Determinants of FDI Inflows: the Case of Russian Regions
Determinants of FDI Inflows: the Case of Russian Regions

Summary/Abstract: This paper empirically analyses the determinants of foreign direct investment inflows into the Russian regions.This problem has become highly relevant for the necessary modernization of the Russian economy afterthe recent economic slowdown and sharp decrease in budget revenues. The authors model foreign directinvestment flows with the use of the gravity approach according to which investment flows are positively correlatedwith the size of the investor’s country as well as the size of the recipient region and are negatively correlatedwith the distance between investor and recipient. The empirical analysis is based on a constructeddatabase consisting of the foreign direct investment flows from 179 investor countries into 78 Russian regionsfor the period 2006–2013. The authors apply the Poisson Pseudo Maximum Likelihood method and identifythe following factors determining foreign direct investment inflows into the Russian economy: the gross domesticproduct of the investor’s country, the gross domestic product per capita in the recipient region, thedistance from the investor to Moscow, the openness of the region, the economic situation in the region, theinnovative capacity of the region and the foreign direct investment of the previous period. Interestingly, thedistance from the recipient region to Moscow matters for the regions in the western part of Russia (relativelyclose to Moscow) but is not significant for the regions in the eastern part (remote regions).

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