Investment Aspects Of Innovation Development Of Municipal Entities In Current Economic Conditions

Factors influencing efficiency of innovation and investment processes

According to the authors, there are social psychological and economic factors which prevent innovation activities (Shumpeter, 1961; Oulasvirta, 2017).

Social psychological factors concern any innovation activity. People have bias against innovations because of a fear of changes. Some age groups are passive and conventional. Besides, any professional groups do not want to alter status quo. They resist to undesirable changes directly or indirectly. Need for retraining and requalification due to innovations implementation cause a sense of insecurity of the future and make people irresponsive to transformations of conventional social and economic structures and group values.

As for municipal entities, the main social psychological factor preventing innovation activities is unwillingness of municipal bodies to support innovation activities.

Economic factors are also important as innovation activities involve both expenses and results. From the economic perspective, some innovation activities are unreasonable. However, from the social perspective, they will have positive results.

Economic factors preventing innovation development are as follows: low potential of most organizations; a lack of own funds for carrying out innovation activities; a lack of methods for assessing the level of innovation investment development of municipal entities; a lack of collaboration with research organizations and companies; a lack of the federal government financial support.

Investment component of innovation development of municipal entities.

To develop an innovation economy ensuring the efficient economic growth and a new level of manufacturing equipment for producing new generation products, a sharp increase in investment in innovation development is required.

It should be noted that the innovation economy has its own structure of wealth and special profit efficiency assessment criteria. The current economic growth differs from the one in the industrial society as not any economic growth results in innovation development and is based on innovations.

Besides, the market economy involves risks and cannot exist without investment which depends on two basic conditions: investor’s trust in authorities and clear innovation policies.

Hence, not any investment activity can be innovative. This feature is typical of the innovation investment economy where investment aims to develop and implement technological processes, mechanisms, equipment, new knowledge-intensive ideas and management systems (Koc, 2017; Salamonsen, 2015).

Thus, one of the main factors of innovation activities is investment. Efficiency of innovation activities depends on availability of resources, including investment ones. An increase in investment without innovation activities contributes to reproduction of obsolete technologies and conservation of the economic weakness.

Economic problems of innovation development program implementation in municipal entities

The economic potential of municipal entities is limited. Their revenues are too small to finance expenditures for performing their functions which discourages municipal bodies to develop territories. Transition to innovation-based development, innovation investment program development requires financial implementation mechanisms (Lorincová, 2016; Coutinho, 2014). To this end, the article analyzes key financing sources for municipal entities.

The main investment and innovation source is a municipal budget. According to the Russian legislation, municipal budgetary revenues consist of personal property taxes and land taxes. Besides, federal and regionals taxes are assigned to municipal budgets as provided for in legislation acts.

Non-tax revenues of local budgets are municipal property use and disposition revenues; revenues from commercial services provided by municipal budgetary institutions; after-tax profit of municipal unitary enterprises.

Analysis of own and debt revenue sources of local budgets

Local taxes, non-tax revenues and revenues assigned to local budgets by the federal laws are less than half of all the municipal budgetary revenues. Other municipal revenues are grants, subsidies and subventions from the federal and regional budgets.

Grants are inter-budgetary transfers designed to adjust budget revenues of settlements, municipal areas and urban districts (Malkova, 2017).

Subventions are inter-budgetary transfers designed for financing of expenditure obligations of the municipal entities performing federal or regional duties.

Subsidies are inter-budgetary transfers designed for co-financing of expenditure obligations of the lower budgets.

The subsidies play an important role for innovation and investment development of municipal entities. Local bodies should develop innovation investment programs in order to obtain subsidies for their implementation.

There is one more issue. The transfer system is not based on priorities of social and economic policies, including their territorial aspects. Inter-budgetary transfers are regarded as a special financing tool designed to neutralize a vertical disbalance of revenue and expenditure obligations of the local budget and serve purposes of regional authorities.

Investment dynamics analysis in the region

Figure 1 shows analysis results for investment dynamics per one resident of Irkutsk oblast.

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The dynamics volume for per capita investment in the region is positive. In 2016, the volume of per capita investment increased by 21%.

Innovation aspects of municipal entity development

One of the main assessment criteria for the level of municipal innovation development is analysis of innovation activities of businesses. The article describes statistical data on the dynamics of regional innovation active businesses

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For the period under study, the total number of regional innovation active businesses is more than 50. In 2016, the total number of innovation active businesses increased by 20% in comparison with 2011.

Analysis of investment and innovation development indices.

The indices can be divided into several groups by their potentials (Table 1 .).

A set of indices characterizing innovation and investment development can be analyzed in each potential (Nechaev, 2014, 2017; Demidenko, 2016).

Rationale for choosing innovation and investment development indices.

In each potential, we use such indices as a population size, an amount of businesses, a corporate profit volume, a total volume of innovation products. Indices are selected on the basis of econometric methods.

Econometric methods for assessing the potential of municipal entities

The correlation and regression method involves the following stages:

• Problem statement: identification of indices whose relationship is assessed, formulation of economically reasonable relationship assumptions;

• Development of a list of factors, their logical analysis: selection of an optimum number of most significant variables affecting the dependent index;

• Specification of a regression function: relationship assumption is formulated;

• Regression function assessment and model adequacy check: calculation of numerical values of regression parameters and analysis accuracy indices;

• Economic interpretation: comparison of results with assumptions formulated at the first stage, assessment of their accuracy from the economic perspective, making conclusions (Janeway, 2012).

Accounting for risks when assessing a municipal development level

When assessing a development level for municipal entities, a risk component should be taken into account (Stosic, 2017). We suggest assessing such risks as

• Economic risk characterizing regional unprofitable businesses;

• Social risk characterizing an unemployment level in the region;

• Financial risk characterizing financial indices of businesses;

Environmental risk characterizing an environment pollution level.

Criteria for territory classification by innovation and investment development levels.

Territory classification is based on criteria in Table 2 .

where $I_i$- investment and innovation development index in relevant measurement units;

$\overline{I_i}$– mean value of the investment and innovation development index in relevant measurement units.

Recommendations on adjustment of territory development control systems

Adjusting of development programs with regard to identified features is a final stage of innovation and investment development assessment.

To this end, development directions for each group of municipal entities are determined by the following formulas:

where $M_i$ - development direction for relevant groups of municipal entities;

$I_{imin}$- minimum value of the index for a group of municipal entities with a middle development level;

$\overline{I_i}$– mean value of the investment and innovation development index;

$I_{imax}$- maximum value of the index for a group of municipal entities with a middle development level (Antipin, 2017; Nechaev, 2014; Weimer, 2016).

Analysis of calculated deviations helps develop recommendations for municipal entities with a low development level. The recommendations cover development and implantation of a development strategy, innovation and investment development programs, local legal acts aiming to enhance competency of municipal officials who are responsible for decision-making in this area.

For municipal entities with a middle development level, improvement of investment and innovation management, including project support (investment fairs, promising project presentations, specialized website development, territory investment passport adjustment, etc.) is recommended.

Thus, development assessment and identification of desirable directions based on the model developed allows development of measures aimed to improve specific indices for transition of municipal entities to innovative economic development.