The effects of the Eurasian Economic Union on regional foreign direct investment and implications for growth

The positive direct and indirect spillover effects of foreign direct investment on growth are often case specific and not necessarily uniform nor easily predicted. Effects of FDI due to international investment policy changes are often confounded by free trade and customs union agreements that occur simultaneously because trade may be a complement to or substitute for FDI. We review the effects of regional trade agreements on FDI and focus on the new Eurasian Economic Union (EAEU). With annual data from 1995 to 2019 for post-Soviet countries, three members, the Russian Federation, Belarus, and Kazakhstan and nine non-members, Armenia, Azerbaijan, Georgia, Kyrgyz Republic, Moldova, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan, we estimate the EAEU integration effect on country FDI flows, post-2010. We control for other determinants, including infrastructure development, natural resource rents, potentially confounding trade flows, the financial crisis, sanctions against Russia and country fixed effects. The formation of the EAEU did not stimulate FDI and while GDP grew it was not associated with higher FDI. Further growth opportunities via FDI lie with relationships with countries outside the EAEU.