Abstract
This paper empirically analyses the determinants of foreign direct investment inflows into the Russian regions. This problem has become highly relevant for the necessary modernization of the Russian economy after the recent economic slowdown and sharp decrease in budget revenues. The authors model foreign direct investment flows with the use of the gravity approach according to which investment flows are positively correlated with the size of the investor’s country as well as the size of the recipient region and are negatively correlated with the distance between investor and recipient. The empirical analysis is based on a constructed database consisting of the foreign direct investment flows from 179 investor countries into 78 Russian regions for the period 2006–2013. The authors apply the Poisson Pseudo Maximum Likelihood method and identify the following factors determining foreign direct investment inflows into the Russian economy: the gross domestic product of the investor’s country, the gross domestic product per capita in the recipient region, the distance from the investor to Moscow, the openness of the region, the economic situation in the region, the innovative capacity of the region and the foreign direct investment of the previous period. Interestingly, the distance from the recipient region to Moscow matters for the regions in the western part of Russia (relatively close to Moscow) but is not significant for the regions in the eastern part (remote regions).
Highlights
FDI plays a crucial role in a country’s development, since it is an efficient way to introduce new technologies and modern production technologies
This paper investigates the determinants of FDI inflows into the Russian regions and should be of high relevance for the understanding of the Russian economy for three reasons: FDI is one of the key factors of the modernization and diversification of the Russian economy; FDI inflows into Russia are concentrated only in few regions; the set of FDI determinants could be used to increase efficiency of regional programs aiming at improving investment attractiveness of Russian regions
There are very few papers on FDI determinants in Russia and to the best of our knowledge, all of them use old data concerning the last decade of the 20th century
Summary
FDI plays a crucial role in a country’s development, since it is an efficient way to introduce new technologies and modern production technologies. The empirical analysis in this paper is based on the gravity approach This approach is widely used to explain FDI flows between countries, while the number of papers that use the gravity approach to explain FDI determinants at the regional level is rather limited. Few papers investigate determinants of FDI inflows into Russia at the regional level 1, they use old data concerning the last decade of the 20th century when the level of FDI inflows into the Russian economy was extremely low, and, provide results that do not extend to our question. We use the Poisson Pseudo Maximum Likelihood (PPML) method to estimate FDI determinants in Russian regions This method is widely used in explaining FDI at country level and has proved to be one of the most efficient methods, providing unbiased and consistent estimates in the presence of an endogeneity problem caused by simultaneity.
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