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

Abstract

We analyse the determinants of the regional disparity in attracting FDI in Russia using additions to fixed capital investment by foreign firms as the measure of FDI. The spatial distribution of FDI is attributed to regional and/or trans-regional factors. Region specific characteristics such as wage, education level, transportation as well as gross regional product, which accounts for market size, in host and alternative regions are considered to analyze the spatial interaction between regions employing spatial econometrics. We find that shocks to FDI levels in proximate regions have no effect on FDI inflows to hosts. However, FDI in a region depends on spatial market size and endowment of natural resources. JEL classifications: F21, C31, R12

Complexity and Geographical Economics

“…Regions in the proximity of Europe become advantageous after 1998. Kayam et al (2013) analyze the determinants of the regional disparity in attracting FDI in Russia. The spatial distribution of FDI is investigated using regional and/or trans-regional factors.…”

The regional distribution of foreign investment in Russia

“…As predicted by Helpman (1984), the benefits are created by multinationals' desire to access cheaper factor inputs, including immobile natural resources ('vertical' FDI). Empirical papers on Russia often report the key role of natural resources in the location of FDI (see, for example, Kayam et al, 2013;Iwasaki and Suganuma, 2005;Campos and Kinoshita, 2003;Estrin and Bevan, 2003;Bradshaw, 2002). Empirical papers on Russia often report the key role of natural resources in the location of FDI (see, for example, Kayam et al, 2013;Iwasaki and Suganuma, 2005;Campos and Kinoshita, 2003;Estrin and Bevan, 2003;Bradshaw, 2002).…”

“…Recent studies, which have investigated the forces attracting FDI to Russian regions (see, for example, Kayam et al, 2013;Iwasaki and Suganuma, 2005;Ledyaeva, 2009), are based on aggregate regional FDI inflows. Recent studies, which have investigated the forces attracting FDI to Russian regions (see, for example, Kayam et al, 2013;Iwasaki and Suganuma, 2005;Ledyaeva, 2009), are based on aggregate regional FDI inflows.…”

Natural-Resource or Market-Seeking FDI in Russia? An Empirical Study of Locational Factors Affecting the Regional Distribution of FDI Entries

“…The majority of empirical papers reports positive effects associated with regional market size in Russia (see e.g. Brock, 1998;Broadman and Recanatini, 2001;Iwasaki and Suganuma, 2005;Ledyaeva and Linden, 2006;Kayam, Hisarciklilar, and Yabrukov, 2007;Ledyaeva, 2009). Conversely, Manaenkov (2000) reports that market size is irrelevant for the decision of FDI to enter into a region, finding that the gravitation model is not robust and that regional size heightens the attractiveness for FDI only if the sample includes Moscow.…”

“…Kayam, Hisarciklilar, and Yabrukov (2007) analyze additions to fixed capital investment by foreign firms as the measure of FDI and find that FDI in a region depends on spatial market size and natural resources. However, Ledyaeva (2009) reports that the link between resources and FDI in the regions is traceable only since the 1998 economic crisis.…”