1. ¹Office of the Chief Economist, European Bank for Reconstruction and Development, One Exchange Square, London EC2A 2JN, UK. E-mail: bevana@ebrd.com
2. ²Centre for Economic Reform and Transformation, School of Management, Heriot-Watt University, Riccarton, Edinburgh EH14 4AS, UK. E-mail: j.a.fennema@hw.ac.uk

Abstract

This paper assesses the results of a major survey of privatised enterprises in Russia, examining the financial environment in which firms operate. We find that the three sources of finance analysed (the domestic banking sector, the state and equity markets) are strongly influenced by the industry, size and region of the firm and that of these short-term bank lending is the dominant source of external finance. We find evidence to suggest that the observed financial constraints do not impede restructuring activity but do have a negative impact on the level of investment and the use of monetary surrogates. We conclude that further development of the financial sector is critical to long-term investment and the maintenance of economic growth in Russia.