Modern Approaches to Measuring the State Sector: Methodology and Empirics

Abstract

This article attempts to estimate the scale of state participation in the Russian economy in temporal dynamics and in comparison with other countries. Our unique methodology suggests a set of alternative approaches to measuring 3 independent components: state-owned enterprises (SOEs), state unitary enterprises and the public administration sector. Our results reveal the growth of state involvement in the economy up to 46% of GDP in2016. The share of SOEs and public administration in GDP rose from 20.2% and 16.9% in 2006 to 25.3% and 19.2% in 2016, respectively, by conservative estimates. A cross-country comparison suggests that market capitalization, employment and SOEs’ share in GDP are significant and increasing. The share of public administration corresponds to the same estimate for OECD countries, but it is also increasing. The total state share and its growth can be evidence of an alarming trend for the Russian economy. It is6%-12% higher than the estimate for most developing countries and, unlike in China or India, it keeps growing. This leads to state expansion in the economy, growth of state influence on SOEs and a transfer of noneconomic risks to SOEs. Apart from increasing state involvement in added value creation, the state plays an active role in the reallocation of financial resources, and there is some evidence that it is even more significant than the state share in creating added value measured by GDP.