The Effect of Special Economic Zones on the Behaviour of Russian Firms

Special economic zones (SEZs) have been established in Russia since 2005 in order to attract direct investment in priority economic activities. The main objective of the study is to identify differences in the behavior of Russian private commercial organizations caused by the influence of industrial SEZs. It is assumed that the benefits and advantages provided in SEZs lead to the significant differences between indicators of performance of their residents and non-SEZ firms. Propensity score matching is a method used to exclude the effect of unobservable factors that could influence the decision to become a SEZ resident. The matched sample contains pairs of firms that have had the same probability of becoming a SEZ resident. The only difference between firms within pairs, therefore, is that one of them belongs to a SEZ and another does not. The results of the study demonstrate the following. On average, SEZ firms generate more revenue and build greater assets. However, on average, the net profit of SEZ firms is lower than the net profit of non-SEZ firms. The obtained results are statistically significant and are robust to the effect of unobservable factors.