Protection or Repression: The Impact of Judiciary Behavior on SME Development in Russia

Abstract

The paper investigates the role of judiciary behavior in the development of SMEs in Russian regions. Specifically, it looks at how repressive Russian courts are in punishing economic crime. Repressiveness of courts can be both an obstacle of business development (if it serves the predatory behavior of bureaucrats) and a factor improving the environment for business (if it reduces risks of illicit behavior on the side of SMEs’ counterparts). Utilizing the differences in court repressiveness and SME development across Russian regions, we show that court behavior indeed affects the development of SMEs, at least as captured by the official statistics. For small business in the area of trade, higher repressiveness of courts in the matters of fraud seems to encourage business development, while repressiveness in corruption and illicit entrepreneurship has a negative effect.