Unpredictability of administrative regulation diminishes corporate investment appetite in Russia

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/43

The World Bank recently published a study (Levina & al. 2016) that examines how informal administrative regulation is related to the eagerness of firms to invest in Russian regions. Most of the data are based on the Russian Firms in the Global Economy survey conducted in autumn 2014. The data set has been supplemented with regional variables, BEEPS survey material on corruption factors and the NGO “Companies Against Corruption” information on hostile takeovers. The sample covers about 1,500 Russian companies in 35 regions.

The findings show companies adjust to the level of administrative corruption in a region if corruption is a predictable and foreseeable component in an investment decision. If, however, the firm’s experience with administrative corruption in the region varies greatly, the unpredictability of corruption diminishes the company’s appetite for investment. Corporate eagerness to invest is also hurt by inconsistent enforcement of property rights and the possibility of unexpected hostile takeovers. While the study makes no policy recommendations, it reinforces earlier views that the uncertainty in the business environment discourages investment, which then impedes economic recovery in Russia.

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