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If Foreign Investment Is not Foreign: Round-Trip Versus Genuine Foreign Investment in Russia

Author

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  • Svetlana Ledyaeva
  • Päivi Karhunen
  • John Whalley

Abstract

In this paper we study the phenomenon of round-trip investment between Russia and key offshore financial centers (OFCs), namely, Cyprus and British Virgin Islands, which is now a significant part of foreign investment into Russia. Using firm-level data we study differences in location strategies between round-trip and genuine foreign investors into Russia and the factors which determine the fraction of round-trip investment in total foreign investment into Russian regions. In empirical analysis we also distinguish between different firm size and industries. We conclude that round-trip investors tend to invest more in corrupt and resource abundant Russian regions compared to genuine foreign investors. Furthermore, the share of round-trip investment in total foreign investment is significantly higher in corrupt Russian regions. In general, these results point to the corruption component of round-trip investment. Second, we find that genuine foreign investors tend to invest more in regions with higher level of skilled labour and use sea ports more compared to round-trip investors, indicating that genuine foreign investment is more technologically advanced and more oriented towards international markets than round trip.

Suggested Citation

  • Svetlana Ledyaeva & Päivi Karhunen & John Whalley, 2013. "If Foreign Investment Is not Foreign: Round-Trip Versus Genuine Foreign Investment in Russia," Working Papers 2013-05, CEPII research center.
    • Handle: RePEc:cii:cepidt:2013-05
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    References listed on IDEAS

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    Cited by:

    1. Dmitriy Aleksandrovich Izotov, 2018. "Russian Far East’ Investment Cooperation with Sub-Global Economic Structures under the Conditions of the National Economy’s Recession," Spatial Economics=Prostranstvennaya Ekonomika, Economic Research Institute, Far Eastern Branch, Russian Academy of Sciences (Khabarovsk, Russia), issue 1, pages 138-153.
    2. Taganov, Boris, 2014. "FDI and long-term economic growth in Russia," EconStor Preprints 122049, ZBW - Leibniz Information Centre for Economics.
    3. Simone Auer & Emidio Cocozza & Andrea COlabella, 2016. "The financial systems in Russia and Turkey: recent developments and challenges," Questioni di Economia e Finanza (Occasional Papers) 358, Bank of Italy, Economic Research and International Relations Area.
    4. I. P. Gurova, 2020. "Offshore Investment in the Russian Economy," Studies on Russian Economic Development, Springer, vol. 31(4), pages 449-456, July.
    5. Yury D. Kvashnin, 2018. "The Republic of Cyprus as a Transit Point for Foreign Capital," Outlines of global transformations: politics, economics, law, Center for Crisis Society Studies, vol. 11(1).
    6. Jakob Miethe & Helge Niesytka, 2016. "Tax Evasion and the Impact of International Regulation: A Summary of Empirical Results," DIW Roundup: Politik im Fokus 104, DIW Berlin, German Institute for Economic Research.
    7. M. Golovnin Yu. & S. Nikitina A. & М. Головнин Ю. & С. Никитина А., 2015. "Денежно-Кредитная Политика России И Институциональные Ограничения Финансовой Системы // Monetary Policy In Russia And Institutional Boundaries Of Financial System," Финансы: теория и практика/Finance: Theory and Practice // Finance: Theory and Practice, ФГОБУВО Финансовый университет при Правительстве Российской Федерации // Financial University under The Government of Russian Federation, issue 6, pages 7-18.
    8. Iwasaki, Ichiro & Ma, Xinxin & Mizobata, Satoshi, 2022. "Ownership structure and firm performance in emerging markets: A comparative meta-analysis of East European EU member states, Russia and China," Economic Systems, Elsevier, vol. 46(2).
    9. Sasidaran Gopalan & Ramkishen S. Rajan, 2016. "Revisiting Bilateral Foreign Direct Investment Inflows into BRIC Economies," Global Policy, London School of Economics and Political Science, vol. 7(4), pages 510-520, November.
    10. Safet Kurtović & Nehat Maxhuni & Blerim Halili & Bujar Krasniqi, 2022. "Does outward foreign direct investment crowd in or crowd out domestic investment in central, east and southeast europe countries? an asymmetric approach," Economic Change and Restructuring, Springer, vol. 55(3), pages 1419-1444, August.

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    More about this item

    Keywords

    Russia; round-trip investment; capital flight; foreign investment;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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