How Effective Are Special Economic Zones in the Russian Far East: A Financial Assessment Using Firm-Level Data

Abstract

With ‘Advanced Development Zones (TORs)’ formed in the Russian Far East in the mid-2010s, now it is a good time to overview the first five years of this policy development. Here, in contrast to the mostly qualitative prior studies, we assess the initial growth of the Far East TORs quantitatively. In order to achieve this, we set up a novel financial database which we use to trace the dynamics of zonal economic activities, compare their fiscal performances, and capture their structural differences. Our analysis, based on the database composing resident registers and financial accounting reports, reveals the following. First, a few TORs successfully attract new residents, leading to regional heterogeneity of the resident distribution and zone development dynamics. Second, there is one or a few companies in each TOR that dominate in the zone and determine total TOR revenue. Thus, their presences sway the TORs’ economic performance. Curiously, these ‘dominant’ firms do not necessarily act as ‘anchor residents’ originally supposed to initiate foundations of clusters in their industries. Third, small businesses, on the contrast, show rather low profitability; however, there is variation among companies in different TORs. SMEs are hoped to play a key role in creating local labor market stability and adding to the regional economy what centralized big business cannot. In this regard, the TOR’s institutional improvement is vital to ensure local SME profitability. Summing up, we bid to label TORs as having ‘rich’ or ‘poor’ development potential to attract and stimulate SME in the zones.