Determinants of Russia's Informal Economy: The Impact of Corruption and Multinational Firms

Abstract

Based on the electricity consumption approach, this study examined empirically (among other determinants) the impact of corruption and multinational firms (MNEs) on the relative size of the informal economy in Russia's regions in 1995-2012. Strong evidence is provided of the positive effect of corruption on the informal regional economies. The significant role of MNEs and regulation in curbing informal activities is revealed. A larger informal economic sector is observed in regions with a higher number of local firms and unemployment. An integrated strategy of dealing with corruption and informal businesses is suggested to be more effective in reducing informal practices.

Corruption as a Self-Reinforcing Trap: Implications for Reform Strategy

“…Corruption may reduce government revenues for a variety of reasons: citizens bribe officials to avoid paying taxes and duties (Rose-Ackerman & Palifka 2016,pp. 75-79); perceptions of government corruption reduce "tax morale," thereby inducing greater tax avoidance or evasion(Alon & Hageman 2012; Frey & Torgler 2007;Torgler 2004); and corruption may shrink the tax base by impeding business growth and driving firms from the formal econ-omy into the shadow economy(Goyette 2014;Johnson et al 2000;Smith & Thomas 2015). Corruption may also drain state resources in other ways, as when government officials overpay contractors in exchange for kickbacks, hire more public sector workers than needed, or simply embezzle state funds(Castro & Rizzo 2014;Dal Bo & Rossi 2007;Mironov & Khuraskaya 2016;Olken 2006;Reinikka & Svensson 2004).…”

Introduction: can Russia and its oil companies handle change?

“…Source: Company websites. (Bayulgen 2014), assessments of oil and gas fields and their decline (Grace 2005), pipeline politics (Barysch 2008;Stulberg 2012), the role of energy in foreign policy (Hill 2004), the oligarchs and elites (Balmaceda 2008;Bulavka and Buzgalin 2016;de Graaff 2012;Maury and Liljeblom 2009;Rivera and Rivera 2014), Vladimir Putin (Appel 2008;Balzer 2005;Goldman 2010), economic reform (Gaddy 2013), Dutch disease and the resource curse (Bradshaw 2006;Gaddy and Ickes 2019;Mironov and Petronevich 2015;Tompson 2005) and corruption (Cheloukhine and King 2007;Obydenkova and Libman 2015;Rutland 2015;Smith and Thomas 2015).…”

Subsidiary’s Network Competence: Finnish Multinational Companies in Russia

“…Corruption is found to be present in the various aspects of Russian business environment including, but not limited to, customs, tenders, certifications and licensing, with the small companies being more vulnerable to such practices due to the lack of financial resources (Kouznetsov and Dass 2010). However, the foreign direct investment flows and presence of MNCs in the Russian market, partially contribute to the corruption level decrease (Smith and Thomas 2015).…”