Production Functions of Russian SMEs: Regional Aspects

Due to the unstable economic situation in Russia, it is imperative to identify the factors that determine the output of an enterprise (in particular, it is important for small and medium enterprises) and also to acknowledge that the parameters of the production function (i.e., return on factors of production, labor and capital) for Russian enterprises depend on the region. The scope of this study was limited to small and medium-sized Russian enterprises, and the parameters of the translog production function for them were arrived at using hierarchical models. The econometric calculations were based on data from 25,000 enterprises across 66 regions and 14 industrial groups from 2019 to 2020. (The sample consisted of companies that published financial statements for 2019 and 2020 in regions where at least 30 companies were also included.) The findings indicated that, in the first year of COVID-19 in Russia, the elasticity of output by capital did not change significantly, while the elasticity of labor increased. The hypothesis that labor elasticity of output is less in Moscow and St. Petersburg compared to other regions because those two cities have an oversupply of labor was confirmed. The related hypothesis that regions with high capital elasticity have less labor elasticity was also corroborated. In Russia’s eastern regions, in Siberia and the Far East, capital output elasticity was less from 2019 to 2020 because transport and business infrastructure were relatively undeveloped.

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