<abstract xmlns="http://www.w3.org/1999/xhtml">This article focuses on the determinants of inward foreign direct investment (FDI) in Russia. The article briefly describes the historical context of foreign investment policymaking in Russia since the beginning of the economic transition to an open market economy after the dissolution of the Soviet Union. When compared to other developing countries, Russia's FDI stocks continue to lag despite a set of proactive measures undertaken by the national government. Following the literature review, the most commonly cited determinants explaining inward FDI in Russia include market size, labour productivity, trade and investment barriers, domestic exchange rate, rule of law and institutional framework.This article aims to contribute empirically to the study of determinants of inward FDI in Russia.This article uses the Pseudo-Poisson Maximum Likelihood (PPML) estimation technique, the robustness of the PPML estimation is then verified using a standard autoregressive integrated moving average (ARIMA) model with the Durbin–Watson autocorrelation test.Our benchmark results suggest the efficiency-seeking motive of FDI over a market seeking and horizontal motive as a main reason for inward FDI in Russia. The ARIMA regression indicates the absence of statistical significance of economic openness and variables of labour productivity. Overall, the market size and tax rate variables have the most positive effects on the inward FDI, while barriers to trade and sanctions have the most negative effects. The results confirm that for transitional economies, integration into the world economy, proactive local development and tax cuts for outside investors remain to be critical when it comes to attracting FDI.</abstract>

This article focuses on the determinants of inward foreign direct investment (FDI) in Russia. The article briefly describes the historical context of foreign investment policymaking in Russia since the beginning of the economic transition to an open market economy after the dissolution of the Soviet Union. When compared to other developing countries, Russia's FDI stocks continue to lag despite a set of proactive measures undertaken by the national government. Following the literature review, the most commonly cited determinants explaining inward FDI in Russia include market size, labour productivity, trade and investment barriers, domestic exchange rate, rule of law and institutional framework.This article aims to contribute empirically to the study of determinants of inward FDI in Russia.This article uses the Pseudo-Poisson Maximum Likelihood (PPML) estimation technique, the robustness of the PPML estimation is then verified using a standard autoregressive integrated moving average (ARIMA) model with the Durbin–Watson autocorrelation test.Our benchmark results suggest the efficiency-seeking motive of FDI over a market seeking and horizontal motive as a main reason for inward FDI in Russia. The ARIMA regression indicates the absence of statistical significance of economic openness and variables of labour productivity. Overall, the market size and tax rate variables have the most positive effects on the inward FDI, while barriers to trade and sanctions have the most negative effects. The results confirm that for transitional economies, integration into the world economy, proactive local development and tax cuts for outside investors remain to be critical when it comes to attracting FDI.

What determines foreign direct investment in Russia?

Faculty of Economic Sciences, Department of Macroeconomics and International Trade Theory

Central European Economic Journal

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

{"article-title":"What determines foreign direct investment in Russia?"}

This article focuses on the determinants of inward foreign direct investment (FDI) in Russia. The article briefly describes the historical context of foreign...

FDI	Inward FDI measured in constant 2010 US$ dollars, log	World Bank database
GDP	Russia's GDP measured in constant 2010 US$ 2,010 dollars, log	World Bank database
BRE	BRENT crude oil price in dollars per barrel, log	United States Energy Information Administration
RER	Real effective exchange rates as weighted averages of bilateral exchange with US$ dollar adjusted by relative consumer prices, measured as index, 2010 = 100, log	Bank for International Settlements
OPN	Own elaboration based on values of GDP, Import and Export, measured in percentage points, log	World Bank database
SAN	Own elaboration, dummy variable to account for the effect of Western sanctions on the economy of Russia, measured as 0 or 1	Own elaboration
TAX	Corporate income tax rate, measured in percentage points	Tax code of Russia
LAB	Labour productivity, GDP per hour, measured in constant 2010 US$ dollars, log	OECD database

Variables	GDP	BRENT	RER	OPN	SAN	TAX	LAB
GDP	1

BRENT	0.85	1

RER	0.75	0.87	1

OPN	0.92	0.78	0.76	1

SAN	0.52	0.12	0.08	0.53	1

TAX	−0.89	−0.71	−0.63	−0.82	−0.40	1
LAB	0.73	0.87	0.79	0.94	0.50	−0.88	1

Variables	Mean	Std. Dev.	Minimum	Maximum
GDP	1,303.91	324.86	813.02	1,706.43

BRE	54.06	33.48	12.76	111.57

RER	81.56	16.57	48.09	106.67

OPN	45%	0.06	37%	59%

SAN	0.14	0.34	0	1

TAX	26%	0.06	20%	35%
LAB	86.01	16.64	63.26	107.63

Explanatory variable: FDI_t	(1)	(2)
GDP	16.33^*** (2.352)	14.71^*** (4.404)

BRE	−1.08^** (0.355)	−1.24^** (0.540)

RER	1.70^** (0.556)	1.84^* (1.145)

LAB	−0.141^*** (0.037)	−1.110 (0.072)

OPN	−5.55^** (2.295)	−6.91 (5.599)

SAN	−1.10^*** (0.250)	−1.26^*** (0.372)

TAX	8.48^*** (2.140)	6.20^* (3.672)

Const	−103.97^*** (14.856)	−94.01^*** (28.781)

Wald c² (7)		84.79

Prob > c²		0.000

Durbin–Watson d-statistic		1.72^***
R²	0.88	0.89

What determines foreign direct investment in Russia?

Pubblicato online: 08 lug 2020

Pagine: 311 - 322

DOI: https://doi.org/10.2478/ceej-2019-0016

Parole chiave
foreign direct investment, economic transition, Russia

© 2019 Oleg Gurshev, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Description of variables.

Correlations between variables.

Sample of years used in the estimation.

Summary statistics of variables.

Estimation results from 1996 to 2017.

What determines foreign direct investment in Russia?

Pubblicato online: 08 lug 2020

Pagine: 311 - 322

DOI: https://doi.org/10.2478/ceej-2019-0016

Parole chiaveforeign direct investment, economic transition, Russia

© 2019 Oleg Gurshev, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Description of variables.

Correlations between variables.

Sample of years used in the estimation.

Summary statistics of variables.

Estimation results from 1996 to 2017.

Parole chiave
foreign direct investment, economic transition, Russia