Determinants of Foreign Direct Investment in Russia: Empirical Study

Abstract

In the present paper the determinants of the inward FDI stock in the Russian economy have been estimated via panel data analysis. The results of the study have confirmed the relevance of basic gravity determinants: the GDP of Russia and the investing countries, and the distances between them. The level of per capita income in the investing country, as well as the mutual trade, has a robust positive effect on the inward FDI stock. This allows one to assert that an increase in trade in goods with countries with growing levels of wealth leads to an increase in stocks of foreign investment in the Russian economy. Changes in the exchange rate, relations with offshore financial centers, restrictions and sanctions imposed on Russia since 2014, and bilateral investment treaties do not have a significant impact on FDI accumulated in the country. The provision that trade in goods has a positive effect on the FDI stock can contribute to further study of FDI round-tripping and Russia’s involvement. The steady dependence revealed at the macroeconomic level shows that, despite the high estimates of the scale of intermediary financial investments, the FDI accumulated in the Russian economy retains the link with real economic activities. At the microeconomic level, it is provided by activities of TNCs and their long-term interest in the economy of invested enterprises, in the growth of their efficiency and competitiveness.