Regional Distribution of Foreign Direct Investment in Russia

Abstract

The objective of this article is to develop a model of the regional distribution of foreign direct investment (FDI) in Russia based on panel data for 1996-2003 taking into consideration implications shown in preceding studies on the geography of FDI in Russia. Through descriptive statistical and econometric analysis, the following conclusions were reached. First, there is a notable deviation of FDI in Russia among regions; however, a clear geographical pattern, similar to that in Central and Eastern European countries and China, can not be observed. Second, resource endowments, market factors and social development factors, to which the preceding studies attach importance as determinants for the regional selection of FDI, also proved to have high significance and explanatory power in the empirical analysis. In addition, it has been suggested that climate and favourable regionally discriminatory FDI measures are possible investment factors. Third, evidence suggesting that the Russian financial crisis in 1998 had a statistically significant influence on the decision-making process of foreign investors was not found in this analysis.

What Causes the Regional Disparity of FDI in Russia? A Spatial Analysis

“…variables but neither, Iwasaki and Suganuma (2005), nor Ledyaeva (2007) account for education as a proxy of skill level, explicitly. WAGE, which shows the average regional wage rate, is included to reflect the labour compensation as a cost variable (again log version is used).…”

“…Therefore, we expect the GRP variable to have a positive sign in the estimations. Iwasaki and Suganuma (2005) and Ledyaeva (2007) apply principle component analysis to determine the market size variable using GRP, total population and population density, however in order to prevent loss of information caused by the principle component analysis, we prefer to use the GRP as it is.…”

“…As the skill level increases we claim that the region will attract more FDI therefore the sign of EDU variable is expected to be positive 24 . Iwasaki and Suganuma (2005) take the university enrolment rate as part of the first principle component of urbanization variable. Coughlin and Segev (1999) use illiteracy rate is as a proxy of labour supply characteristics.…”

“…Iwasaki and Suganuma (2005) attribute this poor performance to the degradation of the FEZs and to the arduous preconditions asked from foreign investors to be suitable for PSAs. Blonigen et al (2007) mention resource-seeking FDI as part of vertical-complex type.…”

EU enlargement and foreign direct investment into transition economies revisited

“…See Iwasaki and Suganuma (2005). where EUaccession is a set of k dummy variables reflecting participation in the EU Eastern enlargement process and the progress of accession negotiations (discussed later); GDPSIZ is the market size of the host country measured in terms of the total amount of GDP; PRISEC is the ratio of GDP to host country's private sector, which is used as the proxy for the progress of transition to a market economy; GDPGRO and INFRAT are the real GDP growth rate and the inflation rate of the host country, respectively;…”