THE FOURTH STAGE OF RESEARCH UNDER THE AUSPICES OF THE USAID GRANT
A new stage of the cooperation between IET and USAID was launched in September 2001. At this stage, the IET staff undertakes theoretic and applied research in such areas as macroeconomics, corporate governance, political economy, and the real sector, among others.
The Institute staff is also involved in provision of counseling and policy advice to Russian agencies, specifically the RF Ministry of Finance and the Ministry of Economic Development and Trade.
IET publishes numerous papers, and some of them have been translated into English. In addition, the Institute hosts seminars with the participation of prominent Russian and foreign experts.
The Institute research outputs are discussed at international symposia and conferences, thus ensuring their greater outreach among international academia.
The list of the most recent papers by IET experts completed under the auspices of the cooperation with USAID is available below (their Russian versions are posted on the Institute Homepage at: www.iet.ru).
aspects of Russia’s monetary and credit policy
By: Drobyshevsky, S. and Kozlovskaya, A.
The authors consider that the detailed evaluation of interaction between monetary policy and the real sector was not held, due to a small number of observations. At present, there is a growing need, and the possibility arose for a more in-depth research into various aspects of monetary and credit policy conducted by the Central Bank of RF. The possibility of such an analysis is determined by existence of a long (over 100 observations) series of monthly indicators by the whole period of observations after the 1998 crisis (over 30). The results of the samples appear quite reliable and can be used in the course of formulation of objectives and tasks of monetary authorities at the present stage.
Following our tradition, the studying of demand for money is based upon monetary approach that suggests dependence of price dynamics upon money supply growth rate. The authors intentionally extended the period of observations (specifically, they included the data on the three years after the 1998 crisis) and abandoned structural modeling of equations of consumer price index dynamics. They used co-integration analysis and vector autoregression adjusted models. This allowed consideration of dynamic changes in demand for money under monetary and real shocks with account of short- and long-run effects. The evaluation covers both the whole period of observations (1992-2001) and three sub-periods selected with account of qualitative changes in the nature of demand for money (1992-95, 1995-98, and 1998-2001).
A significant part of the paper deals with testing hypotheses that concern stability of demand for money over the past 10 years. Specifically, the authors discuss hypotheses of accidental nature of the conjunction between price rise rates and money supply, as well as of a possibility of existence of two money supply modes, due to a high and low inflation rate, respectively. The authors attempted to built a system of equations to describe the process of setting up equilibrium between money supply and demand for cash balances on the monetary market.
As a result, by its essence the evaluation of the nature and channels of impact of money on the real sector, along with exposing indistinct purposes in CBR policies appeared the first research of this kind in Russia.
The problem of existence and the nature of impact of money and prices on the real sector forms a key issue of the discussion of the role the Bank of Russia and the RF Government play in implementing an economic policy aimed at provision of a real growth of the national economy. Supporting output in the real sector by increasing money supply, as well as fueling development of single sectors though raising relative prices (which eventually results to a general price rise) are often viewed as attractive options. However, the nature of suggested interactions has remained unstudied as yet.
The paper specifically focuses on evaluation of short-term interaction between prices, money and an actual output. As well, the paper studies possibilities for existence of various channels of impact of monetary and credit policy on an economy. The latter appears especially important in the process of selection of tools and mechanisms of encouragement of an actual growth by means of monetary and credit policy.
The evaluation of indistinct objectives pursued by CBR in the course of implementation of its monetary and credit policy was conducted for the purpose of identification of the most probable macroeconomic indices whose changes appeared crucial for CBR in the course of carrying out operations on the open market (i.e. the government securities market, forex market or interbanking credit market) for the purpose of equalization of actual and targeted values of the indices in question.
In addition to econometric calculations, the paper contains a review of modern views on the problems discussed, as well as a description of methodological approaches to empiric analysis.
Econometric outputs enabled the authors to formulate recommendations concerning monetary and credit and forex policies pursued by CBR RF for the short run and identify problems that may arise in the course of their implementation.
factors of Russia’s monetary and credit policy
By Kadochnikov, P.
The current state of affairs in the country imposes certain constraints upon pursuance of forex and monetary and credit policies. High oil prices fuel a positive current balance of payments, which is also supported by a considerable excess of exports over imports. In the absence of instruments for operations on the open market, compulsory sales of a part of hard currency revenues results in the increase of money supply, which in turn creates monetary prerequisites for inflation and strengthening of the Rb. real exchange rate. At the same time high budget revenues lead to accumulation of a surplus of both the federal and consolidated budgets on accounts with the RF Treasury. The funds are used either to pay off foreign debts, or are accumulated on the accounts, thus sterilizing an increase of money supply against CBR’s purchases of forex.
The present paper deals with evaluation of options for implementation of interventionist policy as well as testing a few hypotheses of dynamics of foreign trade indices, those of forex and monetary and credit policies, and estimation of chances for sterilization of a growing money supply through accumulation of cash balances on accounts the government agencies hold with the RF Treasury.
The qualitative and quantitative evaluations of dynamics of main indicators of balance of payments, forex market and monetary and credit policies presented in the paper demonstrated the following: in the course of accumulation of foreign reserves by CBR chances for sterilization of money supply remained limited, and sterilization was to a significant extent successful – the increment in reserves (in Ruble terms) proved to be far greater than growth in money supply, with the part of sterilized interventions to a significant extent matching fluctuations of cash balances on accounts of the budget system with the Treasury. This means that the growth in exports and in foreign reserves noted along with the price rise for oil were accompanied with an increase in budget revenues and accumulation of surplus that allowed to a considerable, though not full extent sterilization of purchases of hard currency by CBR. The part of interventions that remained non-sterilized resulted in growth of money supply, thus creating monetary prerequisites for inflation. Given a slowly changing value of nominal exchange rate, that, in turn, led to strengthening of real exchange rate by encouraging rise in imports and decline in net hard currency inflow generated by foreign trade.
Estimates of interaction between nominal exchange rate and CBR reserves show that while accumulating reserves under the ongoing trend to strengthening of the Rb. nominal exchange rate, CBR restricted fluctuations of exchange rate by suppressing excessive demand or buying an excessive offer of hard currency, thus maintaining a relatively stable exchange rate and not being keen to generate speculative profits from exchange rate fluctuations.
of building production functions in the Russian transitional economy.
by Bessonov, V.
The paper deals with studying into an aggregate model of economic growth whose element is production function that relates output to volumes of production assets, labor costs, and, possibly, other production factors. Unisectoral models of this kind are used as an instrument applied both to built economic forecasts towards prognostic horizons over achievable ones with the use of time series models that are based upon extrapolation of existing trends, and for conduct of a retrospective analysis of process taking place on macrolevel.
In developed economies, the production function apparatus is well-developed, and there is an extensive literature on this particular issue. However, the circumstances of a transitional economy (and prior to that – the planned one) introduce substantial specifics to the area of building production functions. For instance, as far as a transitional economy is concerned, it is problematic even to obtain any reliable data on production factor costs, particularly those associated with assets and labor, and these problems are caused both by technical and, to a greater extent, principle, difficulties. The problem is that in the conditions of transitional economy it is hard – and often impossible – to provide market estimations for production assets.
Similarly, difficulties arise whenever one tries to estimate labor costs in the conditions of labor hoarding, when employees are accounted according to a formal condition, i.e. their official jobs rather than actual labor costs. In the conditions of intense structural shifts typical of a transitional economy, the aggregate economic indexes used for building production functions may not contain some essential information of movements of the totality of individual indexes. This can generate ambiguous results There also arise a question as to what extent it is appropriate to use these particular production functions (assets and labor) with respect to a transitional (prior to that- planned) economy and the very functional form, which a regular production function represents.
Under market economy, this choice is not at all arbitrary, and it is based upon some theoretical grounds, which, in turn, allows a certain way of interpretation of characteristics of production functions (say, comparison of a partial derivative of output of labor with salaries and wages). However, the problem of to what extent this theoretical basis appears adequate to a transitional economy needs to be discussed. As far as transitional economy is concerned, this provides grounds for a substitution of the concept of production function by a more general concept of production dependence. The latter is a functional dependence that. For example, can take into account both absolute values and growth rates, or an off-center set of production factors (with investment used instead of assets).
and domestic factors of development of Russian real sector (fuel and mineral sector and
by Bobylev, Yu., Dashkeev, V., Izryadnova O., Kadochnikov, P., Polevoy, D.
The paper deals with evaluation of a number of external and domestic factors that the authors believe to have a strongest impact on dynamics of the national real sector and thus determining a state of the Russian economy, budget and balance of payments. Specifically, the authors focus their attention on price dynamics for oil and metals on international markets and changes in tariffs for natural monopolies’ services.
The authors analyze dynamics of international oil prices between 1990 through 2001 and main factors influencing changes in this indicator. The authors single out such impacting factors as the world economy growth rates, climatic conditions, level of efficiency of energy-saving technologies, a relative competitiveness of other kinds of fuel, geological and technological factors, policies the oil-producing countries pursue towards the oil sector, primarily policies of the OPEC countries with respect to regulation of oil production, oil companies’ behavior, the level of industrial oil stock, as well as a number of accidental factors. In addition, the authors evaluated structural characteristics of the world market for oil and the impact of main factors with respect to international oil prices.
The paper deals with studying into the impact of world prices on the oil sector, given that the latter has the highest share of export in production compared with other industry branches in Russia. As well, the paper focuses on an analysis of factors and trends of development of the Russian oil sector over the past decade. The authors justify the solution about the determining impact of the world oil prices on the state of the oil sector, dynamics of production, profit and investment in the oil sector over recent period of time.
The world prices for minerals form one of the most significant externalities that determine the state of the national economy, budget and balance of payments. Levels of the world and domestic prices for metals and forestry products are in close dependence upon the general economic situation and business activity. In addition, the level of world prices also finds itself under a strong impact of specifics of functioning of sectors that are related to the cyclic nature of production in the metallurgical and forestry complexes. The research into trends and factors that impact pricing in the noted sectors showed there was a certain time lag between changes in the domestic prices for metals and the world price dynamics. At the same time the situation noted over recent years shows that with maintenance of price competitive advantages and expansion of domestic consumption, Russian producers have succeeded in adapting themselves to fluctuations on the world market.
The analysis of sectoral dynamics showed that it was changes in Rb. exchange rate and prices for resources, primarily products and services delivered by natural monopolies, consumed by the national metallurgical sector that had a crucial impact on competitiveness of Russian metal products on international markets.
The paper contains results of evaluation of the impact of increase of tariffs for electricity on price level and output, particularly for consumer prices and those for housing and communal services. In the course of carrying out econometric evaluations, the authors also tested the impact of tariffs for gas and rail cargo transportation, and prices for gasoline on the level of consumer prices and those for housing and communal services. It is nominal exchange rate and money base increment rates, with account of a lag, that formed the group of main factors impacting inflation dynamics. The evaluation of models of prices for housing and communal services showed that it was tariffs for electricity, gas and rail transportation that has a statistically significant impact on prices for housing and communal services.
Results of the evaluation of raising tariffs for producer prices in the national economy testify to the fact that it is tariffs for electricity that have the strongest impact on the producer prices: should tariffs be increased, it would result in producer price rise in the fuel and chemical sectors, as well as in the sector for machine engineering.
The rates of gas price rise have a significant positive impact on rates of a producer price rise in the fuel sector and non-ferrous metallurgy. It is also worth noting that there is a significant positive impact of gasoline prices on producer prices in all the sectors, while tariffs for rail cargo transportation have a positive impact on producer prices in both the ferrous and non-ferrous metallurgy.
of Russian economy: a mechanism of reproduction of an excessive regulation and
institutional support to competition on product markets.
By May, V., Zhavoronkov, S., Shadrin, A., Yanovsky, K.
The paper deals with challenges facing the reform of government regulation in Russia, their sources and some possible development options.
The authors put forward a hypothesis of special interests groups emerging on the basis of existing distributive coalitions of the late socialism era. As well, the authors suggested an explanation of their further successes hence and the sustainability of reproduction of an excessive regulation on the federal level. This mechanism is illustrated by a relatively new direction of development of regulatory provisions related to the adoption of the federal law “On quality and safety of food stuffs”, the respective federal and numerous regional acts.
The research provides a review of the process of debureaucratization of the national economy in tandem with a critical evaluation of already enacted laws, the review of reforms in OECD countries, primarily the US, elimination of excessive regulations, and lowering of administrative barriers.
The authors suggested approaches towards verification of hypotheses of incentives to excessive regulation; in addition they demonstrated the existence of statistically reliable interconnection between the capability of a head of executive power of a region to retain his position and establishment of control over media and granting tax benefits.
The paper suggests a concept of administrative “counter-regulation” mechanisms, counteracting administrative barriers and encouragement of regions to employ “ the best practices” in the area of state regulation.
In addition, the paper identifies margins of efficacy of a regulation reform and suggests some main directions for future reforms. That is why a special emphasis is put on procedures that ensure transparency of decision making processes and their implementation.
The authors also suggest amendments to the federal law “On fundamentals of technical regulation, standartization and verification of conformity”.
banking system in the period of the post-crisis stabilization
by Mikhailov, L., Sycheva, L., Timofeev, E., Marushkina, E.
The paper represents a research into shifts in the banking sector in the period of the ongoing economic growth. The authors paid a special attention to sources of credit resources in the post-crisis period. As earlier research showed, it was credits disbursed by non-resident banks that to a significant extent served as a sources of loans for resident enterprises. The 1998 financial crisis accompanied by an outflow of non-residents’ funds and significant volumes of failures to fulfill obligations towards them on time has make this particular source of funds inaccessible for many Russian banks.
The paper analyzes interconnections between the volume of hard currency- denominated loans extended to resident enterprises and such factors as: non-residents’ interbank credits; budget accounts and those of off-budget funds; enterprises’ accounts; enterprises’ deposits; deposits of budget and off-budget funds; private individuals’ deposits. For this purpose a number of regression models are built that expose inter-relations between the volume of hard currency-denominated loans to resident enterprises and various kinds of obligations. To identify regularities, the regression analysis is applied to several dates, including the pre-crisis period, the peak of crisis, and the stabilization period. The authors track down changes in significant factors in the course of building regression models based on data of different samples of banks.
The paper also analyzes dynamics of main indicators of profitability rates in the post-crisis period both in the banking sector on the whole and in single groups of banks formed according to such indices as size and structure of assets, structure of liabilities, share of interest and non-interest receipts in net operational income.
of forecasting some macroeconomic indicators
by Entov, R., Nosko, V., Yudin, A., Kadochnikov, S., Ponomarenko, S.
Various tasks of economic analysis require using statistical data that characterize economic processes concerned and extended in time in the form of time series. At the same time, the same time series are used to solve different problems. One of crucial tasks of macroeconomic policy, including studying dynamics of fundamental variables, is the building of models that allow to carry out forecasting of macroeconomic indicators for future periods.
The purpose of this paper is comparative analysis f quality of different methods of forecasting of time series applied to those ones that reflect dynamics of development of main macroeconomic indices that characterize the state of Russia’s economy. The paper represents a study into prognostic characteristics of time series models built according to actual statistical data for some Russian economic and social series of dynamics ( of GNP, industrial output, employment, budget revenues and expenditure, inflation, money supply, export and import).
In addition to evaluation and comparison of different forecasting methods, the research provides basic data , on the basis of which the methodology of forecasting macroeconomic indices should be built. The research showed that one cannot develop a single universal methodology for the macroeconomic indices concerned. The only exception is a general recommendation that a choice between models made on the basis of a test for a single root comprises the best or closed to that model. To improve estimations with the use of new data, it appears sensible to apply recursive models, i.e. the models with revaluation in the event there is new data added, especially if there are structural shifts in dynamics of the indices (or these structural shifts to a certain extent may be predicted on the basis of considerations or additional information).
Results obtained in the course of the analysis testify to the solution that forecasts are likely to be made on the basis of several models with a consequent analysis of deviations of forecasts from actual values, so that to opt for a model that in the majority of cases would ensure a satisfactory forecast for a few periods ahead. This particularly should provide regular forecasts and discussion of results simultaneously with the analysis of the quality of earlier made forecasts.
facing enforcement in the area of shareholder rights
by Radygin, A., Entov, P., Mezheraups, I.
At present, enforcement forms the weakest link in the property rights protection system. Without a radical change of the current state of affairs in the enforcement area, other measures of property rights protection appear senseless. That is why the paper primarily focuses on theoretical approaches to problems of enforcement of property rights and contractual obligations. The authors analyze problems of implementation of economic rights in a market economy, with a special emphasis put on the problem of economic consequences of an imperfect enforcement system.
A large section of the paper centers on processual aspects of consideration of disputes in the corporate relations area, with a special attention paid to this particular problem with respect to arbitration courts and courts of general jurisdiction, problems of judicial reform and enforcement procedures. Single paragraphs cover the jurisdiction over corporate disputes and provisional remedy problems in the draft Arbitration and Processual Code of RF and the draft Civil Processual Code of RF. While evaluating specifics of consideration of disputes in the corporate relations area in non-government structures, it was arbitration courts and international commercial arbitration courts that became the center of attention.
A separate section comprises a discussion on material and legal aspects of consideration of cases in the corporate relations area: the section researches into specifics of consideration of disputes related to violation of shareholder rights in the course of placement of securities, conclusion of deals in implementation of which there is an interest, recognizing large-scale deals as void, appealing against decisions ruled by boards of directors, recognizing decisions of general shareholder meetings as void, refusal to register issues and recognizing them as void, and property rights for stocks and reorganization of joint-stock companies.
The authors provide applied recommendations that relate to necessary amendments to the current law, as well as to the judicial reform, court enforcement action and regulatory bodies’ authority areas. As well, the authors provide general recommendations regarding formation of an optimal enforcement model for Russia.
of mergers and takeovers in the corporate sector.
by Radygin, A., Entov, R.
The paper represents a n attempt to provide a general review of specifics of Russian corporate control. The authors study modern theoretical approaches to merger and takeover problems with account of international practices: theoretical concepts of mergers and takeovers, their impact on efficacy of economic operations, new forms of restructuring of economic operations, mergers and takeovers as a form of regulation of efficiency, public regulation of economic integration processes.
The authors consider specifics and modern practices of mergers and takeovers in Russia in the context of reorganization and restructuring processes and specifying a number of existing notions and definitions, single out four groups of such specifics. Single sections are dedicated to a research into specifics of the Russian technique of hostile takeovers and methods of protection against them, as well as estimates of prospects of development of such operations in the context of reorganization and consolidation of large Russian groups.
The paper deals with an analysis of the legal base for mergers and takeovers that has formed in Russia and experiences in the area of practical regulation of such processes, with a special emphasis put on existing gaps in the law and problems of regulation.
The authors suggest options for the use of research outputs, particularly: expansion of reorganization forms, ensuring the possibility for commercial entities of different organizational and legal forms to take part in a reorganization, a more developed legal regulation of options of transformation of open-end joint-stock companies established in a compulsory manner during the mass privatization into other organizational and legal forms, and ensuring protection of interests of participants in reorganized commercial entities.
Mediumd-Term Outlook for Basic Food Products’ Consumption in Russia
Serova E., Prokopiev M., Tikhonova T., Ivanova I.
The authors defined the objective of this study as making a forecast of consumer demand. Given that the following basic tasks were set: identification of factors affecting consumer demand; examination of consumer demand regional specifics; drawing a predictive model of demand for food; suggesting a medium-term scenario of consumer demand change in 2002-2004; working out of recommendations for agrifood policy making on the basis of consumer demand medium-term forecast.
To achieve the above mentioned goals authors collected data describing consumer demand for food in the country as a whole and in selected regions. It served the basis for drawing an econometric model of food consumption in general and by selected food products (bakery products, milk and meat products, sugar, vegetable oil, eggs). It’s shown that consumer behaviour patterns have regional specifics.
The suggested model served the basis for imitative calculations allowing to make medium-term situation specific forecasts of consumer demand for basic food products in Russia in general and in selected regions. These forecasts enable to suggest trends of agrifood sector development and to work out recommendations for agrifood policy making.
The conducted study led the authors to the following conclusions.
Even in case of the most favourable market situation, the expansion of consumer demand in the medium term will be slow. It means that domestic demand won’t be a noticeable driving force of agrifood sector growth within this period. In view of the above agrifood policies should focus on favouring and supporting agricultural export as the only way to provide sufficient incentives for agrifood sector growth. This is most important for the production of grain, poultry and eggs the demand for which grows at the slowest rate.
The response of consumer demand to lowering (as well as elevation) of import tariffs is rather weak. That’s why the agrifood foreign trade regulation will primarily take into account interests of domestic producers while those of consumers will be largely ignored. This doesn’t mean that protective measures will always be beneficial: a high rate of protection undermines the sector’s potential and doesn’t create sufficient incentives for technological progress. At the same time an import tariff aimed at temporary protection of domestic cattle feeding can be useful for producers without affecting consumers’ interests.
The weakening of ruble will be most detrimental for consumer demand and consequently for Russia’s agrifood sector development.
The reform of housing and communal services is in the government’s agenda and will be started in the nearest future. Whatever strategy is selected, it should be correlated with agrifood policies in order to minimize agrifood sector’s losses from the reform.
The paper also stresses the need to differentiate approach to development of forestry in different regions of the country. There shouldn’t be a single federal policy towards household farming as its nature varies by regions.
of Budget Support to Russia’s Agrifood Sector in 1994-2001
Serova E., Shick O.
The study analyzes the efficiency of budget expenditures on Russia’s agrifood sector and performs the following basic tasks: estimation of the total amount of budget expenditures on the agrifood sector; analysis of their amount per production factor unit in the agrarian sector and the latter’s share in federal and regional budgets; analysis of structure and dynamics of expenditures on general services and on producer support programmes; appraisal of basic producer support programmes’ efficiency; quantitative estimate of state support to agricultural producers using conventional methods; calculation of share of budget support in the total support to agricultural producers; estimation of budget support impact on consumers using conventional methods; working out of recommendations for shaping agrifood policies.
Authors stress that producer support programmes constitute the major part of budget expenditures while the share of general services is smaller. Budget financing of the agrifood sector is primarily cut at the expense of these programmes. The bulk of outlays (about 70%) is funded from regional budgets. Such expenditures are less transparent, and, besides, regions often use support measures that are destructive for the common economic space of the country (i.e. setting up inter-regional barriers) and contradict federal programmes.
Having analyzed the basic producer support programmes, authors revealed their negative effect on the public well-being and non-compliance of their results with the claimed goals. Three basic causes of Russian agrarian policies’ inefficiency were specified: the lack of state regulation strategy in the agrifood sector basing on understanding of Russia’s competitive advantages in production of certain commodities; the state’s wish to substitute market institutes for regulation instead of favouring their development; shaping of agrarian policies without due regard to the transition nature of national economy.
Authors conclude that budget funds are used inefficiently. This conclusion is supported by calculated quantitative estimates of state support to agricultural producers and consumers: in 2000 the producer support estimate (PSE) was zero. This fact is of particular importance when negotiating with WTO. Having zero level of support Russia could defend its interests in WTO together with Cairns group. Producers are often supported at the expense of consumers. While PSE in 2000 was zero, consumer support estimate (CSE) was negative.
Researchers advise to keep in mind when allocating budget funds that the basic problem faced by agricultural producers is low solvent demand for their products. In the current situation the state support to farmers should be primarily targeted at expanding marketing opportunities.
The study drove authors to the conclusion that the necessary conditions for improving the situation in the agrarian sector are macroeconomic stabilization, low constant inflation rate, exchange rate stability, legal basis clearly defining and protecting property titles, abating of corruption in the government bodies.
Agrarian policies’ priorities should be shifted towards structural improvements, e.g. rural development. It’s important to make market information available to producers and to create favourable environment for investments in all the agrifood sub-sectors. Broadening of such support practices together with curtailed direct market interventions will contribute to success of WTO accession negotiations as the organization doesn’t demand to cut funds on “green box” measures.
The government should assume the task of providing non-agricultural employment opportunities in rural areas as labour in almost all farms is currently excessive and thus its productivity is low. Direct state regulation of the agrarian sector should be as little as possible since it results in distortion of market signals and deterioration of producers’ performance.
Authors underline one more serious problem - the non-transparency of budget expenditures, and stress the need to detalize budget classificators and to make budgets more transparent. This is most important for regional budgets as the bulk of support measures is funded from them.
Integration in the Russian Agrifood Sector
Serova E., Khramova I.
The authors’ goal was to find out why agriculture has become an attractive field for private companies’ investments, what are the incentives for their engagement in farming and to what results their activities can lead. The tasks to be fulfilled in the course of the research were: to give a clear definition of the phenomenon being studied (there is no concord about it in the Russian agricultural science); to analyze the dynamics and scale of integration processes in agriculture and to describe their specific features in the sector; to identify “external” factors driving non-agricultural companies to involve in integration processes in agriculture; to reveal incentives for investments from the point of view of economic theory and to propose a hypothesis that will enable to make a medium-term forecast of investment processes; to verify the hypothesis in case study to be conducted in a sample Russian company; to work out recommendations for shaping agrifood policies given different incentives for investing in agriculture.
Analysis revealed that the basic “external” incentives for involvement in farming are as follows: to secure steady supply of raw inputs to processors; to control the use of investments (that’s essential for suppliers of inputs to agriculture); to recover debts; to solve the marketing problem and to enlarge sales; to get tax breaks; to benefit from low barriers to entry. To the authors’ mind the latter is probably the crucial incentive for investment activities of non-agricultural companies due to the high degree of decapitalization in the sector and extremely low cost of the basic production factor - land.
Authors try to explain external investment activity in agriculture from the point of view of economic theory and come to the conclusion that despite notable market imperfections in the transition period vertical integration is not the only determinant thereof. Diversification of business in order to avert risks is also found to be an important incentive for investments. One more incentive is political and economic rent seeking leading to the merge of private business’ and regional administrations’ interests.
In order to verify the proposed hypothesis authors conducted a case study of incentives that led to the vertical integration of a grain trading company into the poultry production. The analysis showed that the company strove to diversify business rather than to promote its products to the market and to enlarge sales.
The proposed hypothesis drove authors to the conclusion that different incentives for investments can result in different behaviour of companies-integrators. Thus, companies that invested in farming in order to diversify business (including speculative transactions) already in the mid-term can start to withdraw capital from the sector (with foreseeable negative effect thereon) as opportunities for making super-profits in agriculture shrink in line with smaller tax breaks, higher prices for land purchase and rent, etc. That’s why many companies when engaging in farming prefer to rent land rather that to buy it (for reserving relatively low barriers to exit from the sector).
The paper contains an estimate of agrifood holdings’ impact on development of farming and rural areas and a possible medium-term scenario of investment activities in agriculture.
Agricultural Inputs’ Market
Serova E., Karlova N., Petrichenko V.
Although the Soviet Union was one of the largest producers of inputs for agriculture, the sector’s technological equipment remained rather poor. The quality of produced machinery, mechanisms of its supply to farms and application practices resulted in highly non-efficient use. The set by the state ratio of prices paid and received by agricultural producers created an illusion that inputs are non-expensive and as a result they were over-used. The liberalization of prices drove price ratios to the world averages. Coupled with other processes in the course of economic reforms, the rise of prices for inputs made them unavailable to agricultural producers for a long period of time and consequently resulted in decapitalization of the sector and weakening of its recovery potential.
From the very start of reforms the state support was targeted at compensating agriculture for the inputs’ price rise. Large funds from the federal and regional budgets were spent on various programs of compensating selected groups of producers for expenses on fuels, oils, fertilizers, machinery, heating and feeds. Expenses on electricity and transportation were reduced by means of cross subsidizing. However, the efficiency of these measures in the past decade turned out to be low: the sector’s decapitalization hasn’t been halted.
In this situation industries producing inputs for agriculture (and first of all farm machinery building) started to degrade. The production of mineral fertilizers became completely export-oriented and less dependent on domestic demand.
Production growth that started in the agrifood sector in 1999 revived the demand for inputs. This in turn led to a relatively fast enlargement of agricultural machinery production in Russia. However, the growing production bumps into non-developed inputs’ market institutions and some other hindrances.
The inputs’ market is poorly examined, the existing studies being primarily descriptive. The objective of this paper was to analyze the current situation on the markets of farm machinery, fertilizers, fuels and oils, and to develop methodology of further research of inputs’ markets. Three basic issues were examined: barriers to efficient use of purchased inputs in agriculture; terms of input supplies to agriculture; agrarian policies as a factor of agricultural inputs’ supply.
of the program of support of social reforms.
by Smirnov, S., Isaev, N.
The paper deals with an urgent problem of social reform in RF. The authors believe that under the present stable socio-economic situation, existence of primary surplus of the federal budget and government documents that determine prospects for systemic social reforms in the country it has become possible to launch systemic transformations in the social sphere.
Generally, the structure of the paper matches the contents of the Program of socio-economic development of Russian Federation for the medium term (2002-04) that outlines main directions of the social reform. The paper consequently analyzes the current situation and directions of solving concrete social problems suggested by the program, identifies the existing unresolved problems and formulates proposals on their solution in the short and medium run. In addition, the paper comprises proposals on solving so-called “functional” problems of the social policy, that is the public social evaluation of legislative decisions and its institutional fundamentals, as well as regionalization of the social policy (alias, account of regional factors in the course of implementation of social reforms), among others.
In addition to the aforementioned Program, the information base of the paper comprises official publications of Goskomstat of RF and economic and statistical calculations the authors made on the basis of the Goskomstat data.
The paper formulates methodological and practical tasks of provision of social reforms in RF by their single directions in the short- and medium run, identifies main unresolved problems in the social sphere that have not been outlined in the government documents regarding the social reforming, proposes options for solution of social problems in Russia and contains there quantitative (socio-economic and financial) justification, formulates proposals on legal support of social reforms in RF with a more detailed description of the contents of the documents proposed.
The paper outputs can be used by legislature and executive power bodies of different tiers and experts contributing to development of decisions in the social policy area and its concrete directions, and adjustment of social reforms.
of formation of production and price plans (forecasts by Russian industrial enterprises
by Tsukhlo, S.
The paper comprises an analysis of models of short-term forecasting of volumes of output and prices in the national industrial sector. The analysis is based upon results of monthly business surveys that IET have held since 1992. The composition of indicators of the questionnaire and the panel organization of surveys allow to solve a number of in principle new tasks.
First, the questionnaire comprises questions about actual and planned changes of all indicators, which allows to study at the microlevel the accuracy of forecasts made by enterprises themselves, thus allowing to measure the “value” of such forecasts. As the data on forecasts and actual changes have been collected since 1992, there is a unique possibility to track down the evolution of the accuracy of enterprises’ forecasts, as well as to study factors that determined it.
Secondly, the possibility of comparing forecasts and their consequent actual realizations of the same indices is used to study the speed and a type of enterprises’ reactions on unexpected (non-forecasted) changes in demand.
Third, the main part of the paper deals with a research into factors whose values become available from the questionnaires at moment t and which will determine an actual state of forecasted variables at moments t+1, t+2, t+3.The composition of independent variables comprises any indices of the noted business surveys: actual and/or forecasted changes in output, prices production costs, demand (both effective, barter, and other kinds of non-cash demand) stock of finished products and raw materials, employment, estimation of competition and competitiveness. It is for the first time that the major part of the noted indicators are used for estimation of models, as they are not included (and may not be included) in the composition of enterprises’ official reports, however, they are broadly used by economic theory. This primarily concerns enterprises’ expectations and their estimates of stocks of finished goods. A special attention is paid to demand variables that appear to be of the greatest interest to transitional economies but are never used in economic analysis.
The author has arrived to a conclusion that models of formation of expectations are an efficient instrument of analysis of enterprises’ behavior and allow to study a broad spectrum of assumptions of the nature of decision-making processes in the economy. Specifically, the evaluation of models of formation of expectations showed that by the late ‘90s the Russian industrial sector saw quite a market mechanism of formation and revision of price and production plans, with effective demand being a main factor here. Furthermore, the development of models of formation of expectations allowed to show that enterprises also duly take into account deviations of their output form cash sales, while they have discontinued to use primitive behavioral models.
for combination of compulsory and voluntary medical and social insurance in Russia.
by Shishkin, S., Gudkov, A., and Popovich, L.
The paper deals with specifics of the existing organization of medical insurance and social insurance of risks of loosing income due to temporary disability, motherhood, etc.
The authors analyzed the prospects for a combination of a compulsory and voluntary medical insurance and the existing differences in the composition of free services provided to the population (at the expense of the compulsory medical insurance and budget allocations) and those provided on the paid-for basis, including the services provided in the frame of voluntary medical insurance programs.
The research shows that the existing system of social insurance comprises two functionally different sub-systems – that is, general and collective insurance, and the latter is characterized by a considerable differentiation of opportunities for getting the respective compensations for different categories of insured individuals.
It is suggested to look for the solution to the problems of the existing medical insurance system on the path towards formation of a multi-level insurance system. The system should be differentiated according to the level of the government participation in payment for medical assiatnce to different categories of the population. The authors believe that problems facing the compulsory medical insurance system can be resolved through limiting the latter’s obligations and the institutionalization of a corporate social insurance system. In the view of that, the authors consider different combinations of voluntary and compulsory medical and social insurance.
On June 28-29, 2002, the city of Lapeenranta (Finland) hosted an international conference “Russian Federation: reforms and outputs”. The plenary session was opened by M. Lukka, Rector of the Lapeenranta University. The list of presenters included Ye. Gaidar, Director of IET, Ye. Yassin, Research Head of the Higher School of Economics, P. Sutela, Director of the Institute for Transitional Economies under the Bank of Finland, S. Remes, President of the European business club, U. Kivikari, Profesor of the Higher School of Economics (Turku) and K. Liukhto, Professor of Lapeenranta University, among others.
The conference program comprised a round table on problems of reforming Russia’ economy and economic ties. In addition to the aforementioned discussants, the round table got together representatives of Finnish business circles, as well as V. Mau, Rector of the Academy of National Economy, S. Sinelnikov-Murylev, S. Prikhodko and I. Starodubrovskaya of IET.
On July 7-8, 2002, St. Petersburg hosted an international conference “The second decade of Russian reforms: problems of improvement of the federal system” organized by the Russian Canadian project CEPRA and supported by the Administration of Leningrad Oblast, Administration of the city of St. Petersburg and the office of the Presidential Envoy to the North-West Federal Super-region.
The conference was opened by Ms. Susan Welen, CIDA Minister who gave floor to Yegor Gaidar and Gordon Smith as CEPRA co-chairmen.
The list of presenters comprised S. Shatalov, Russia’s First Deputy Minister of Finance, A. Sharonov, Deputy Minister of Economic Development and Trade, A. Surinov, First Deputy Head of Goskomstat, A. Zhukov, Chairman of the Budget Committee of the State Duma of RF.
IET research staff contributed to all four panels and three plenary sessions of the conference:
S. Sinelnikov-Murylev, I. Trunin and P. Kadochnikov took part in the panel “Fiscal
federalism and interbudgetary relations”;
– A. Radygin, S. Drobyshevsky, I. Starodubrovskaya, A. Yudin, and K. Yanovsky contributed to “Regional development and problems of Northern territories” panel;
– S. Sinelnikov-Murylev, A. Radygin, S. Shishkin, and Acad. R. Entov presented their views on the system of public institutions and public unitary enterprises, evaluation of their spending and provided recommendation on their reform.
– I. Starodubrovskaya contributed to “Municipal problems” panel.
– S. Sinelnikov-Murylev was also given floor at a plenary session on results of CEPRA project, while I. Starodubrovskaya delivered an address at a plenary session concluding outputs of the respective panel work.
– Ye. Gaidar and V. Mau contributed to the concluding plenary session.
In his concluding address, Ye. Gaidar stressed that CEPRA had made it possible to implement very useful research that embraced a wide circle of problems – from budget federalism reform to reforming railroads. He also noted a productive atmosphere of an efficient and creative interaction between Russian and Canadian researchers, and outlined the set of challenges facing the second stage of the project implementation.
S. Sinelnikov-Murylev presented his vision on outputs of research projects completed under CEPRA auspices in terms of economic policy challenges facing the nation (fiscal federalism, Northern regions, and politico-economic problems of regions, among others).
V. Mau pointed out that CEPRA implementation coincided in time with a new stage of Russian reforms. He argued that research efforts under the auspices of CEPRA contributed to the implementation of the reforms. He proceeded with a more detailed evaluation of outputs of politico-economic and regional projects completed under CEPRA auspices.
The list of participants in the conference also included representatives of the Great Novgorod Oblast, Sochi University of Tourism and Recreation, universities of Montreal, Carleton, York, Trent, Victoria, Queens, the Association of Colleges and Universities of Canada, Sussex Circle, and IBRD Mission to Moscow.
Papers developed and published in the framework of CEPRA project with contribution of IET research staff
of a technology of regulation of minimal income of the population in Altay Republic
by Soptsov, V., Shakhnazarov O., Pakhchanyan, N.
The paper was developed on the basis of methodological materials and practical outputs of introduction of social technologies of regulation of minimal income of the population in Altay Republic. The paper is the last one in a series of publications on technologies of regulation of minimal income of the population in Russian regions and accumulates all the methodological, technological and program development and innovation SOTECO over the past eight years.
comprehensive approach to establishment of favorable investment climate: experiences of
the Great Novgorod Oblast
by Mau, V., Voisichekovsky, D., Zhavoronkov, S., Lazarovich, M., Khoroshukhin, S.
The paper represents main provisions, solutions and output of the Great Novgorod experiences with regard to attraction of foreign investment in the region, as well as proposals on a general rise in investment activity and pursuance of an attractive investment policy. As a comparative example, the authors evaluate the situation in the neighboring Pskov Oblast. The Canadian experiences in implementation of regional, local and joint economic development programs is presented in a annex.
of corporate governance in Russia and its regions.
By Radygin, A., Entov, R., Turuntseva, M., Gontmakher, A., Kuznetsov, B.
The paper represents a review of problems in the corporate governance area, raises the issues of an interconnection between joint-stock property and corporate governance, and identifies cooperation and conflict mechanisms inside a corporation. In addition, the paper considers general prerequisites and specifics of emergence of the corporate governance system in specific conditions of a transitional economy and evaluates specifics of emergence of the Russian corporate governance model.
The paper also provides an evaluation of regional specifics of emergence of the national corporate governance model based upon research into regional law and results of an econometric analysis of groups of enterprises in a number of regions. The paper also demonstrates the impact of different indicators characterizing a certain enterprise on the efficiency of its performance in regional terms.
and legal sources of investment risks in Russian regions
by Mau, V., Yanovsky, K., Zhavoronkov, S., Fomichev, O., Lederman, L.
The paper deals with different approaches to identification of sources of political and legal investment risks and the respective factors of economic growth. It is proposed to expand the approach based on singling out just economic freedoms and property guarantees by including indices that reflect the state of affairs with respect to basic rights related primarily to personal immunity guarantees and the population’s demand for such institutions.
of Russian regions
by Buts, B., Drobyshevsky, S., Kochetkova, O., malginov, Yu., Petrov, V., Fedorov, G., Hecht, A., Shekhovtsov, A., Yudin, A.
The paper represents a typology of RF regions developed on the basis of qualitative evaluation and comparison of regions by their indicators of economic capacity? Living standards and investment activity. The paper also provides a review of the existing research efforts into typology held in the USSR and RF and describes main principles of building of different ratings of the RF Subjects, along with a brief description of a modern theory of typologization of countries and regions. The research mostly implied and is built upon cluster analysis methods.
Regional economics (collection of essays)
This publications contains the following papers:
Zhavoronkov, S., Mau. V., Yanovsky, K. Political and legal factors of economic growth in Russian regions;
Malginov, G., Radygin, A., Yudin, A. Property structure in Russian regions and its dynamics over the period of market transformation of the 90s;
Goodfellow, T., Malginov, Yu., Radygin, A., Swein, H. Reforming property relations in Russia in 2000-2001: privatization and problems of governance of public sector enterprises;
Sinelnikov-Murylev, S., Kadochnikov, P., Trunin, I. Interbudgetary transfers and fiscal behavior of Russian regional authorities between 1994 to 2000;
Kadochnikov, P., Sinelnikov-Murylev, S., Trunin I., Chetverikov, S. Building and computation of standards across main budget outlays of Subjects o the Russian Federation in 1999-2000;
Entov, R., Zolotareva, A., Lugovoy, O. Factors of emergence and accumulation of nonpayments in the Russian economy and regions;
Lugovoy, O, Sinelnikov-Murylev, S., Trunin, I. Evaluation of fiscal capacity of Subjects of the Russian Federation;
Kadochnikov, P., TruninI., Yudin, A. Impact of financial relationship between the federal center and Northern regions on migration from the North;
Battle, K., Torjman, Sh. Post-welfare state in Canada: examination of the needness and organization of social assistance.
The papers included in the collection of essays were prepared on the basis of research conducted in 2000-01.
system of the federal financial support of regions in Russia and its impact on tax and
fiscal policy of Subjects of the Federation
by Sinelnikov-Murylev, S., Kadochnikov, P., Trunin, I.
The paper demonstrates that under certain circumstances, both the kind of financial support and specifics of a mechanism of its allocation may have negative tax incentives for regional authorities. Under certain methods of allocation of financial support, an increase in the volume of a transfer can result in a reduction in tax revenues to budgets of recipients of grants rather than in a rise in the offer of public goods at the sub-national level (which in the majority of cases forms the purpose of provision of the financial aid). The authors consider a hypothesis of dependence of the existence or absence of such incentives on whether the allocation of equalizing transfers is made on the basis of regions’ actual revenues and expenditures or on the basis of estimates of regional authorities’ tax capacity and expenditure needs.
The paper represents econometric estimates of parameters of allocation of the federal financial aid in RF as well as an examination of the extent to which the procedures of allocation of the aid between 1994-2000 encouraged regional authorities to change the volume of provision of public and private goods in their respective territories.
As a result, the authors arrive to the conclusion that the procedures of allocation of the federal financial aid, as well as its type and the type of a region have a direct impact on sub-national authorities’ decisions made both in the area of tax revenues and budget expenditure.
problem of economic development of Kaliningrad oblast as an exclave Russian region
by Zhdanov, V., Kuznetsova, O., Mau, V., Plyukhin, V., Prihodko, S.
Recently Kaliningrad Oblast has seen considerable changes in the domestic and international interpretation of its geopolitical situation. Along with the traditional importance of the Oblast in Russia’s defense doctrine, it has increasingly become viewed as an exclusively favorable chance for establishing a closer and mutually beneficial cooperation between Russia and EC. There is a growing understanding that its geographical location creates a possibility for its development as one of Russian centers of integration into the European economic zone. In this context, the paper represents an effort to study and analyze the Oblast development options, and to evaluate their strengths and weaknesses, and problems that may arise in the course of their implementation.
place of the Northern regions in the budget system of Russian Federation and evaluation of
the mass migration outcomes.
By Gorshunov, I. Kadochnikov, P., Newbold, K., Trunin, I., and Yudin, A.
The problem of regulation of socio-economic development of the Russian North remains among the most urgent elements of the Russian economic reform. This problem is comprehensive and embraces numerous legal, social, economic, financial, national, historical, ecological and other aspects.
The paper considers two interconnected problems: financial flows from the federal budget to the budgets of the Northern regions; theoretical and empiric analyses of factors influencing the population migration out of the Russian Northern regions, and efficiency of the government programs of support of the migration.
regional aspects of development of Russia’s economy by the example of development of a
concept of socio-economic development of Altay Republic
by Mau, V., Zhavoronkov, S., Izryadnova, O., Starodubrovskaya, I.
Altay Republic steadily finds itself among the group of poorly developed Russian regions. The Republic is characterized by a poorly diversified structure of its economy, infrastructure and the social sphere. At the same time, there is another region in Russia that once had found itself in the same state, however, it has been successful in achieving drastic changes in its own economic capacity through attracting domestic and foreign investment,- namely, Great Novgorod Oblast. Some measures implemented there may appear useful for Altay Republic, too. Consequent steps on creation of an economic environment and making it attractive due to both tax benefits and information openness and socio-political stability, can allow a gradual solving of the problem of modernization of the region and increasing the regional budget revenue.
the regional aspect
by: Drobyshevsky, S., Dneprovskaya, S., Izryadnova, O., Levchenko, D., Lederman, L., Malginov, G., Turuntseva, M., Hobson, P.
The paper represents an analysis of investment processes in the national economy in terms of regions. Specifically, the authors consider specifics of investment behavior of Russian regions and identify main factors that determine the type of a region in terms of its investment behavior, and study institutional factors of and constraints to investment activities of Russian companies.
The methodology of the research is built on a qualitative analysis of the nature and dynamics of investment in the national economy on the whole and in regions in particular, theoretical justification of hypotheses that explain differences in investment processes in regions on the basis of micro- and macroeconomic approaches. The empiric part of the paper comprises an econometric testing of the hypotheses.
economic growth (proceedings of the international conference)
IET working papers series, # 40P
On March 20-21, 2002, the Institute hosted an international conference Post- communist Economic Growth (for greater details, see newsletter # 9, 2002 and www.iet.ru). The completion of the first stage of the post-communist transformation has put to the focus of attention the problem of identification of the nature of Russia’s economic growth. That is why the discussion centered on identification of ways of consolidation of economic growth and creation of conditions to ensure its sustainability.
The present paper comprises both presentations made at the conference and papers that conference participants completed basing on their presentations.
The Dissertation Council of IET held its regular meetings:
On May 22, 2002, Mr. Oleg Lugovoy defended his thesis “The problem of non-payments in Russian economy” (the leader of the research: Prof. Acad. Entov, opponents: Prof. V. Starodubrovsky, A. Yakovlev, Phd)
The Council awarded O. Lugovoy with the scientific degree of Candidate of Economic Sciences.
On June 10, 2002, Mr. Ilya Trunin defended his thesis “Fiscal
federalism: problems of selection of a tax and fiscal policy by Russian regions” (the
leader of the research: Dr. S. Sinelnikov-Mourylev, opponents: Prof. A. Tatarinov, A.
The Council awarded I. Trunin with the scientific degree of Candidate of Economic Sciences.
On September 18, 2002, Mr. Said Batkibekov defended his thesis “The reform
of personal income tax in the Russian Federation as a fiscal policy instrument”(the
leader of the research: Dr. S. Sinelnikov-Mourylev, opponents: Dr. L. Lykova, R. Saakyan,
The Council awarded S. Batkibekov with the scientific degree of Candidate of Economic Sciences.