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9THE ROLE OF DEVELOPMENT INSTITUTIONS IN ENHANCING REGIONAL
COMPETITIVENESS
Elena G. Patrusheva
Yaroslavl State University named after P.G. Demidov, Russia E-mail: patr5@ya.ru
Anna V. Rajhlina
Financial University under the Government of the Russian Federation, Russia E-mail: AVRajkhlina@fa.ru
Abstract. At the turn of 2000-2010, in all Russian regions, a large number of regional development institutions (RDIs) were created. These are specialized organizations that are supposed to contribute to the competitiveness and investment attractiveness of the territory. However, the analysis of the correlation between the investment dynamics for 2019-2020 in the Central regions and the number of RDIs shows unevenness and multidirectionality of its vectors for individual regions. The study attempts to assess the role of development institutions in enhancing regional competitiveness on the example of development corporations as an institution that is widely represented in the Russian regions The study identifies a number of significant legal, economic, and organizational problems that reduce the effectiveness of this type of institutions. The authors prove the necessity and present both system-wide changes with functioning RDIs, which is relevant to all regional institutions, and changes in the internal environment of development corporations. The paper also discloses the mechanism of building a regional system of development institutions that will contribute to improving the procedures for interagency cooperation in creating a favorable business environment and, consequently, strengthen the competitive position of the region.
Keywords: regional development institutions, competitive advantages of regions, investment attraction, conditions of development institutions' activity.
JEL codes: G38, H70, H83, R58
For citation: Patrusheva , E. G., & Rajhlina , A. V. (2021). The role of development institutions in enhancing regional competitiveness. Journal of regional and international competitiveness, 4(3),70-78. Retrieved from http://jraic.com/index.php/tor/ article/view/59
DOI: 10.52957/27821927_2021_3_70 Introduction
A favorable investment climate and the measures stimulating entrepreneurial activity contribute to the competitiveness of regions. The actors responsible for these tasks are regional development institutions (RDIs).
In a broad sense, development institutions are a set of tools and mechanisms that reduce the negative effects of crisis phenomena and stimulate economic growth (Ezangina et al., 2020; Matveev, 2015; Sahasranamam & Nandakumar, 2020). These include the development and implementation of relevant regulations, state and regional programs, various economic, administrative, educational activities, activities of infrastructure organizations, trade unions and associations, etc. (Kalyuzhnova, 2011; Evans & Harding, 1997; Rodriguez-Pose, 2013). In a narrower applied sense, development institutions are organizations created to implement public policies to enhance investment and innovation processes (Ergunova et al., 2017). This is how they are interpreted in the currently adopted federal and regional regulations (Frumina, 2017).
The scientific literature presents a variety of approaches to RDIs classification (Chashkin, 2012). They are classified by type (organization or territory), by formalization degree (formal, informal), by instruments of support (financial and other), etc. Regional public-private partnership institutions deserve special attention (Comarova & Chernya, 2020). The report of the Institute of Economics of the Russian Academy of Sciences
(Bakhtizin et al., 2015) names as such development corporations, small and medium enterprise (SME) support funds, business incubators, industrial and technology parks, as well as territories of special socio-economic development (TSSED). A number of studies also consider cluster structures as development institutions (Nikitaeva, 2017).
Background and methodology
Most Russian regions represent a variety of development institutions with different functional and organizational-legal forms (Domnina & Maevskaya, 2017; Ivanov & Bukhvald, 2018). Almost all regions have Development Corporations and SME Support Funds. Table 1 presents data on other types of formal development institutions in the Central Federal District (excluding Moscow as the leading federal region) found in open sources.
Table 1 - Regional Development Institutions of Central Federal District of the Russian Federation
Russian region Business Incubator / Accelerator Industrial / Tech Park Cluster
Belgorod region 3 7 2
Bryansk region 1 1 1
Vladimir region 1 6 -
Voronezh region 4/1 8 6
Ivanovo region 2 3 1
Kaluga region 1 11 2
Kostroma region 2 - 1
Kursk region 2/1 3 1
Lipetsk region 1 6 6
Moscow region 10 84 6
Orlov region 1 3 3
Ryazan region 1 5 6
Smolensk region - 2 3
Tambov region 4/1 2 -
Tver region 2 4 1
Tula region 2 1 3
Yaroslavl region 1 7 -
Source: composed by the authors
It is logical to assume that the results of RDIs present in a particular region are to some extent reflected in the investment attractiveness of the territory - one of the competitiveness factors. However, the number of RDIs created is no guarantee of their effectiveness. The data in Table 2 show that, for example, the Tula region, where at least six support organizations operate, manages to attract a larger volume of investment than, for example, Yaroslavl region, where there are eight of them.
Table 2 - Dynamics of the volume of investments in fixed assets by regions of the Central Federal District
Region Investments in fixed capital, bln. rub.
2017 2018 2019 2020
Moscow region 1 942.3 2,449.37 3,142.59 3,551.51
Voronezh region 180.1 177.84 190.69 163.55
Tula region 92.08 119.05 138.84 98.73
Region Investments in fixed capital, bln. rub.
2017 2018 2019 2020
Belgorod region 81.01 75.13 97.46 102.52
Lipetsk region 80.77 70.48 101.95 110.53
Kursk region 78.84 93.67 109.8 107.39
Tver region 74.6 80.08 64.56 60.97
Tambov region 70.3 58.9 78.8 68.06
Kaluga region 61.58 71.5 89.16 92.08
Yaroslavl region 58.69 58.15 64.36 63.66
Ryazan region 46.92 45.59 48.85 42.33
Vladimir region 46.5 46.36 59.26 63.55
Bryansk region 38.17 42.65 47.36 57.27
Smolensk region 32.17 47.28 41.53 38.66
Ivanovo region 13.42 13.52 18.97 22.83
Orlov region 23.67 29.15 31.22 33.91
Kostroma region 12.91 14.03 16.69 17.97
Source: composed by the authors on the data from the analytical portal 3DPRO.INFO https://3dpro.info/panel/group/07e2d729-c959-420e-a827-e36807d88851
As can be seen, only 6 regions out of 17 show a steady growth in the volume of investment in fixed assets since 2017: Moscow region (the total volume of investments exceeds the sum of investments in other CFD regions presented in Table 2), as well as Bryansk, Ivanovo, Orel, and Kostroma regions, where the number of created RDIs is relatively small.
To analyze the quality of the established institutional environment, it might be interesting to compare the investment numbers for 2019 and 2020, as they reflect the regions' ability to cope with the economic problems caused by the pandemic (Fig. 1).
250
200
150
100
50
30,0%
20,0%
# 4*
A"
2019, bin rub. ^^m 2020, bin rub. -Relative deviation, %
Figure 1. The volume of investments to the fixed capital in the regions of the Central Federal District for
2019-2020
Source: composed by the authors
The data presented show that regions with a large number of RDIs, such as Voronezh and Ryazan
regions, were rather noticeably affected by the crisis. At the same time, regions with a smaller number of them, such as Bryansk or Ivanovo regions, showed better results. As a reminder, these are the regions that have also shown steady growth in fixed asset investment since 2017.
Since quantitative methods do not provide a comprehensive picture of the role of development institutions in enhancing regional competitiveness, a qualitative assessment of the contribution of a certain group of RDIs to this process is necessary. Development Corporations were chosen for the analysis as the institution most widely represented in the Russian regions.
Results
Development Corporations were created to meet the requirements of the Standard of Activities of the Executive Authorities of the Russian regions (Order of the Ministry of Regional Development of the Russian Federation, September 24, 2013. N 408). Indicators of implementation of items 6 and 9 of this Standard is "availability in a constituent entity of the Russian Federation of a specialized organization for attracting investments and working with investors", as well as "for support of investment projects". The Standard had to be implemented as soon as possible and thus there was not enough time to prepare quality methodological support for the activities of this Institute (Mitrofanova & Pozhilova, 2018).
The authors' analysis of the activities of the Central Federal District Development Corporations allowed them to highlight a number of significant problems that hinder the full-fledged contribution of RDIs to the enhancement of regional competitiveness. They can be classified as system-wide problems concerning not only Development Corporations, but also other institutions, as well as problems specific to this particular institution (Table 3).
Table 3 - The complex of the main problems in functioning of regional development institutions
System-wide - Lack of a concept of development of institutions as a holistic system - Insufficient methodological tools for performance evaluation
Typical for Development Corporations legal economic building interaction
- uncertain status of RDI - contradiction in the form of JSC and development goals - low economic efficiency - the need for additional funding sources - between institutions - with regional authorities - with regulatory agencies - with investors
Source: composed by the authors
Since there was no concept of institutional development as a holistic system, the creation of RDIs was mostly tactical and situational (Bondarenko et al., 2017). The functioning of individual RDIs is overly focused on short-term objectives and insufficiently embedded in long-term priority objectives. There is a significant methodological gap concerning the assessment of their contribution to the socio-economic development of the region. This generates often unfounded conclusions by the public about misuse of budgetary funds allocated by the RDI.
The problems of functioning specific to development corporations can be divided into legal, economic, and organizational ones.
In the field of law, the issue of uncertain status and place in the system of regional governance is, in our view, the most relevant and largely determinant for the rest of the problems. The concept of a Regional Development Institute with the corresponding powers is not enshrined in either federal or regional legislation. Legal uncertainty of the status exacerbates the whole set of problems of RDI activities.
The widely used form of joint stock company for development corporations also presents a number of challenges. RDIs in the form of JSCs are quasi-commercial companies. At the same time, development institutions perform functions of ensuring the most favorable outcome for investors and do not have administrative and financial independence, coordinating all current operational decisions with the authorities. It means that there is an objective contradiction between the interests of a commercial organization and the
objectives of creating a comfortable investment environment in the region.
The unclear legal status determines a number of economic problems in the functioning of RDIs. The lack of stable funding sources severely limits the RDI's ability to work with investors. Regional budgets are mostly deficit-ridden. The amount of investment allocated to attracting investments (for the activities of regional development institutions as well) often do not provide the necessary parameters for it.
An important area of the RDI's activity is the creation of investment sites and development of projects significant for the region, which is largely non-commercial in nature. Membership in public organizations and associations, participation in forums, various public events, negotiations, and work with potential investors require additional mechanisms for obtaining subsidies to reimburse the cost of work performed on promising projects.
As for building interactions, there is an important aspect of creating a unified legal framework for development corporations, as for other RDIs. Since the work with investors is interdepartmental, in order to agree and promote investment projects, it is necessary to communicate with various organizations. The unclear authority of RDIs in the regional governance system is exacerbated by the need to review traditional investor outreach tools against the backdrop of increasing digitalization of socio-economic processes.
In order to strengthen the role of RDIs in enhancing the competitiveness of territories, in our opinion, a set of measures at the federal, regional levels, and in the institutions themselves is needed. First of all, the notion of a Regional Development Institution needs to be enshrined in the legal framework. According to research, in 2013, only 10% of experts thought it was necessary to introduce the term into federal law, while in 2016, already 53% of respondents agreed to that (Ergunova et al., 2017).
It seems that it could be defined by a separate federal legal act, which would regulate various issues of RDI activities. Some organizational solutions are also required. Currently, several structures, such as the Ministry of Economic Development, the Ministry of Industry and Trade, and the ASI, are in charge of coordinating RDIs in Russia. Therefore, it seems appropriate to identify one center of responsibility when making recommendations to the regional institutions. The centralized organization of business trips abroad (possibly under the supervision of the Ministry of Economic Development of Russia) in order to present the investment potential of individual regions and establish business contacts also seems to be a relevant direction. In order to overcome RDIs' economic problems, it is worth considering the creation of specialized financial products for them by state banks, federal development institutions, or the federal fund for their support. One of the solutions could be the development of the state program of investment activity development in the regions, which would solve the issues of training and professional development of RDI specialists, development of business plans of priority projects, conducting market research, etc.
Since the organizational-legal forms and practices of the development institutions established in the regions differ, reflecting the specifics of a particular region, it is necessary to provide for a comprehensive regulation of the system of their interaction at the regional level to improve the effectiveness of RDIs (Fig. 2).
Chambers of cdrasnerce
A&n&iistialion of the subject ofthe Russian Federation
Industry develuptriem Export colter
fand
\ /
Regional Development Regional
competence corporation engmeenng center
/
Industrial parts. Territories of special socio-
investment Htes eciMiottBC development
Nations] Association of Investment and Development Agencies
Federal authority
Federal development institutions
Figure 2. Framework model of the regional development institutions system (on the example of the
Yaroslavl region)
Source: composed by the authors
This document should outline the points of convergence of all participants in the processes of creating a favorable business climate in the region: RDI, the Chamber of Commerce and Industry (CCI) and other business associations, the regional administration, municipalities, and determine the procedure for their interaction. Also, this regulation should define how RDIs should interact with federal authorities (FA), institutions, and non-profit organizations, such as the National Association of Investment and Development Agencies (NAIDA).
Over the past ten years of active completion of development institutions, the socio-economic situation has changed significantly, including the intensive processes of technological transformation. Investors are interested in obtaining a new quality of project support service, speeding up decision-making and documentation. They also need a clear and informative picture of the opportunities available in a particular region for their initiatives. As a consequence, development institutions need to look for new effective procedures for working with investors.
Currently, the information required by investors is posted on the websites of each regional institute, i.e., is fragmented and not systematically integrated. This situation is a consequence of the established isolation of the institutions themselves, their different organizational-legal forms and jurisdictions. The undeveloped system of automation of actual infrastructure, engineering, communication and other resources of the region and municipalities leads to slow decision-making to enter the region. One of the options for solving the problem of information scarcity is building individual project trajectories. The entrepreneur enters the main indicators in the dialog window on the page of the Investment portal of the Russian region in a special tab and can view various options for the development of his idea along various trajectories involving RDIs (Fig. 3).
It leads to the emergence of a network of contacts during interaction. A business network of participants in regional investment projects could be formed through a specialized digital platform integrated into the region's investment portal, which would host a database of businesses that use RDI services.
Figure 3. The model of building individual project trajectoriesby regional development institutions (on the
example of the Yaroslavl region)
Source: composed by the authors
This is how investors and manufacturers could find possible business partners to work with in the
region, and the RDI could send newsletters and provide services offering preferential conditions to users. But most importantly, the platform would allow for informal feedback on the quality of the RDI activities and their improvement. However, the establishment of an additional information system requires efforts of the regional administration.
Discussion
Inadequate methodological frameworks, as well as numerous limitations in the legal and economic areas of RDis have repeatedly been studied in Russia (Tatarkin & Kotlyarova, 2013; Baranov et al., 2015; Budagov, et al., 2017; Novosyolov, 2020).
The decisive importance of the regional institutional environment for economic growth is emphasized in foreign scientific literature (Glaeser, et al., 2004; Aoki, 2007; Hall & Sobel, 2008; Xu, 2011). It is defined through the interaction of formal and informal institutions (Morgan, 2007; Raza, et al., 2019). Various methodologies have been proposed to measure the contribution of institutions to social development (Voigt, 2013).
Foreign studies have also been monitoring the phenomenon of the construction of business networks with technologies of exchange of ideas, projects through this format for a couple of decades (Lagendijk & Cornford, 2000; Jansson et al., 2007; Acs et al., 2018). These informal associations are recognized as an effective regional institution that emerges from the principles of self-organization and information sharing (Leeds, 2009; Hawkins et al., 2016; Liu, 2016). According to the researchers, the government should be actively involved in these processes (Luedtke, 2005), including providing platforms for discussions, in order to receive live feedback on certain solutions, as well as timely support for business initiatives born in the network.
Conclusion
In Russia, development institutions are usually understood as the activities of specialized organizations aimed at creating a favorable business climate. Over the past 15 years, more than 200 regional development institutions (RDIs) of various organizational and legal forms and functions have been established in the Russian regions. The diversity of RDIs makes it difficult to develop a unified approach to assess their contribution to the competitive position of the region; the analysis of absolute indicators of socio-economic development of regions in this regard can serve only as an indirect tool to assess the activities of RDIs.
Analysis of the activities of development corporations has shown that even within one group of institutions there can be regional differences. However, the absence of a legally enshrined norm of a Regional Development Institution gives rise to system-wide implementation problems common to all RDIs. Against the backdrop of increasing competition among regions for investment and the growing pace of digitalization, these problems require an urgent and comprehensive solution both at the federal level and at the level of constituent entities of the Russian Federation and on the part of the institutions themselves.
The study has shown that there remains a high level of controversy about the role of development institutions. Suggestions made on new tools in RDIs, such as strengthening informal communication, building business networks and using digital solutions, are of an applied nature. In the context of increasing regional competition, it is necessary to discuss more in-depth questions about the goals and strategic objectives of RDIs in understanding what are the practical ways to transform them to a more systemic image and to obtain effective mechanisms that contribute to the effective development of regional economies.
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© Elena G. Patrusheva, Anna V. Rajhlina, 2021
Received 01.05.2021
Accepted 01.07.2021
