Long-term effects of extractive and inclusive institutions on entrepreneurship persistence in Russian regions

Abstract

Some institutions can restrict or stimulate the  business activity, which affects long­term economic  growth. To assess this  influence on regional level, we have collected and processed  historical data on the  distribution of serfs, the  creation of universities, and  business  activity over  more  than a century. By business activity, we mean various  direct and  indirect assessments of the  involvement of the  population in entrepreneurial activity: merchants, NEPmen, cooperatives, small businesses, etc. Although the  geography of business  activity has constantly changed, we can  identify  relatively stable centers  (Moscow,  St. Petersburg, the  south  of the  Far Eastern Russia) and the  periphery (some regions of the  North Caucasus, the Central  Black   Earth  and   the Volga   regions).  Econometric calculations confirm  the  existence of a relationship between the  current density of small businesses  in the  Russian  regions and the  density of cooperatives in the  late Soviet period; the  relationship with  the  density of retail enterprises disappears by the 1970s as the planned economy  strengthens. But the relationship  with the  merchant class is ambiguous: only  in some regions  did  the  entrepreneurial culture manage  to survive  the  Soviet period. We distinguish three  main channels of  influence of  the historical level  of  business  activity on  the  modern  one: geographical, functional, and  socio­cultural.  According to the calculations, the  earlier  emergence  of universities in the  regions  contributed to the  spread  of business  culture and could stimulate the  emergence  of more inclusive institutions, but serfdom, as an extractive institution, on the  contrary, could  limit incentives for entrepreneurship. Even  after a radical change  in the  political and  economic regime, the  influence of extractive institutions on business  activity may persist, and  inclusive institutions take a significant amount of time to take root.