Government financial support for small and medium-sized enterprises in northern regions

The socio-economic, climatic, and geographical conditions of northern regions shape both the opportunities and constraints for the development of small and medium-sized enterprises (SMEs). Strengthening their role in these regional economies requires an effective system of government financial support. This study examines the significance of such support in the context of the unique challenges faced by SMEs in northern regions. SMEs in these areas demonstrate uneven growth and substantial variations in their economic contributions in terms of gross regional product formation. A cluster analysis, applying both hierarchical and non-hierarchical clustering methods, identified six distinct groups of northern regions based on SME development levels. Among these, Magadan and Sakhalin exhibited the highest levels of SME activity, while the Republic of Tyva ranked the lowest. The primary barriers to SME growth in northern regions stem from harsh climatic conditions, inadequate infrastructure, and institutional constraints. These challenges have been further exacerbated by external factors such as the COVID-19 pandemic and economic sanctions. Government financial support plays a critical role in fostering SME development under these conditions. However, funding levels remain inconsistent across regions, with the exception of the Komi Republic, Sakhalin Region, and the Yamalo-Nenets and Chukotka Autonomous Okrugs, where financial support has shown a steady increase. Econometric analysis highlights the importance of government financial support in SME development, alongside factors such as improvements in the investment climate, reductions in unemployment, and the stimulation of consumer demand through lending. Notably, expanding financial support to a broader range of recipients proved more effective than merely increasing the average funding per business. Future research should focus on evaluating the impact of different forms of government financial support on SME development in northern regions.