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

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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. 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.
    2. repec:scn:financ:y:2015:i:6:p:7-18 is not listed on IDEAS
    3. repec:bla:glopol:v:7:y:2016:i:4:p:510-520 is not listed on IDEAS

    More about this item

    Keywords

    Russia; round-trip investment; capital flight; foreign investment;

    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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