Russian Volatility : Obstacle to Firm Survival and Diversification

The need for economic diversification receives a great deal of attention in Russia. This paper looks at a way to improve it that is essential but largely ignored: how to help diversifying firms better survive economic cycles. By definition, economi...

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Bibliographic Details
Main Authors:	González, Alvaro S., Iacovone, Leonardo, Subhash, Hari
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	ABUNDANCE ANNUAL GROWTH ASSETS AVERAGE GROWTH BENCHMARK BUSINESS CYCLES BUSINESS ENVIRONMENT COMPANY COMPARATIVE ANALYSIS COMPARATOR COUNTRIES COMPARATOR GROUP CONSUMER DURABLES CONSUMPTION GROWTH COSTS OF PRODUCTION COUNTER-CYCLICAL POLICIES CYCLICAL FISCAL POLICY DENSITY FUNCTION DESCRIPTIVE STATISTICS DEVELOPED COUNTRIES DEVELOPMENT INDICATORS DEVELOPMENT POLICY ECONOMIC ACTIVITIES ECONOMIC ACTIVITY ECONOMIC CONCENTRATION ECONOMIC CONDITIONS ECONOMIC COOPERATION ECONOMIC DIVERSIFICATION ECONOMIC EXPANSION ECONOMIC GROUPING ECONOMIC GROWTH ECONOMIC HISTORY ECONOMIC PERFORMANCE ECONOMIC RECOVERY ECONOMIC STATISTICS ECONOMIC STRUCTURE ECONOMIC STUDIES ECONOMICS EMPIRICAL RESULTS EMPLOYMENT EXPLANATORY VARIABLES EXPORT GROWTH EXPORTS FIRM SIZE FIRM SIZES FIXED EFFECTS FLUCTUATIONS GDP GDP PER CAPITA GROWTH RATE GROWTH RATES GROWTH SOURCE GROWTH VOLATILITY HIGH GROWTH HIGH VOLATILITY HIGHER VOLATILITY INCOME INCOME LEVELS INDEPENDENT VARIABLES INDUSTRIAL DEVELOPMENT INPUT PRICES INTERACTION TERM INTERACTION TERMS INTERNATIONAL MONETARY FUND LABOR FORCE LESS DEVELOPED COUNTRIES MACROECONOMIC SHOCKS MEAN GROWTH MEDIUM ENTERPRISES MERGER MICROENTERPRISES NATIONAL ACCOUNTS NATURAL RESOURCES OUTPUT GROWTH OUTPUT VOLATILITY POLICY DEBATE POLICY IMPLICATIONS POLICY MAKERS POLICY RESEARCH POLITICAL ECONOMY PRIVATE SECTOR PRODUCTIVE FIRMS PRODUCTIVITY PUBLIC POLICY RATE OF GROWTH RECESSIONS RESOURCE ALLOCATION RICH COUNTRIES SALES SIZE OF FIRMS SOCIAL SECURITY STANDARD ERRORS STATISTICAL DATA STOCKS STRUCTURAL CHANGE TOTAL FACTOR PRODUCTIVITY TURNOVER VALUE ADDED VOLATILITY
Online Access:	http://documents.worldbank.org/curated/en/2013/09/18263884/russian-volatility-obstacle-firm-survival-diversification http://hdl.handle.net/10986/15828

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Summary:	The need for economic diversification receives a great deal of attention in Russia. This paper looks at a way to improve it that is essential but largely ignored: how to help diversifying firms better survive economic cycles. By definition, economic diversification means doing new things in new sectors and/or in new markets. The fate of emerging firms, therefore, should be of great concern to policy makers. This paper indicates that the ups and downs -- the volatility -- of Russian economic growth are key to that fate. Volatility of growth is higher in Russia than in comparable economies because its slumps are both longer and deeper. They go beyond the cleansing effects of eliminating the least efficient firms; relatively efficient ones get swept away as well. In fact, an incumbency advantage improves a firm's chances of weathering the ups and downs of the economy, regardless of a firm's relative efficiency. Finally, firms in sectors where competition is less intense are less likely to exit the market, regardless of their relative efficiency. Two policy conclusions emerge from these findings -- one macroeconomic and one microeconomic. First, the importance of countercyclical policies is heightened to include efficiency elements. Second, strengthening competition and other factors that support the survival of new, emerging and efficient firms will promote economic diversification. Efforts to help small and medium enterprises may be better spent on removing the obstacles that young, infant firms face as they attempt to enter, survive and grow.

Russian Volatility : Obstacle to Firm Survival and Diversification

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