Skip to main content

Advertisement

SpringerLink
Log in

Determinants of governmental support of Russian companies: lessons on industrial policy, rent-seeking and corruption

  • Original Paper
  • Published:
Constitutional Political Economy Aims and scope Submit manuscript

Abstract

The Russian government has programs to assist Russian companies with financial and organizational support. Award of procurement contracts may also serve as assistance to companies. This paper uses data from a survey of Russian companies to draw inferences about the motivation behind the choice of recipients. Possible motivations are an intent to foster economic development, successful rent-seeking by recipients or simply corruption. The evidence is mixed. There is support for both the economic development motive and rent-seeking in the analysis of financial and organizational support. A role for corruption is most evident in the procurement contract results.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Data availability

The raw data that support the findings of this study are openly available at National Research University Higher School of Economics at https://iims.hse.ru/rusfirms.

Notes

  1. Rodrik (2004) argues that industrial policy does not require that government pick winners. Rather, he says that if government supports a process in which firms or entrepreneurs find new products to sell, and possibly export, or new markets for old products, that it need not, indeed will not, identify specific firms or industries to subsidize. Under an appropriate industrial policy, government will finance activities to overcome externality and informational problems and, he argues, government should drop support of unproductive firms rather than prop them up with additional assistance.

  2. However, as one referee suggested, large firms may also have greater expertise and therefore are more worthy government support. We note, that we identify firms by industry and by nature of products, which may capture this expertise effect.

  3. The questionnaire is available online in Russian by the following link: https://iims.hse.ru/en/rfge/question. Data is available by the following link: https://iims.hse.ru/rusfirms.

  4. Reich and Magaziner (1982) assert that a “hodgepodge of subsidies, loan guarantees, tax expenditures and procurement contracts” are an unconsciously chosen industrial policy.

References

  • Aidt, T. S. (2016). Rent seeking and the economics of corruption. Constitutional Political Economy, 27(2), 142–157.

    Article  Google Scholar 

  • Altenburg, T. (2011). Industrial policy in developing countries: Overview and lessons from seven country cases. German Development Institute Discussion, 4, 1–110.

    Google Scholar 

  • Anon. (2018). 1 in 10 Russians want to emigrate—state pollster. The Moscow times: Independent news from Russia. https://www.themoscowtimes.com/2018/07/05/one-in-10-russians-want-to-emigrate-state-pollster-a62113. Accessed July 28, 2019.

  • Anon. (2019). Official data vastly underestimates Russian emigration—Report. The Moscow times: Independent news from Russia. https://www.themoscowtimes.com/2019/01/16/official-data-vastly-underestimates-russian-emigration-report-a64158. Accessed July 28, 2019.

  • Braguinsky, S., & Yavlinsky, G. (1994). The inefficiency of laissez-faire in Russia: Hysteresis effects and the need for policy-led transformation. Journal of Comparative Economics, 19(1), 88–116.

    Article  Google Scholar 

  • Büchner, S., Freytag, A., González, L. G., & Güth, W. (2008). Bribery and public procurement: An experimental study. Public Choice, 137(1–2), 103–117.

    Article  Google Scholar 

  • Budzinski, O., & Schmidt, C. (2006). European industrial policy: Economic foundations, concepts and consequences. SSRN Electronic Journal. http://ssrn.com/abstract=920060. Accessed July 28, 2019.

  • Chen, C. J., Ding, Y., & Kim, C. (2010). High-level politically connected firms, corruption, and analyst forecast accuracy around the world. Journal of International Business Studies, 41(9), 1505–1524.

    Article  Google Scholar 

  • Chen, C. J. P., Li, Z., Su, X., & Sun, Z. (2011). Rent-seeking incentives, corporate political connections, and the control structure of private firms: Chinese evidence. Journal of Corporate Finance, 17(2), 229–243.

    Article  Google Scholar 

  • Coates, D. (1995). Electoral support and the capture of legislators: Evidence from North Carolina’s vote on radioactive waste disposal. The Rand Journal of Economics, 26(3), 502–518.

    Article  Google Scholar 

  • Coates, D. (1996). Jobs vs. wilderness areas: The role of campaign contributions. In R. Congleton (Ed.), The political economy of environmental protection (pp. 69–96). University of Michigan Press.

  • Coates, D., & Munger, M. (1995). Legislative voting and the economic theory of politics. Southern Economic Journal, 61(3), 861–872.

    Article  Google Scholar 

  • Connolly, R. (2013). State industrial policy in Russia: The nanotechnology industry. Post-Soviet Affairs, 29(1), 1–30.

    Article  Google Scholar 

  • Dong, Z., Xiahai, W., & Yongjing, C. (2016). The allocation of entrepreneurial efforts in a rent-seeking society: Evidence from China. Journal of Comparative Economics, 44(2), 353–371.

    Article  Google Scholar 

  • Dubnick, M., & Holt, L. (1985). Industrial policy and the states. Oxford University Press, 15(1), 113–129.

    Google Scholar 

  • Ermakov, V. (2013). Export potential of the Russian small and medium enterprises & their state support system. European Investment Bank. http://www.liaa.gov.lv/files/liaa/attachments/ermakov_-_eud_-_eng.pdf. Accessed July 28, 2019.

  • European Investment Bank. (2013). Small and medium entrepreneurship in Russia. http://www.eib.org/attachments/efs/econ_study_small_and_medium_entrepreneurship_in_russia_en.pdf. Accessed July 28, 2019.

  • Faccio, M. (2010). Differences between politically connected and nonconnected firms: A cross-country analysis. Financial Management, 39(3), 905–927.

    Article  Google Scholar 

  • Faccio, M., Masulis, R. W., & McConnell, J. J. (2006). Political connections and corporate bailouts. Journal of Finance, 61(6), 2597–2635.

    Article  Google Scholar 

  • Felipe, J. (2015). Development and modern industrial policy in practice: Issues and country experiences. Cheltenham: Edward Elgar Publishing.

    Book  Google Scholar 

  • Ferraz, C., Finan, F., & Szerman, D. (2015). Procuring firm growth: The effects of government purchases on firm dynamics. Cambridge: NBER.

    Book  Google Scholar 

  • Goldman, E., Rocholl, J., & So, J. (2013). Politically connected boards of directors and the allocation of procurement contracts. Review of Finance, 17(5), 1617–1648.

    Article  Google Scholar 

  • Harrison, A., & Rodriguez-Clare, A. (2010). Trade, foreign investment, and industrial policy for developing countries. In D. Rodrik & M. Rosenzweig (Eds.), Handbook of development economics (Vol. 5). Amsterdam: Elsevier.

    Google Scholar 

  • Hessami, Z. (2014). Political corruption, public procurement, and budget composition: Theory and evidence from OECD countries. European Journal of Political Economy, 34, 372–389.

    Article  Google Scholar 

  • Kyriacou, A. P., Muinelo-Gallo, L., & Roca-Sagalés, O. (2015). Construction corrupts: Empirical evidence from a panel of 42 countries. Public Choice, 165(1–2), 123–145.

    Article  Google Scholar 

  • Malmendier, U., & Tate, G. (2005). Does overconfidence affect corporate investment? CEO overconfidence measures revisited. European Financial Management, 11(5), 649–659.

    Article  Google Scholar 

  • Mauro, P. (1998). Corruption and the composition of government expenditure. Journal of Public Economics, 69(2), 263–279.

    Article  Google Scholar 

  • Mian, A. R., & Khwaja, A. I. (2004). Do lenders favor politically connected firms? Rent Provision in an Emerging Financial Market, 120(4), 1371–1411.

    Google Scholar 

  • Pavitt, K. (1984). Sectoral patterns of technical change: Towards a taxonomy and a theory. Research Policy, 13(6), 343–373.

    Article  Google Scholar 

  • Pirvu, D. (2015). Corruption: Profile of political companies in Romania. Acta Oeconomica, 65(1), 65–82.

    Article  Google Scholar 

  • Plekhanov, A., & Isakova, A. (2011). Region-specific constraints to doing business: Evidence from Russia. London: European Bank For Reconstruction and Development.

    Google Scholar 

  • Popa, M. (2018). What do good governments actually do? An analysis using European procurement data. European Political Science Review, 10(3), 369–391.

    Article  Google Scholar 

  • Reich, R. B., & Magaziner, I. (1982). Minding America's business: The decline and rise of the American economy. New York: Harcourt Brace Jovanovich.

    Google Scholar 

  • Rodrik, D. (2004). Industrial policy for the twenty-first century. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.617544.

    Article  Google Scholar 

  • Safonov, S. (2014). Small and medium entrepreneurship in Russia. European Investment Bank. http://www.eib.org/attachments/general/events/2014_03_12_luxembourg_sme_financing_enca_safonov_en.pdf. Accessed July 28, 2019.

  • Stigler, G. J. (1971). The theory of economic regulation. The Bell Journal of Economics and Management Science, 2(1), 3–21.

    Article  Google Scholar 

  • Terracol, A. (2002). Triprobit and the GHK simulator: A short note. STATA documentation. http://fmwww.bc.edu/repec/bocode/g/GHK_note.pdf. Accessed May 15, 2006.

  • Tkachenko, A., Yakovlev, A., & Kuznetsova, A. (2017). ‘Sweet deals’: State-owned enterprises, corruption and repeated contracts in public procurement. Economic Systems, 41(1), 52–67.

    Article  Google Scholar 

  • Warwick, K. (2013). Beyond industrial policy: Emerging issues and new trends. [OECD Science, Technology and Industry Policy Papers]. https://www.oecd-ilibrary.org/science-and-technology/beyond-industrial-policy_5k4869clw0xp-en. Accessed August 30, 2018.

  • Yakovlev, A. (2006). The evolution of business: State interaction in Russia: From state capture to business capture? Europe-Asia Studies, 58(7), 1033–1056.

    Article  Google Scholar 

  • Yakovlev, A., & Demidova, O. (2012). Access of firms to public procurement in Russia in the 2000s: Before and after radical reform of regulation. International Journal of Economic Policy in Emerging Economies, 5(2), 140–157.

    Article  Google Scholar 

  • Yakovlev, A., Vyglovsky, O., Demidova, O., & Bashlyk, A. (2016). Incentives for repeated contracts in public sector: Empirical study of gasoline procurement in Russia. International Journal of Procurement Management, 3(9), 272–289.

    Article  Google Scholar 

Download references

Acknowledgements

This study comprises research findings from the Project No. 18-18-00270 supported by the Russian Science Foundation.

Author information

Authors and Affiliations

  1. University of Maryland Baltimore County, Baltimore, USA

    Dennis Coates

  2. National Research University Higher School of Economics, Perm, Russia

    Dennis Coates, Iuliia Naidenova & Petr Parshakov

Authors
  1. Dennis Coates
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Iuliia Naidenova
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Petr Parshakov
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Dennis Coates.

Ethics declarations

Conflict of interest

No potential conflict of interest was reported by the authors.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Appendix

Appendix

See Tables 9, 10, 11, 12, 13, 14, 15, 16 and 17.

Table 9 Support by type and government
Full size table
Table 10 Aggregate support
Full size table
Table 11 Multiple sources and types of support
Full size table
Table 12 Bribery
Full size table
Table 13 Federal district
Full size table
Table 14 City type
Full size table
Table 15 Sector
Full size table
Table 16 Pavitt industry type
Full size table
Table 17 Joint hypothesis tests
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Coates, D., Naidenova, I. & Parshakov, P. Determinants of governmental support of Russian companies: lessons on industrial policy, rent-seeking and corruption. Const Polit Econ 30, 438–466 (2019). https://doi.org/10.1007/s10602-019-09289-z

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10602-019-09289-z

Keywords

JEL Classification

Search

Navigation