Entry and Exit Trends of Commercial Companies and Regional Economic Growth

The current geopolitical situation has prompted many foreign firms to withdraw from the Russian economy. This calls for somehow replacing them, especially in order to maintain economic growth in Russia's regions, by encouraging formation of new Russian companies capable of supplanting the departed firms and by stimulating entrepreneurial activity in general. The impact of trends in corporate activity on regional economic growth in Russia has not been systematically examined before, and this article is intended to address that deficiency. The article focuses on how two particular components of overall economic change - the entry and exit of commercial companies into markets - affect the indicators of gross regional product. The paper proposes an econometric model which confirms that the entry and exit of Russian companies are factors in regional economic growth. During the period studied from 2005 to 2020, a significant interregional discrepancy in gross product growth rates was observed alongside a progressive decrease in new firms appearing and an increase in exits by existing companies. For the country as a whole after 2016, the absolute number of companies withdrawing from operations constantly exceeded the absolute number of those starting up. This had a pronounced negative impact on economic growth rates in most of the regions. That those entries by companies were procyclical is demonstrated by the fact that during periods of economic growth the number of entries of new firms increased, while during periods of crises and recessions such entries decreased. In 2022 the Russian government adopted anti-crisis programs, which the author finds partially useful for offsetting negative trends in the operations of firms and stabilizing the economic situation in the regions. Among the main elements of these programs are moratoriums on business inspections, mitigation of liability for offenses, preferential lending, tax incentives, and subsidizing expenses.