<abstract xmlns="http://www.w3.org/1999/xhtml"><p> The aim of this paper is twofold. First, it is to answer the question of whether Russia is successful in attracting foreign direct investment (FDI). Second, it is to identify partner countries that “overinvest” and “underinvest” in the Russian economy. We do this by calculating potential FDI inflows to Russia and comparing them with actual values. This research is associated with the empirical estimation of factors explaining FDI flows between countries. The methodological foundation used for the research is the gravity model of foreign direct investment. In discussing the pros and cons of different econometric methods of the estimation gravity equation, we conclude that the Poisson pseudo maximum likelihood method with instrumental variables (IV PPML) is one of the best options in our case. Using a database covering about 70% of FDI flows for the period of 2001-2011, we discover the following factors that explain the variance of bilateral FDI flows in the world economy: GDP value of investing country, GDP value of recipient country, distance between countries, remoteness of investor country, remoteness of recipient country, level of institutions development in host country, wage level in host country, membership of two countries in a regional economic union, common official language, common border and colonial relationships between countries in the past. The potential values of FDI inflows are calculated using coefficients of regressors from the econometric model. We discover that the Russian economy performs very well in attracting FDI: the actual FDI inflows exceed potential values by 1.72 times. Large developed countries (France, Germany, UK, Italy) overinvest in the Russian economy, while smaller and less developed countries (Czech Republic, Belarus, Denmark, Ukraine) underinvest in Russia. Countries of Southeast Asia (China, South Korea, Japan) also underinvest in the Russian economy.</p></abstract>

The aim of this paper is twofold. First, it is to answer the question of whether Russia is successful in attracting foreign direct investment (FDI). Second, it is to identify partner countries that “overinvest” and “underinvest” in the Russian economy. We do this by calculating potential FDI inflows to Russia and comparing them with actual values. This research is associated with the empirical estimation of factors explaining FDI flows between countries. The methodological foundation used for the research is the gravity model of foreign direct investment. In discussing the pros and cons of different econometric methods of the estimation gravity equation, we conclude that the Poisson pseudo maximum likelihood method with instrumental variables (IV PPML) is one of the best options in our case. Using a database covering about 70% of FDI flows for the period of 2001-2011, we discover the following factors that explain the variance of bilateral FDI flows in the world economy: GDP value of investing country, GDP value of recipient country, distance between countries, remoteness of investor country, remoteness of recipient country, level of institutions development in host country, wage level in host country, membership of two countries in a regional economic union, common official language, common border and colonial relationships between countries in the past. The potential values of FDI inflows are calculated using coefficients of regressors from the econometric model. We discover that the Russian economy performs very well in attracting FDI: the actual FDI inflows exceed potential values by 1.72 times. Large developed countries (France, Germany, UK, Italy) overinvest in the Russian economy, while smaller and less developed countries (Czech Republic, Belarus, Denmark, Ukraine) underinvest in Russia. Countries of Southeast Asia (China, South Korea, Japan) also underinvest in the Russian economy.

Is Russia successful in attracting foreign direct investment? Evidence based on gravity model estimation

Ural Federal University, Graduate School of Economics and Management, Mira Ave 19, Yekaterinburg,

Review of Economic Perspectives

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

The aim of this paper is twofold. First, it is to answer the question of whether Russia is successful in attracting foreign direct investment (FDI). Second, it...

Is Russia successful in attracting foreign direct investment? Evidence based on gravity model estimation

Published Online: Oct 13, 2016

Page range: 245 - 267

Received: Jun 24, 2015

Accepted: Aug 30, 2016

DOI: https://doi.org/10.1515/revecp-2016-0015

Keywords
determinants of FDI, gravity model of FDI, Poisson Pseudo Maximum Likelihood method, potential values of FDI

© by Oleg Mariev

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Is Russia successful in attracting foreign direct investment? Evidence based on gravity model estimation

Published Online: Oct 13, 2016

Page range: 245 - 267

Received: Jun 24, 2015

Accepted: Aug 30, 2016

DOI: https://doi.org/10.1515/revecp-2016-0015

Keywordsdeterminants of FDI, gravity model of FDI, Poisson Pseudo Maximum Likelihood method, potential values of FDI

© by Oleg Mariev

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Keywords
determinants of FDI, gravity model of FDI, Poisson Pseudo Maximum Likelihood method, potential values of FDI