Econometric Study of the Dynamics of Foreign Direct Investment in Russia

Valentina E Guseva,Sofya V Mechik

doi:10.34069/ai/2020.27.03.10

Valentina E Guseva, Sofya V Mechik

Open Access

https://doi.org/10.34069/ai/2020.27.03.10

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Abstract

Foreign investment is of high importance for economic growth in Russia. The problem of enhancing investment flows makes it increasingly relevant to search for effective tools for stimulating investment activity. We attempt to identify the factors affecting the dynamics of foreign direct investment (FDI). The paper analyses the current state of foreign direct investment in the Russian economy. Using empirical data for 2001–2018, we construct an econometric model for Russia which considers such factors as inflation (the Consumer Price Index), the exchange rate and imports. The results of the model’s testing do not confirm the initial assumptions that inflation exerts a more profound effect on FDI than the exchange rate and that there is a correlation between these indicators. For Russia, the dependence of FDI on the exchange rate remains insignificant; in addition, we find a direct relationship between the indicators. According to the model, the impact of inflation (direct relationship) and the volume of imports (inverse relationship) are of greater significance. It is noteworthy that the dynamics of foreign direct investment is partially due to its fluctuations with a time lag. The model forecasts that from 2019 to 2024 Russia is expected to experience a rise in FDI net outflows. The findings indicate that in order to attract foreign direct investment, it is necessary to implement economic transformations that will improve the business environment and lead to the development of healthy competition.

Highlights

The current period of Russia’s development implies an increase in the country’s investment attractiveness and stabilization of the economic situation
The current research explored the relationship of the volume of foreign direct investment (FDI) with the national currency exchange rate, imports and inflation
For Russia, the dependence of foreign direct investment on the exchange rate remains insignificant; we found a direct relationship between the indicators

Summary

Introduction

The current period of Russia’s development implies an increase in the country’s investment attractiveness and stabilization of the economic situation. The investment climate has been unfavorable, which resulted in the outflow of capital. Significant economic reorganization had a marked effect on the country’s global investment position. Foreign direct investment (FDI) is a special form of cross-border capital flows that has traditionally been one of the key drivers of economic growth. Foreign direct investment contributes to the formation of gross capital, boosts productivity growth, improves competitiveness and provides a number of other comparative advantages, such as transfer of technology, innovation and management skills, the improvement of the quality of human capital, etc.

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