Econometric Study of the Dynamics of Foreign Direct Investment in Russia
Keywords:
foreign direct investment, inflation, exchange rate, import, regression analysis, investment climate, econometric modeling.
Abstract
Foreign investment is of high importance for economic growth in Russia. The problem of enhancing investment flows makes it increasingly relevant to search for effective tools for stimulating investment activity. We attempt to identify the factors affecting the dynamics of foreign direct investment (FDI). The paper analyses the current state of foreign direct investment in the Russian economy. Using empirical data for 2001–2018, we construct an econometric model for Russia which considers such factors as inflation (the Consumer Price Index), the exchange rate and imports. The results of the model’s testing do not confirm the initial assumptions that inflation exerts a more profound effect on FDI than the exchange rate and that there is a correlation between these indicators. For Russia, the dependence of FDI on the exchange rate remains insignificant; in addition, we find a direct relationship between the indicators. According to the model, the impact of inflation (direct relationship) and the volume of imports (inverse relationship) are of greater significance. It is noteworthy that the dynamics of foreign direct investment is partially due to its fluctuations with a time lag. The model forecasts that from 2019 to 2024 Russia is expected to experience a rise in FDI net outflows. The findings indicate that in order to attract foreign direct investment, it is necessary to implement economic transformations that will improve the business environment and lead to the development of healthy competition.
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References
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Asafu-Adjaye, J. (2005). What has been impact of foreign direct investment in Ghana? IEA Policy Analysis, 1(9).
Bazhenov, O. V., & Zasukhina, E. A. (2017). An econometric analysis of factors attracting foreign direct investment to developing countries. Economic Analysis: Theory and Practice, 16(1), 188-200. https://doi.org/10.24891/ea.16.1.188
Blomstrom, M., Lipsey, R., & Zegan, M. (1994). What explains developing country growth? NBER Working Paper No. 4132. Massachusetts: National Bureau for Economic Research.
Blonigen, B. (2005). A review of empirical literature on FDI determinants. Atlantic Economic Journal, 33, 383-403. https://doi.org/10.1007/s11293-005-2868-9
Brinca, P., Duarte, J. B., & Oliveira, J. G. (2019). Investment-specific technological change, taxation and inequality in the U.S. Journal of Eurasian Economic Dialogue, 4(2), 29-48.
Chunikhin, S. A., Kuzmin, E. A., & Pushkareva, L. V. (2019). Studying the banking industry’s stability through market concentration indices. Entrepreneurship and Sustainability Issues, 6(4), 1663-1679. https://doi.org/10.9770/jesi.2019.6.4(8)
Clark, D. P., Highfill, J., de Oliveira Campino, J., & Rehman, S. S. (2011). FDI, technology spillovers, growth, and income inequality: A selective survey. Global Economy Journal, 11(2), 1-42. https://doi.org/10.2202/1524-5861.1773
Cushman, D. (1988). Exchange-rate uncertainty and foreign direct investment in the United States. Weltwirtschaftliches Archiv, Bd. 124, H. 2. Pp. 322-336. https://doi.org/10.1007/BF02706782
Denisia, V. (2010). Foreign direct investment theories: Overview of main FDI theories. European Journal of Interdisciplinary Studies, 3, 53-59.
Expert (2018). Foreign investors named the main problems when doing business in Russia. Retrieved from: http://expert.ru/2018/02/5/inostrannyij-biznes-po-prezhnemu-pugaet-korruptsiya-v-rossii/
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Griffin, R., & Pustay, M. (2006). International business. Saint Petersburg: Piter Publ. (Russ. ed.).
Grosse, R., & Trevino, L. J. (2003). New institutional economics and FDI location in Central and Eastern (Mimeo). Phoenix, AZ: American Graduate School of International Management.
IMF (2003). International Monetary Fund. Foreign direct investment trends and statistics. Retrieved from: http://www.imf.org/external/np/sta/fdi/eng/2003/102803.pdf, https://doi.org/10.5089/9781498328975.007
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Kasko, S. V. (2010). Forecasting the transnational private equity movement. Management Issues (Minsk), 3(36), 112-119.
Khan, G. & Mitra, P. (2014). A causal linkage between FDI inflows with select macroeconomic variables in India. An econometric analysis. IOSR Journal of Economics and Finance, 5(5), 2321-5933. https://doi.org/10.9790/5933-055124133
Klein, M., & Rosengren, E. (1992). Foreign direct investment outflow from the United States: An empirical assessment. In: Klein, M. W., & Wclfens, P. J. (Eds.). Multinationals in the New Europe and global trade. Berlin: Springer-Verlag. P. 102. https://doi.org/10.1007/978-3-642-76991-7_6
Kroshny, I. (2018). Will investments come to Russia in 2019. Retrieved from: http://betafinance.ru/blogs/pridut-li-investicii-v-rossiyu-v-2019-godu.html.
Kucharcíková, A., Tokarcíková, E., Klucka, J., & Konušíková, J. (2015). Foreign direct investment: Impact on sustainable development in regions of Slovak Republic. Journal of Security and Sustainability Issues, 5(1), 59-71. https://doi.org/10.9770/jssi.2015.5.1(5)
Kuzmin, E. A., Volkova, E. E., & Fomina, A. V. (2019). Research on the concentration of companies in the electric power market of Russia. International Journal of Energy Economics and Policy, 9(1), 130-136. https://doi.org/10.32479/ijeep.7169
Kvashnina, I. A. (2019). New trends in the global flows of direct investment. The Bulletin of the Institute of Economics of the Russian Academy of Sciences, 4, 125-133.
Lambert, T. E. (2017). Monopoly capital and entrepreneurism: Whither small business? Journal of Eurasian Economic Dialogue, 2(3), 1-12.
Lily J., Kogid M., Mulok D., Sang, L. T., & Asid, R. (2014). Exchange rate movement and foreign direct investment in Asean economies. Economics Research International. Article ID 320949. https://doi.org/10.1155/2014/320949
Litau, E. (2018). The information problem on the way to becoming a “Gazelle.” In: Proceedings of the European Conference on Innovation and Entrepreneurship, ECIE (Vol. 2018-September, pp. 394–401).
Litau, E. Y. (2019). Concept of entrepreneurship anti-ideology. Entrepreneurship and Sustainability Issues, 7(2), 1308-1318. http://doi.org/10.9770/jesi.2019.7.2(35)
Masten, C. (2007). The impact of exchange rate volatility on U.S foreign direct investment in Latin America. Dissertation in University of Delaware.
Nikitina, M. G., Pobirchenko, V. V., Shutaieva, E. A., & Karlova, A. I. (2018). The investment component in a nation’s economic security: The case of the Russian Federation. Entrepreneurship and Sustainability Issues, 6(2), 958-967. http://doi.org/10.9770/jesi.2018.6.2(32)
Nosova, O. V. (2016). A new level of interaction between foreign direct investment and economic growth. Fotin’s Reading, 2(5), 156-169.
Omankhanlen, A. (2011). The effect of exchange rate and inflation on foreign direct investment and its relationship with economic growth in Nigeria. Economics and Applied Informatics, 1, 5-16.
Ponomarev, V. A., & Petrov, M. V. (2019). Territorial interaction is the basis for the development of a small innovative enterprise and other territorial enterprises. Radio Industry (Russia), 29(1), 61-66. https://doi.org/10.21778/2413-9599-2019-29-1-61-66
Rambler (2019). The CBR of the RF lowered its forecast for net outflow of capital from the Russian Federation for 2019-2022. Retrieved from: https://finance.rambler.ru/realty/43047631-tsb-rf-ponizil-prognoz-po-chistomu-ottoku-kapitala-iz-rf-na-2019-2022-gody/
Raputsoane, L. (2019). Temporal homogeneity between financial stress and the economic cycle. Journal of Eurasian Economic Dialogue, 4(2), 18–28.
Rosstat (2019a). Official website of the Federal State Statistics Service in Russia. Retrieved from: http://www.gks.ru/free_doc/new_site/prices/potr/tab-potr1.htm.
Rosstat (2019b). Official website of the Federal State Statistics Service in Russia. Retrieved from: http://www.gks.ru/wps/wcm/connect/rosstat_main/rosstat/ru/statistics/ftrade/#.
Sharifi-Renani, H. & Mirfatah, M. (2012). The impact of exchange rate volatility on foreign direct investment in Iran. Procedia Economics and Finance, 1, 365-373. https://doi.org/10.1016/S2212-5671(12)00042-1
Šimelyte, A., & Antanavičiene, J. G. (2013). Foreign direct investment policy as an instrument for sustainable economic growth: A case of Ireland. Journal of Security and Sustainability Issues, 2(4), 25-34. https://doi.org/10.9770/jssi.2013.2.4(3)
Smirnov, R. O. (2017). Issues of commercialization of innovative technologies in the Russian Federation in the field of entrepreneurial activities. Radio Industry (Russia), 3, 110-112. https://doi.org/10.21778/2413-9599-2017-3-110-112
Svenson, D. L. (1994). The impact of U.S. tax reform on foreign direct investment in the United States. Journal of Public Economics, 54(2), 243-266. https://doi.org/10.1016/0047-2727(94)90062-0
The Bulletin of the Department for Research and Forecast of the Central Bank of Russia. What trends signify. (2019). Macroeconomics and Markets, 3(31), 62-64.
The Central Bank of Russia (2019). Official website of the Bank of Russia. Retrieved from: https://www.cbr.ru/statistics/?prtid=svs.
The Forecast of the Socio-Economic Development of the Russian Federation for the Period until 2024. Retrieved from: http://economy.gov.ru/minec/activity/sections/macro/201801101.
The plan of actions to accelerate the growth rate of investment in fixed assets and increase their share in gross domestic product to 25%. (2018). Retrieved from: http://government.ru/news/35925/
Valyaeva, G. G., Volkova, E. A., Melnikova, A. V. (2016). Foreign direct investment in the Russian Federation. Corporate Economics, 4(8), 43-49.
Verbeke, A., Li, L. & Goerzen, A. (2009). Toward more effective research on the multinationality-performance relationship. Management International Review, 49(2), 149-161. https://doi.org/10.1007/s11575-008-0133-6
Welfens, P. J. J., & Jasinski P. (1994). Privatization and foreign direct investment in transforming economies. Dartmouth Publishing Company Limited. https://doi.org/10.1007/978-3-642-78615-0_6
Xiong, R. (2005). Impact of exchange rate uncertainty on foreign direct investment. Dissertation in University of Wisconsin-Milwaukee.
Aijaz, H., Siddiqui, A., & Aumeboonsuke, V. (2014). Role of interest rate in attracting the FDI: Study on ASEAN 5 economy. International Journal of Technical Research, 2(3), 59-70.
Alfaro, L., & Rodriguez-Clare, A. (2004). Multinationals and Linkages: Evidence from Latin America. Economia, 4, 113-170. https://doi.org/10.1353/eco.2004.0012
Aliber, A. (1970). Theory of direct foreign investment. The International Corporation, Assymposium Combrite MA. MIT. Press.
Antanavičiene, J. (2014). Foreign direct investment: Driving factors and outcomes for secure and sustainable development. Journal of Security and Sustainability Issues, 3(3), 55-67. https://doi.org/10.9770/jssi.2014.3.3(5)
Asafu-Adjaye, J. (2005). What has been impact of foreign direct investment in Ghana? IEA Policy Analysis, 1(9).
Bazhenov, O. V., & Zasukhina, E. A. (2017). An econometric analysis of factors attracting foreign direct investment to developing countries. Economic Analysis: Theory and Practice, 16(1), 188-200. https://doi.org/10.24891/ea.16.1.188
Blomstrom, M., Lipsey, R., & Zegan, M. (1994). What explains developing country growth? NBER Working Paper No. 4132. Massachusetts: National Bureau for Economic Research.
Blonigen, B. (2005). A review of empirical literature on FDI determinants. Atlantic Economic Journal, 33, 383-403. https://doi.org/10.1007/s11293-005-2868-9
Brinca, P., Duarte, J. B., & Oliveira, J. G. (2019). Investment-specific technological change, taxation and inequality in the U.S. Journal of Eurasian Economic Dialogue, 4(2), 29-48.
Chunikhin, S. A., Kuzmin, E. A., & Pushkareva, L. V. (2019). Studying the banking industry’s stability through market concentration indices. Entrepreneurship and Sustainability Issues, 6(4), 1663-1679. https://doi.org/10.9770/jesi.2019.6.4(8)
Clark, D. P., Highfill, J., de Oliveira Campino, J., & Rehman, S. S. (2011). FDI, technology spillovers, growth, and income inequality: A selective survey. Global Economy Journal, 11(2), 1-42. https://doi.org/10.2202/1524-5861.1773
Cushman, D. (1988). Exchange-rate uncertainty and foreign direct investment in the United States. Weltwirtschaftliches Archiv, Bd. 124, H. 2. Pp. 322-336. https://doi.org/10.1007/BF02706782
Denisia, V. (2010). Foreign direct investment theories: Overview of main FDI theories. European Journal of Interdisciplinary Studies, 3, 53-59.
Expert (2018). Foreign investors named the main problems when doing business in Russia. Retrieved from: http://expert.ru/2018/02/5/inostrannyij-biznes-po-prezhnemu-pugaet-korruptsiya-v-rossii/
Froot, K., & Stein, J. (1991). Exchange rates and FDI: An imperfect capital markets approach. Quarterly Journal of Economics, 106, 1191-1127. https://doi.org/10.2307/2937961
Griffin, R., & Pustay, M. (2006). International business. Saint Petersburg: Piter Publ. (Russ. ed.).
Grosse, R., & Trevino, L. J. (2003). New institutional economics and FDI location in Central and Eastern (Mimeo). Phoenix, AZ: American Graduate School of International Management.
IMF (2003). International Monetary Fund. Foreign direct investment trends and statistics. Retrieved from: http://www.imf.org/external/np/sta/fdi/eng/2003/102803.pdf, https://doi.org/10.5089/9781498328975.007
Ivanova, T. A., Valyaeva, G. G., Trofimova, V. Sh., Reent, N. A. (2016). Economic and statistical analysis of the human potential of Russia and its regions. Magnitogorsk: Nosov Magnitogorsk State Technical University.
Kasko, S. V. (2010). Forecasting the transnational private equity movement. Management Issues (Minsk), 3(36), 112-119.
Khan, G. & Mitra, P. (2014). A causal linkage between FDI inflows with select macroeconomic variables in India. An econometric analysis. IOSR Journal of Economics and Finance, 5(5), 2321-5933. https://doi.org/10.9790/5933-055124133
Klein, M., & Rosengren, E. (1992). Foreign direct investment outflow from the United States: An empirical assessment. In: Klein, M. W., & Wclfens, P. J. (Eds.). Multinationals in the New Europe and global trade. Berlin: Springer-Verlag. P. 102. https://doi.org/10.1007/978-3-642-76991-7_6
Kroshny, I. (2018). Will investments come to Russia in 2019. Retrieved from: http://betafinance.ru/blogs/pridut-li-investicii-v-rossiyu-v-2019-godu.html.
Kucharcíková, A., Tokarcíková, E., Klucka, J., & Konušíková, J. (2015). Foreign direct investment: Impact on sustainable development in regions of Slovak Republic. Journal of Security and Sustainability Issues, 5(1), 59-71. https://doi.org/10.9770/jssi.2015.5.1(5)
Kuzmin, E. A., Volkova, E. E., & Fomina, A. V. (2019). Research on the concentration of companies in the electric power market of Russia. International Journal of Energy Economics and Policy, 9(1), 130-136. https://doi.org/10.32479/ijeep.7169
Kvashnina, I. A. (2019). New trends in the global flows of direct investment. The Bulletin of the Institute of Economics of the Russian Academy of Sciences, 4, 125-133.
Lambert, T. E. (2017). Monopoly capital and entrepreneurism: Whither small business? Journal of Eurasian Economic Dialogue, 2(3), 1-12.
Lily J., Kogid M., Mulok D., Sang, L. T., & Asid, R. (2014). Exchange rate movement and foreign direct investment in Asean economies. Economics Research International. Article ID 320949. https://doi.org/10.1155/2014/320949
Litau, E. (2018). The information problem on the way to becoming a “Gazelle.” In: Proceedings of the European Conference on Innovation and Entrepreneurship, ECIE (Vol. 2018-September, pp. 394–401).
Litau, E. Y. (2019). Concept of entrepreneurship anti-ideology. Entrepreneurship and Sustainability Issues, 7(2), 1308-1318. http://doi.org/10.9770/jesi.2019.7.2(35)
Masten, C. (2007). The impact of exchange rate volatility on U.S foreign direct investment in Latin America. Dissertation in University of Delaware.
Nikitina, M. G., Pobirchenko, V. V., Shutaieva, E. A., & Karlova, A. I. (2018). The investment component in a nation’s economic security: The case of the Russian Federation. Entrepreneurship and Sustainability Issues, 6(2), 958-967. http://doi.org/10.9770/jesi.2018.6.2(32)
Nosova, O. V. (2016). A new level of interaction between foreign direct investment and economic growth. Fotin’s Reading, 2(5), 156-169.
Omankhanlen, A. (2011). The effect of exchange rate and inflation on foreign direct investment and its relationship with economic growth in Nigeria. Economics and Applied Informatics, 1, 5-16.
Ponomarev, V. A., & Petrov, M. V. (2019). Territorial interaction is the basis for the development of a small innovative enterprise and other territorial enterprises. Radio Industry (Russia), 29(1), 61-66. https://doi.org/10.21778/2413-9599-2019-29-1-61-66
Rambler (2019). The CBR of the RF lowered its forecast for net outflow of capital from the Russian Federation for 2019-2022. Retrieved from: https://finance.rambler.ru/realty/43047631-tsb-rf-ponizil-prognoz-po-chistomu-ottoku-kapitala-iz-rf-na-2019-2022-gody/
Raputsoane, L. (2019). Temporal homogeneity between financial stress and the economic cycle. Journal of Eurasian Economic Dialogue, 4(2), 18–28.
Rosstat (2019a). Official website of the Federal State Statistics Service in Russia. Retrieved from: http://www.gks.ru/free_doc/new_site/prices/potr/tab-potr1.htm.
Rosstat (2019b). Official website of the Federal State Statistics Service in Russia. Retrieved from: http://www.gks.ru/wps/wcm/connect/rosstat_main/rosstat/ru/statistics/ftrade/#.
Sharifi-Renani, H. & Mirfatah, M. (2012). The impact of exchange rate volatility on foreign direct investment in Iran. Procedia Economics and Finance, 1, 365-373. https://doi.org/10.1016/S2212-5671(12)00042-1
Šimelyte, A., & Antanavičiene, J. G. (2013). Foreign direct investment policy as an instrument for sustainable economic growth: A case of Ireland. Journal of Security and Sustainability Issues, 2(4), 25-34. https://doi.org/10.9770/jssi.2013.2.4(3)
Smirnov, R. O. (2017). Issues of commercialization of innovative technologies in the Russian Federation in the field of entrepreneurial activities. Radio Industry (Russia), 3, 110-112. https://doi.org/10.21778/2413-9599-2017-3-110-112
Svenson, D. L. (1994). The impact of U.S. tax reform on foreign direct investment in the United States. Journal of Public Economics, 54(2), 243-266. https://doi.org/10.1016/0047-2727(94)90062-0
The Bulletin of the Department for Research and Forecast of the Central Bank of Russia. What trends signify. (2019). Macroeconomics and Markets, 3(31), 62-64.
The Central Bank of Russia (2019). Official website of the Bank of Russia. Retrieved from: https://www.cbr.ru/statistics/?prtid=svs.
The Forecast of the Socio-Economic Development of the Russian Federation for the Period until 2024. Retrieved from: http://economy.gov.ru/minec/activity/sections/macro/201801101.
The plan of actions to accelerate the growth rate of investment in fixed assets and increase their share in gross domestic product to 25%. (2018). Retrieved from: http://government.ru/news/35925/
Valyaeva, G. G., Volkova, E. A., Melnikova, A. V. (2016). Foreign direct investment in the Russian Federation. Corporate Economics, 4(8), 43-49.
Verbeke, A., Li, L. & Goerzen, A. (2009). Toward more effective research on the multinationality-performance relationship. Management International Review, 49(2), 149-161. https://doi.org/10.1007/s11575-008-0133-6
Welfens, P. J. J., & Jasinski P. (1994). Privatization and foreign direct investment in transforming economies. Dartmouth Publishing Company Limited. https://doi.org/10.1007/978-3-642-78615-0_6
Xiong, R. (2005). Impact of exchange rate uncertainty on foreign direct investment. Dissertation in University of Wisconsin-Milwaukee.
Published
2020-03-21
How to Cite
Guseva, V., & Mechik, S. (2020). Econometric Study of the Dynamics of Foreign Direct Investment in Russia. Amazonia Investiga, 9(27), 92-103. https://doi.org/10.34069/AI/2020.27.03.10
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