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Political Economy of Development: Historical and Contemporary Factors

Priority areas of development: economics
2017
The project has been carried out as part of the HSE Program of Fundamental Studies.

Goal of research: study of historical and contemporary factors of social and economic development (the case of Russia).

The object of the research was formal institutions and culture, their historical determinants, current incentives and actions of bureaucratic elites, as well as specific institutional practices.

Methodology: methods of new institutional economics, political economy and development economics; methods of data collection (for the data from statistics, surveys, and archives); methods of econometrics, including multilevel modelling, instrumental variables, regression discontinuity design; case-studies.

Empirical base of research: Our research is founded on 4 databases collected by ICSID:  1) Social and economic characteristics of the Russian regions 2) The biographies of the Russian elites (governors, vice-governors, etc.) 3) Economic history of Russian institutions 4) Vocational education in the Russian regions. Some parts of the databases are supplemented by codebooks and openly accessible at http://iims.hse.ru/csid/databases. The databases were significantly updated and extended in 2017.

Results of research: contribute to the following theories: political economy of development in middle-income countries, incentives for bureaucracy in non-democratic regimes, economy of social capital and culture, collective actions. These theories are widely discussed in the mainstream literature, both ineconomics and political science. ICSID takes advantage of its original datasets on Russia and with its focus on historical roots of institutions makes a significant contribution to the development of these theories and their adaptation to transition economies.

The important result of the ICSID research in 2017 was new empirical data that we gathered on such varied topics as the role of social capital and its structure in Russia, the functioning of political institutions and elites’ incentives, historical determinants of economic development, as well as institutional practices for improving the quality of institutions.

First, we looked at the effect of businesspeople’ entrance into politics on the performance of their firms. We demonstrated that having a connection to a winning candidate increases a firm’s revenue by 60% and profit margin by 15% over their term in office that suggests powerful incentives for firms to send directors into elected office. We found that the benefits of connections derive from lowered informational and regulatory costs for firms in their dealings with bureaucrats, and not from greater access to finance. In addition to it, we provide an explanation why an authoritarian regime can obtain high levels of political support from its citizenry focusing on the impact of authoritarian propaganda on citizens' political beliefs. We use two case studies – Russia and Chile - to illustrate our mechanism. We also show how corporate raiding with the state’s tools can have a negative effect on the willingness of the average firm to invest. We find that certain types of firms –larger firms, business association members, firms with state or foreign ownership, and firms with non-transparent ownership structure– in regions with high levels of raiding are more likely to invest than other firms in the same regions.

Moreover, we examined the case of the Republic of Tatarstan over the period 1990-2016 and demonstrated that there is a potential for formation of the catching-up developmental model within individual regions of Russia similar to a developmental state in the successful countries of Southeast Asia. The potential for this transformation can most likely be found in the regions with a local elite consensus with respect to a long-term vision for development, combined with enhanced regional responsibility and managerial authority for developmental outcomes, the relative efficiency of governance system and regional patriotism.

We complemented our analysis of formal institutions with the examination of informal ones. We studied the institute of mafia in the countries where it is most wide-spread and influential, as well as the dynamics of different types of raiding in Russia with a shift to a so –called white raiding. We also demonstrated the importance of a particular “bridging” type of social capital for redistribution preferences in the Russian regions and revealed deep historical roots of trust and norms in Russia. To further examine the historical roots of informal institutions, we closely looked at the trends of literacy and employment in Russia in the late years of the Russian Empire and early Soviet Union.

A separate result of our work this year was further development of our databases. As mentioned above, four ICSID databases were largely updated, extended and supplemented by new codebooks in 2017.  

Finally, we achieved some results as far as advancement of methodology is concerned. We were able to code certain characteristics of the Russian elite and data on the history of institutions, and also to improve methods of experiments and collecting data from the Internet. Moreover, we developed methods of network analysis by using large datasets with characteristics of the Russian elite that we have been collecting since 2011.

Level of implementation,  recommendations on implementation or outcomes of the implementation of the results

The results of our research may be of interest both to the academic community (articles by the ICSID team members are regularly accepted at the leading peer-reviewed journals) and to experts and policy-makers who are responsible for decisions about economic development of Russia and its regions, implementation of state-of-the-art institutional reforms and overcoming problems of growth and development.

One of the policy implications of our research is that governments looking to improve investment need to carefully limit the ability of state officials to abuse their powers to assist one group of firms in expropriating the assets of another. For officials at the national level, the key is likely to provide regional level officials with both positive inducements (promotions, federal money, etc.) and negative inducements (official punishment, criminal proceedings, firings) that can stimulate the regions to undertake such policies themselves. At the sub-national level, our work suggests that officials worried about the effects of rogue security service officers and looking to jumpstart growth can work to provide firms with the tools to resist corporate raiding using the state’s tools. Promoting civil society, and particularly business associations, is among the easiest and most low-cost such measures. Establishing visible, public political connections with vulnerable firms, although potentially less efficient and much more difficult to scale, is another potentially viable strategy.

Moreover, our analysis of the regional developmental model of the Republic of Tatarstan showed that the implementation of the ambitious policies for catching-up development found in Strategy-2030 faced a series of obstacles that have to be taken into account when planning regional development. These obstacles include a “closed” ownership structure for capital assets that limits opportunities for new market players in Tatarstan; lower than average wages that leads to an outflow of skilled labour from the republic and lower returns from investments in education; limited social mobility. In order to overcome these problems, it is necessary to overhaul the existing structures of economic relations, give access to resources and management to new actors (outside investors, successful medium-size firms and young talented specialists), but also to offer adequate compensations to the incumbent elites.

Finally, our findings on the sustainability of social capital in the Russian regions and its dependence on deep historical determinants, namely geographical characteristics and literacy levels, are important for understanding the success of reforms and for policy development.

Publications:


Buckley N., Reuter O. J. Performance Incentives under Autocracy: Evidence from Russia’s Regions // The Journal of Comparative Politics. 2019. Vol. 51. No. 2. P. 239-258. doi
Libman A. Subnational political regimes and formal economic regulation: Evidence from Russian regions // Regional and Federal Studies. 2017. Vol. 27. No. 2. P. 127-151. doi
Kluge J., Libman A. Sticks or Carrots? Comparing Effectiveness of Government Informal Economy Policies in Russia // Comparative Economic Studies. 2018. Vol. 60. No. 4. P. 605-637. doi
Best M. C., Hjort J., Szakonyi D. S. Individuals and Organizations as Sources of State Effectiveness, and Consequences for Policy / National Bureau of Economic Research. Series NBER Working Paper 2017. doi
Belmonte A., Rochlitz M. Collective Memories, Propaganda and Authoritarian Political Support / NRU Higher School of Economics. Series PS "Political Science". 2017. No. WP BRP 43/PS/2017 .
Gans-Morse J., Kalgin A., Klimenko A., Yakovlev A. A. Motivations for Public Service in Corrupt States: Evidence from Post-Soviet Russia / NRU HSE. Series WP BRP Series "Public and Social Policy". 2017. No. WP BRP 13/PSP/2017.
Kazun A. D., Kazun A. A Friend Who Was Supposed to Lose: How Donald Trump Was Portrayed in the Russian Media? / NRU Higher School of Economics. Series PS "Political Science". 2017. No. WP BRP 51/PS/2017.
Yakovlev A. A. Voraussetzungen für den Erfolg von Reformen // Russland-Analysen. 2017. No. 339. P. 9-13.
Yakovlev A. A. Was ist es, das Russland zu verteidigen versucht? // Russland-Analysen. 2017. No. 330. P. 7-12.
Borisova E. I., Govorun A. V., Ivanov D. Social Capital and Support for the Welfare State in Russia // Post-Soviet Affairs. 2017. Vol. 33. No. 5. P. 411-429. doi
Yakovlev A. A., Freinkman L., Makarov S., Pogodaev V. In response to external shocks: How advanced Russian regions react to changes in federal policies – Experience of Tatarstan / Bank of Finland Institute for Economies in Transition. Series DP "BOFIT Online". 2017. No. 10.