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Foreign direct investment in Russia's regions 1993-95. Why so little and where has it gone?

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  • Gregory J. Brock

Abstract

In this paper, foreign direct investment (FDI) into Russia's regions during the period 1993-95 is analysed using recently available regional data. Russia's regions are shown to be much richer than China's, but much poorer than US states, though with far less FDI than either country. FDI into the regions is also low compared to both Western and Eastern European countries, but has grown substantially from very low levels. Relatively higher FDI is found to occur when crime is lower, market size is bigger and risk is less. Surprisingly, the education of the workforce is found to be important only in the two major cities of St. Petersburg and Moscow, suggesting FDI into Russia's regions is not drawn by cheap labour. Unlike other countries, no evidence for either infrastructure or privatization influencing FDI could be found. The use of tax breaks and exemptions to attract FDI may be short-sighted as the consequent cut in budget revenues hampers the ability of the region to fight crime and to lower business risk, resulting in an implicit marginal tax increase for future foreign investors that exceeds any benefits from shortterm tax breaks. Copyright The European Bank for Reconstruction and Development, 1998.

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  • Gregory J. Brock, 1998. "Foreign direct investment in Russia's regions 1993-95. Why so little and where has it gone?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 6(2), pages 349-360, November.
  • Handle: RePEc:bla:etrans:v:6:y:1998:i:2:p:349-360
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    References listed on IDEAS

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    1. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
    2. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
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    Cited by:

    1. Ledyaeva, Svetlana, 2007. "Spatial econometric analysis of determinants and strategies of FDI in Russian regions in pre- and post-1998 financial crisis periods," BOFIT Discussion Papers 15/2007, Bank of Finland, Institute for Economies in Transition.
    2. Yu-Fu Chen & Michael Funke, 2007. "Political Risk, Economic Integration, and the Foreign Direct Investment Decision," Dundee Discussion Papers in Economics 208, Economic Studies, University of Dundee.
    3. Saime Kayam & Alexandr Yabrukov & Mehtap Hisarciklilar, 2013. "What Causes the Regional Disparity of FDI in Russia? A Spatial Analysis," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 20(1), pages 63-78, April.
    4. Drogendijk, H.J., 2001. "Expansion patterns of Dutch firms in Central and Eastern Europe : Learning to internationalize," Other publications TiSEM 18571cef-0dd0-46ff-82aa-3, Tilburg University, School of Economics and Management.
    5. Concha Verdugo Yepes & Peter L. Pedroni & Xingwei Hu, 2015. "Crime and the Economy in Mexican States; Heterogeneous Panel Estimates (1993-2012)," IMF Working Papers 15/121, International Monetary Fund.
    6. Gonchar, Ksenia & Marek, Philipp, 2013. "Natural-resource or Market-seeking FDI in Russia? An Empirical Study of Locational Factors Affecting the Regional Distribution of FDI Entries," IWH Discussion Papers 3/2013, Halle Institute for Economic Research (IWH).
    7. Svetlana Ledyaeva, 2009. "Spatial Econometric Analysis of Foreign Direct Investment Determinants in Russian Regions," The World Economy, Wiley Blackwell, vol. 32(4), pages 643-666, April.
    8. Tullio Buccellato & Francesco Santangelo, 2009. "Foreign direct investments distribution in the Russian Federation: do spatial effects matter?," UCL SSEES Economics and Business working paper series 99, UCL School of Slavonic and East European Studies (SSEES).
    9. Gladysheva, Anna & Ratnikova, Tatiana, 2013. "The determinants of the distribution of foreign direct investment in Russian food industry companies," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 29(1), pages 97-116.
    10. Chen, Yu-Fu & Funke, Michael, 2003. "Option Value, Policy Uncertainty, and the Foreign Direct Investment Decision," HWWA Discussion Papers 234, Hamburg Institute of International Economics (HWWA).
    11. Linda Yueh, 2010. "The Economy of China," Books, Edward Elgar Publishing, number 3705.
    12. Päivi Karhunen & Riitta Kosonen & Svetlana Ledyaeva & Julia Wörz, 2014. "FDI in Russia from CESEE and Central Asia: A Micro-Level Perspective," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 54-70.
    13. Metaxas, Theodore & Kechagia, Polyxeni, 2015. "FDI in Peru and Uzbekistan: A comparative analysis in brief," MPRA Paper 63849, University Library of Munich, Germany.
    14. Kechagia, Polyxeni & Metaxas, Theodore, 2016. "FDI in Central Asia: Uzbekistan," MPRA Paper 71326, University Library of Munich, Germany.

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