The Emergence of Bank-Issued Credit in Russia: An Empirical Characterization

Abstract

Bank-issued credit is an important source of external financing for dynamic firms in transition economies. However, banks with a primary mission of issuing loans to private firms have only recently emerged in Russia. While this emergence (and subsequent expansion) appears to be carrying significant implications for Russia’s continuing economic development, it is a far from universal phenomenon when viewed from a regional perspective. The purpose of this paper is to document regional patterns of the emergence and expanding importance of bank-issued credit within Russia; to note its relationship with regional patterns of economic activity; and to seek an empirical account of the regional variations we observe. In pursuing the latter objective, we document that regional variations in the influence of the communist party evident in the former Soviet Union retain remarkable explanatory power in accounting for regional variations in bank-financing activity. An account of the persistence of this influence will be the subject of future research.

Keywords: economic growth, institutional persistence

JEL Classification: O4, P3, R1