manufacturing firm is measured either by annual sales revenue or number of employees. Indeed, the space between the two, near forty-five degree lines in Figure 3 indicate that firm growth is relatively stunted in Russia compared to other economies. If all firms grew in size at about the same rate in Russia as in other economies, the lines in this figure would be on top of each other and indistinguishable one from the other. They are not; the size-age line trajectories cross and separate at a certain point. The Russian trajectory falls below that of comparator economies. Moreover, the figure indicates that the differences in trajectory are statistically significant to a 95-percent confidence interval. The grey shading around these lines depicts that band of confidence. Where these grey bands do not cross, the reader can conclude that the estimates are statistically significantly different from each other. After a certain age, the size of firms in Russia slows. Based on these data, Russia is seems relatively less allocatively efficient than many of the economies to which it was compared.

At this point, findings on the relatively lower levels of allocative efficiency in the Russian economy are indicative, not conclusive, but nonetheless important. They point to an additional factor that may hamper growth and diversification of the economy. Specifically, the staying power of inefficient firms, stunted in growth, but that do not exit the market may be a problem. In relation to how they affect the entrance of new firms, these stunted firms that stay put hold on to productive resources (labor and finance) that newer, possibly more productive firms in emerging sectors could make use of to survive and grow. The staying power of these stunted firms also calls into question how fierce competition may be since the forces of economic rivalry do not seem to be enough to escort them to the exits. Research is just starting to provide support for the relationship between allocative efficiency, firm entry and competition in other economies.

# COMPARATIVE ANALYSIS OF RUSSIAN ECONOMIC VOLATILITY AND FIRM SURVIVAL **VOLATILITY OF RUSSIA’S SECTOR-LEVEL OUTPUT RELATIVE TO OTHER ECONOMIES**

The first question to answer is whether Russia’s economy is more volatile than others. The study does this by comparing year to year changes in sector-level<sup>12</sup> economic output of the Russian economy, between 1993 and 2009, to that of other economies.<sup>13</sup> To determine if the Russian

> 12 For the sector analysis, a shortened panel that included the period between 1993 and 2009 was used. UNIDO data for Russia start in 1994. In addition, outlier observations – identified as output growth outside 3 standard deviations above or below the mean growth rate for each sector in each country – were removed. Doing this resulted in dropping about 45 percent of the observations in the dataset (Refer to Table 23 Annex for a detailed breakdown of the dataset pre and post sample selection).

> 13 For the sector-level comparative analysis across economies, the following groups of economies and countries are considered: Brazil, India and China, which along with Russia comprise country grouping called BRICs; Australia, Canada, Chile, and New Zealand are high growth countries that like Russia have an abundance of natural resources but, unlike Russia, have largely diversified economies and these are grouped together under Resource Rich Countries; and finally Korea and the set of economies grouped under the Organization of Economic Cooperation and Development (OECD) are compared to Russia because of their relatively long periods of steady and positive growth that serves as reference of longterm economic performance.  Of course, there are overlaps between these groups and some of these economies.  For example, Australia, Canada, Chile, Korea and New Zealand are all members of the OECD.

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