Essays on the roles of the public and private sectors in Russia

Abstract

Concerning the roles of private and public sector, Russia is one of the most interesting countries. Firstly, in Russia, the role of government is present in some form at virtually all sectors of the economy despite the rapid shift away from socialism in the beginning of 1990s. Secondly, contrary to the first assessments, the global crisis of 2008 did not restrict itself to Western countries and Russia was actually one of the hardest hit. As a response, with its unprecedented financial resources Russian government initiated very aggressive support measures, which have been criticized e.g. for supporting outdated structures and further enhancing state’s role in the economy.

A vast theoretical literature exists on the roles between private and public sector and there is also a relatively abundant empirical literature on this theme with Russian data. However, much of the empirical analysis for Russia on the theme concentrates on privatization leaving a gap for other aspects of the public-private debate. This gap concerns research themes as well as data and methodology and the aim of this dissertation is to fill some of these gaps. Besides the quite unique data sets, another major contribution of the dissertation is the introduction of non-parametric regression methodology. Russia, with its huge heterogeneity and heavy structural changes poses many challenges to typical linear or parametric econometric techniques. Non-parametric methodology helps to alleviate these problems but yet such applications with Russian data are virtually non-existent prior to this dissertation. In essay one we introduce important methodological contributions to the literature on productivity of public capital private output. Our empirical results suggest that the impact of public capital on private output in Russia is heterogeneous in the sense that for some regions its contribution to private output is insignificant or even negative while it has a considerable positive role for most regions.

In essay two I examine the role of the Federal financial transfer system as an interregional insurance scheme among Russia’s regions. I find evidence that the system has roughly operated according to its nominal target but it should be regarded as insurance against asymmetric regional tax income shocks rather against output shocks. In essay three we study the motives of private firms who provide public goods to local communities and we conclude that firms aim at mitigating risks to every operations that arise from labor disloyalty, infrastructure interruptions and, most interestingly, from relations with authorities. Finally, in essay four I develop an approach to composite indicator construction that is theoretically justified and aims at minimal subjectivity. The approach is applied to regional economic potential in Russia and it incorporates various public and private sector subindicators that relate to regional potential.