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Title: Institutional Subversion: Evidence from Russian Regions

Author(s): Irina Slinko, Evgeny Yakovlev and Ekaterina Zhuravskaya

Publication Date: August 2003

Keyword(s): capture, institutional subversion, reforms and russia

Programme Area(s): Transition Economics

Abstract: What are the effects of institutional subversion on small business development, fiscal policies, economic growth, and firm performance? This Paper provides an empirical investigation of institutional subversion in Russia?s regions. We develop a complete account of preferential treatments to the largest regional firms in texts of regional legislation during 1992-2000. The concentration of preferential treatments is used as a proxy for legislative subversion. Based on cross-section and panel data analysis, we find that regional institutional subversion has an adverse effect on small business growth, tax collection, social public spending, and federal tax arrears. Robustness of these results is verified by looking at a proxy for potential subversion based on size concentration in regional economies. The alternative approach produces similar results. Regional political influence generates substantial gains to firms both in the long and the short run. These firms exhibit faster growth in sales, market share, profitability, employment, and capital compared to their counterparts who are not politically connected. Yet, firms that exercise political influence have lower labour productivity.

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Bibliographic Reference

Slinko, I, Yakovlev, E and Zhuravskaya, E. 2003. 'Institutional Subversion: Evidence from Russian Regions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4024