innovation potential can be

considered as an important factor affecting regional

development

Thank you for attention!

Stepan Zemtsov,

PhD/senior researcher

E-mail: zemtsov@ranepa.ru

URL: http://www.ranepa.ru/prepodavateli/sotrudnik/?742

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