Pertti Haaparanta

Firms and Public Service Provision in Russia

This paper reports first results from a survey of 404 middle-sized and large manufacturing firms from 40 Russian regions in April-June 2003. We examine the extent of social service and infrastructure provision by the firms and the firms’ assessment of the quality of public infrastructure and the regulatory environment. Background information of ownership, investment, performance, competition, and finance decisions of the firms is also gathered. The data reveal that despite major divestments of social services during 1990s, a great majority of firms still provide at least some form of social services. For example, 56% of the firms have their own housing or support local housing, and 73% of the firms have recreation facilities or support employee’s recreation activities. While managers view the social service provision as non-essential and costly, many of the firms continue to provide these services, even to users other than their own workforce. The quality of public infrastructure is generally assessed as being good or satisfactory; the respondents were the least satisfied with the quality of roads. Over a half of the firms provide their own heat, but mainly due to technological reasons – although public service interruptions do occur – and 24% of the firms give support to the maintenance and construction of public road network. The regulatory burden the firms face continues to be severe. In more than half of the firms, for example, the general manager has to spend more than two weeks in negotiations about public infrastructure with the authorities. These descriptive results indicate that there is still a lot scope for improvement in the quality and quantity of public service provision in Russia. Enterprises are still engaged rather heavily in social service provision, road network would require improvements, and the easing of regulatory burden should continue. Addressing these questions is likely to be vital for the sustainability of investments and growth in Russia. The paper is part of the project “Infrastructure and Welfare Services in Russia: Enterprises as Beneficiaries and Service Providers” financed by the Academy of Finland (project number 200936), the World Bank, and Yrjo Jahnsson Foundation. The project has also received support from the Bank of Finland Institute for Economies in Transition.

Endogenous time preference, investment and development traps

We introduce endogenous time preference via investment in patience (farsightedness) in an overlapping generations growth model to study development traps. There is no investment in patience, if the economy is very poor, while if it is wealthy enough there is always such investment. We explore the conditions for the existence of the development trap, and study in detail a robust example of an economy with traps. It does not exist, if the economys total factor productivity is large enough. Our results illustrate the complementarity between physical investment and investment in farsightedness. Our model may also explain why economic growth is affected by initial conditions. In addition we show that increased international capital mobility does not necessarily help economies to escape from development traps.

Regional concentration, trade and welfare

Abstract International trade can lead to regional concentration of economic activities within a single country. Trade can in itself make such concentration equilibria stable which would otherwise be unstable. This concentration can be welfare reducing if there are several monopolistically competitive industries competing for scarce resources. Trade induces migration which changes relative factor supplies regionally and can thus crowd out some industries which produce external benefits associated with changes in the availability of product varieties under monopolistic competition.

Reforms and Confidence

We examine the choice of economic reforms when policymakers have present-biased preferences and can choose to discard information (maintain confidence) to mitigate distortions from excess discounting. The decisions of policymakers and firms are shown to be interdependent. Confident policymakers carry out welfare-improving reforms more often, which increases the probability that firms will invest in restructuring. While policymakers in different countries can be equally irrational, the consequences of bounded rationality are less severe in economies with beneficial initial conditions. We also examine how present-biased preferences influence the choice between big bang versus gradualist reform strategies. Our findings help explain differences in economic reform success in various countries.

Decomposing Growth: Do Low-income and HIPCs Differ from High-income Countries?

This paper studies the distribution of output per worker between the years 1980 and 2000 in different country groups. The study uses data envelopment analysis (DEA) to decompose the changes in the distribution of labour productivity into changes in productive efficiency, changes in best practice technology, accumulation of physical capital, and accumulation of human capital. The study focuses on low-income countries and within them on highly indebted poor countries (HIPCs), which has not been possible in earlier studies.