William Pyle

A Note on Measuring the Unofficial Economy in the Former Soviet Republics

This note argues that the most commonly used estimates of the size of the unofficial economies in the former Soviet republics are flawed. Most important, they are based on calculations that disregard the variation in unofficial economic activity across space in the pre-transition Soviet Union. In addition, these estimates appear to understate the size of the unofficial economies in these countries. We propose alternative estimates and find that they are more strongly related to the institutional factors commonly used to explain the size of the unofficial sector. Our estimates also show that the size of a countrys pre-transition unofficial economy is an important predictor of its size during the transition. This suggests that the size of the unofficial economy is to a large extent a historical phenomenon only partly determined by contemporary institutional factors.

Collective Action and Post-Communist Enterprise: The Economic Logic of Russia's Business Associations

Abstract Drawing on a unique set of surveys, this article explores the question of whether Russias post-communist business associations are generally antithetical to or supportive of the broad objectives of economic restructuring. Contrary to the most widely cited analysis as to the purposes of collective action in the business community, the survey evidence demonstrates that association members have embraced market-adapting forms of behaviour at greater rates than non-members. The responses of both firms and associations, moreover, suggest that the associations themselves are, at least in part, directly responsible. These findings point to the conclusion that in contemporary Russia the net returns to collective action in support of market development are high relative to those for purposes that are less supportive.

Institutions And The Vicious Circle Of Distrust In The Russian Household Deposit Market, 1992-1999

In our analysis of the Russian household deposit market during the 1990s, we show how the initial conditions of market emergence contributed to a vicious circle in which private commercial banks progressively lost the trust of potential depositors. The roots of this destructive dynamic lay in the initial conditions of market emergence. Initial experiences of fraud and financial loss led Russian households to distrust that commercial banks would honor their contractual obligations. As distrust grew and became more ingrained, the competitive conditions in the deposit market changed in a way that further increased the gains to opportunism and decreased the returns to trust production. In a self-reinforcing process, fraud begat more fraud.

Sophisticated Discipline in Nascent Deposit Markets: Evidence from Post-Communist Russia

Using a database from post-communist, pre-deposit-insurance Russia, we demonstrate the presence of quantity-based sanctioning of weaker banks by both firms and households, particularly after the financial crisis of 1998. Evidence for the standard form of price discipline, however, is notably weak. Estimating the deposit supply function, we show that, particularly for poorly capitalized banks, interest rate increases exhibit diminishing, and eventually negative, returns in terms of deposit attraction, a finding consistent with depositors interpreting the deposit rate itself as a signal of otherwise unobserved bank-level risk.

Does governance explain unofficial activity

The cross-country results presented here show that most aspects of governance affect transition and non-transition economies differently. For governments in transition, more regulation, greater voice and accountability, heightened government effectiveness, and stronger rule of law surprisingly matter very little. What matters most for these transition economies is political stability and insulating the countrys business environment from corruption.

Organized Business, Political Regimes and Property Rights across the Russian Federation

This article explores the inter-relationship of collective action within the business community, the nature of the political regime and the security of firms’ property rights. Drawing on a pair of surveys recently administered in Russia, we present evidence that post-communist business associations have begun to coordinate business influence over state actors in a manner that is sensitive to regional politics. A firm’s ability to defend itself from government predation and to shape its institutional environment as well as its propensity to invest in physical capital are strongly related to both its membership in a business association and the level of democratization in its region. Of particular note, the positive effect of association membership on securing property rights increases in less democratic regions. The evidence, that is, suggests that collective action in the business community substitutes for democratic pressure in constraining public officials.

The Effect of Deposit Insurance on Market Discipline: Evidence from a Natural Experiment on Deposit Flows

We explore how the introduction of explicit deposit insurance affects deposit flows into and out of banks of varying risk levels. Using evidence from a natural experiment in Russia, we employ a difference-in-difference estimator to isolate the change in the deposit flows of a newly insured group (households) relative to an uninsured “control” group (firms). This approach improves on earlier studies seeking to identify the effect of deposit insurance on market discipline. We find that the relative sensitivity of households to bank capitalization diminished markedly with the introduction of an insurance program covering their deposits. This was not true for firms, however. We then show the finding is not an artifact of the two groups responding differently to a minor banking crisis that arose at roughly the same time.

A ‘De Soto Effect’ in Industry? Evidence from the Russian Federation

The strengthening of land rights has been proposed as a policy to reduce financial market frictions and promote private investment in low- and middle-income countries. But assessments of these potential effects have proven inconclusive. One reason may be that research has focused on actors that face difficulties accessing credit for reasons other than the security of land tenure. We explore the effect of greater tenure security in a setting in which non-land-related financial market frictions are apt to be mild—that is, among large urban industrial enterprises. Exploiting policy variation across Russian regions and firm-level survey data, we show that private land rights facilitate credit access and promote investment.

Bank Depositor Behavior in Russia in the Aftermath of Financial Crisis

An international team of economists examines the factors influencing the behavior of Russian depositors in the immediate aftermath of that countrys 1998 financial crisis, drawing upon two largely unutilized data sources—data from the Russian state savings bank Sberbank and a November 1998 household survey. After first reviewing the evolution of the household deposit market during the 1990s, they explore regional variations in net withdrawals from Sberbank branches during the period August-October 1998 as well as identify characteristics of individual/household depositors making (or attempting to make) such withdrawals. More severe runs on Sberbank outlets are found to be associated with more affluent and entrepreneurial regions, regions of more youthful and less educated population closer to Moscow, and areas with greater media freedom. Subsequent public opinion survey analysis of the socioeconomic correlates of runs on all Russian banks during the 1998 crisis reveals some interesting differences (in the effects of education in particular) on the propensity to successfully withdraw deposits.

Reputation flows: Contractual disputes and the channels for inter-firm communication

Inter-firm information exchange with respect to the reliability of trade partners may be unmediated in the sense that it involves direct communication between the personnel of two firms. Alternatively, this information flow may be channeled by or through an organization such as a trade association. We assess the relationship between these two mechanisms for conveying reputational information. Based on evidence from five transition countries, we find that trade associations??? role as informational intermediaries in this regard is sensitive to the geographic relationship between a potential supplier (demander) of reputational information and the firm whose behavior may be reported (acquired). What is more, the use of trade associations as conduits for reputation flows seems to be more strategic than the use of unmediated communication in that it is highly sensitive to the effects of market structure.