Financial Development and Economic Growth in Russia

This chapter examines the effects of financial deepening on the sources of economic growth in Russia. Previous empirical literature based on cross-country studies presented the evidence that in developing countries financial development affects capital accumulation more than productivity growth. We tested this proposition with panel data from 75 regions of Russia’s regions between 2008 and 2015 using system generalized method of moments techniques. Our results are not consistent with this proposition: the effect of finance on output growth occurs primarily through productivity; the positive influence of finance on capital accumulation is less significant, which is more typical for developed countries. This outcome can be explained by the fact that structural problems in Russia and developed countries are somewhat similar. More helpful for Russian economy are tools that would help business get a more profound effect from efforts to promote innovation and boost productivity than from increasing investment by expanding credit.