The Informal Economy and the Growth of Small Enterprises in Russia

This article uses Russian regional data to estimate the determinants of the informal economy and to examine the relationship between the informal economy and the growth of legally registered small private enterprises during the transition period. After obtaining an estimate of the size of the informal economy in each Russian region from 1992 to 1999, an analysis is performed to find whether reform progress and institutional qualities account for the informal economy. An evaluation of the links between the informal economy and the growth of small enterprises within Russia is then carried out. The findings suggest that Russia's informal economy resulted from a delay in reform and low qualities of institutions. It was found that the growth of small enterprises is positively affected by the informal economy. These results imply that the informal economy helped entrepreneurial activities to grow in the face of government failure, but these informal activities tend to become official over time.

[1]  Stephen Bond,et al.  Dynamic panel data models: a guide to micro data methods and practice , 2002 .

[2]  Olivier J. Blanchard,et al.  The Economics Of Post-Communist Transition , 1997 .

[3]  Ann L. Owen,et al.  Estimating dynamic panel data models: a guide for , 1999 .

[4]  J. Hanousek,et al.  Problems Measuring the Underground Economy in Transition , 2006 .

[5]  F. Windmeijer.  A Finite Sample Correction for the Variance of Linear Two-Step GMM Estimators , 2000 .

[6]  Byung-Yeon Kim.  The Participation of Russian Households in the Informal Economy: Evidence from the Vtsiom Data , 2002 .

[7]  M. Arellano,et al.  Another look at the instrumental variable estimation of error-components models , 1995 .

[8]  Simon Johnson,et al.  Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69 Countries , 1999 .

[9]  D. Mazumdar.  Segmented Labor Markets in LDCs , 1983 .

[10]  Giovanni Bruno,et al.  Approximating the bias of the LSDV estimator for dynamic unbalanced panel data models , 2005 .

[11]  Byung-Yeon Kim.  Informal Economy Activities and Entrepreneurship in Russia , 2010 .

[12]  Byung-Yeon Kim,et al.  Political constraints and economic reform: Empirical evidence from the post-communist transition in the 1990s , 2006 .

[13]  M. Nerlove,et al.  Biases in dynamic models with fixed effects , 1988 .

[14]  M. Ravallion,et al.  Benefit Incidence, Public Spending Reforms, and the Timing of Program Capture , 1999 .

[15]  Jonathan Gershuny,et al.  The informal economy , 1979 .

[16]  D. N. DeJong,et al.  Regional integration: an empirical assessment of Russia , 2003 .

[17]  W. Maloney.  Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico , 1999 .

[18]  Andrew M. Warner.  Is Economic Reform Popular at the Polls? Russia 1995 , 2001 .

[19]  Byung-Yeon Kim,et al.  The Dynamics of Moonlighting: What is Happening in the Russian Informal Economy? , 2001 .

[20]  R. Blundell,et al.  Initial Conditions and Moment Restrictions in Dynamic Panel Data Models , 1998 .

[21]  Simon Johnson,et al.  The Unofficial Economy in Transition , 1997 .

[22]  Eduardo Borensztein,et al.  The Evolution of Output in Transition Economies; Explaining the Differences , 1999 .

[23]  Daniel Kaufmann,et al.  Integrating the Unofficial Economy into the Dynamics of Post-Socialist Economies: A Framework of Analysis and Evidence , 1996 .

[24]  M. Lackó.  Hidden Economy - an Unknown Quantity? Comparative Analysis of Hidden Economies in Transition Countries, 1989-95 , 2000 .

[25]  W. Pyle,et al.  A Note on Measuring the Unofficial Economy in the Former Soviet Republics , 2001 .

[26]  John S. Earle,et al.  Entrepreneurship from Scratch: Lessons on the Entry Decision into Self-Employment from Transition Economies , 1999 .

[27]  J. Temple,et al.  Does External Trade Promote Financial Development? , 2005 .

[28]  Oecd Ilo,et al.  Measuring the non-observed economy. A handbook , 2002 .

[29]  D. N. DeJong,et al.  Policy Reform and Growth in Post-Soviet Russia , 2003 .

[30]  E. Zhuravskaya,et al.  Deregulation of Business , 2007 .

[31]  V. Ginsburgh,et al.  The effects of irregular markets on macroeconomic policy : Some estimates for belgium , 1985 .

[32]  S. Basu,et al.  Corruption in Transition , 1998 .

[33]  D. N. DeJong,et al.  Entrepreneurship and Post-Socialist Growth , 2001 .

[34]  Byung-Yeon Kim.  Informal economy activities of Soviet households: size and dynamics , 2003 .

[35]  M. Arellano,et al.  Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations , 1991 .

[36]  Prakash Loungani,et al.  Central bank independence, inflation and growth in transition economies , 1995 .

[37]  Jan F. Kiviet,et al.  On bias, inconsistency and efficiency of various estimators in dynamic panel data models , 1995 .

[38]  I. Wallerstein,et al.  Beyond Regulation: The Informal Economy in Latin America@@@Creating and Transforming Households: The Constraints of the World Economy. , 1994 .

[39]  Clive G. Bowsher.  On testing overidentifying restrictions in dynamic panel data models , 2002 .

[40]  Christopher Woodruff,et al.  Formal Measures of the Informal-Sector Wage Gap in Mexico, El Salvador, and Peru , 1997, Economic Development and Cultural Change.

[41]  Carlos A. Végh,et al.  Stabilization and Growth in Transition Economies: The Early Experience , 1996, SSRN Electronic Journal.

[42]  Manuel Castells,et al.  The Informal Economy: Studies in Advanced and Less Developed Countries. , 1990 .

[43]  Yusaf H. Akbar,et al.  The Electricity Sector , 2003 .

[44]  Byung-Yeon Kim,et al.  The Political Economy of Reforms: Empirical Evidence from Post-Communist Transition in the 1990s , 2003 .

[45]  V. Popov.  Reform Strategies and Economic Performance of Russia's Regions , 2001 .

[46]  J. Mcmillan,et al.  Journal of Economic Perspectives—Volume 16, Number 3—Summer 2002—Pages 153–170 The Central Role of Entrepreneurs in Transition Economies , 2022 .

[47]  Patrick K. Asea.  The informal sector: baby or bath water? A comment , 1996 .

[48]  Daniel Berkowitz,et al.  Does privatization enhance or deter small enterprise formation , 2001 .

[49]  F. Schneider,et al.  Shadow Economies: Size, Causes, and Consequences , 2000 .

[50]  Norman V. Loayza,et al.  The Economics of the Informal Sector: A Simple Model and Some Empirical Evidence from Latin America , 1996 .