Government economic policy and the formation of investment climate: the experience of Russia in the late 19th – early 20th centuries

"The economic development is largely determined by quality of investment climate. A favorable investment climate is an important precondition for effective functioning of the economy. In this regard the issues of investment climate are paid a lot of attention in modern economic literature and especially in practical activity. Virtually all studies recognize the important role of the government in creating a favorable investment climate. «For governments at all levels, a top priority should be to improve the investment climates of their societies. To do so, they need to understand how their policies and behaviors shape the opportunities and incentives facing firms of all types» [World Development Report 2005, p. 20]. The investment climate is largely determined by the government economic policies as a set of institutional arrangements designed to create optimal conditions for investment. “… [F]irms assess investment opportunities and related government policies and behaviors as part of a package” [World Development Report 2005, p. 2]. The issue of a favorable investment climate is given serious attention in present-day Russia. However, the problem of creating an appropriate environment for investment was of vital importance in the past as well. In particular, it was on the agenda in Russia in the late XIX — early XX century. The study of historical experience of how the government policies influenced the investment climate in the past was of interest both from the standpoint of economic history, and as a practical matter, since it allows tracking the effectiveness of various policy instruments for investment decisions. No doubt, business environment and the characteristics of the business have changed significantly in comparison with XIX–XX century, but it seems that the entrepreneurial spirit and human nature have evolved not so radical. The purpose of this study is to assess the impact of the government economic policy on the formation of investment climate in Russia in the late XIX — early XX century. Following W. Smith and M. Hallward-Driemeier, under investment climate we imply «the set of location-specific factors shaping the opportunities and incentives for firms to invest productively, create jobs, and expand» [Smith, Hallward-Driemeier, 2005, p. 40]. Based on comparative analysis of different methodologies of assessing the investment climate (Moody’s, Standard & Poor’s, Euromoney etc.) the authors identified the most important factors and indicators for assessing the investment climate at the country level, which were then adapted to the task of the study. Five hypotheses concerning the impact of the government economic policy on the investment climate in Russia in 1885-1913 were formulated. The hypotheses were tested by means of econometric analysis. The regression analysis results were interpreted taking into account the realities of the investigated period. The authors come to the conclusion that in total the economic policy, pursued during 1885-1913, contributed to the formation of a relatively favorable investment climate which was expressed in attracting domestic and foreign investment. "