Enterprises' Business Practices and the Regional Institutional Environment in the Republic of Karelia in Russia

Abstract

This study uses theories on trust and opportunism to investigate the economic behaviour and business practices of enterprises in the Republic of Karelia, one of Russia's northern territories. Three enterprise types that have emerged during transition period in the Republic ("passives", "realists" and "innovators") have been identified on the basis of this analysis. Furthermore, both formal and informal market institutions in the Republic of Karelia were found to be underdeveloped, which creates numerous possibilities for opportunistic behaviour, both by authorities and by business actors. This, in turn, stimulates the creation of informal business networks and the use of particularly cautious business practices. The study is largely based on the results of a standardised survey and in-depth interviews conducted with the heads of 100 enterprises operating in the Republic of Karelia. The interviews were conducted in June and July of 2004 by the Institute of Economics research group in the Karelian Research Centre of the Russian Academy of Sciences.