Proceedings of the 5th International Ph.D. School on Innovation and Economic Development, Globelics Academy 2008, Tampere, 2nd of June 13th of June, 2008.The objective of our research is to analyze the peculiarities of NSI functioning in Russia, its strengths and weaknesses, and also to work out recommendations on its improvement. In order to achieve this it is important to answer the following questions: 1) What are the peculiarities of Russia’s NSI, its problems and disproportions, that originate from the Soviet period and still have an effect on Russia’s NSI? 2) What are the main subjects of Russia’s NSI, and how they interact? 3) Which organizational and economic forms increase the effectiveness of innovation processes on the federal and regional levels? 4) How are the innovation processes regulated on the municipal level? 5) How can the State initiate innovation processes? 6) How can we summarize foreign experience of NSI shaping and developing and apply it for improving Russia’s NSI? Answering each question would require separate research. Therefore, in this article we will pay more attention to the business sector of Russia’s NSI as the key element and indicator of the whole NSI effectiveness. The other issues will be given a short overview
