Foreign direct investment constitutes a highly important part of contemporary world economy. Globalization of international economic relations have led to the situation in which many countries face the necessity to compete with each other and, thus, to enhance their competitiveness through attraction of foreign capital. FDI in this respect appears to be the most desirable option for many economies, as they are more stable than other forms of investment.
This papers answers the question of why Russia attracted such a small amount of FDI since the beginning of the transition process. This analysis takes into consideration major determinants of FDI inflow to the country as well as factors of their spatial and sectoral distribution within the state.
Table of Contents
Introduction
1 FDI during the period of transition: a failure or success?
2 Spatial and sector distributions of FDI in Russia
3 Factors behind investment performance of Russia
Conclusion
References
Objectives and Research Themes
This paper examines the investment performance of Russia throughout its transition period to determine why the country attracted relatively low levels of foreign direct investment. It investigates whether Russia has truly benefited from FDI, analyzes the impact of spatial and sectoral distribution, and explores how the business environment and legislative fluctuations have shaped investment outcomes.
- The impact of foreign direct investment on economic growth and transition success.
- Determinants of spatial and sector-based FDI distribution within Russia.
- The influence of legislative volatility and the legal business environment on investor confidence.
- Comparisons with other transition economies such as China, Poland, and the Czech Republic.
- The phenomenon of "round tripping" and capital flight in the Russian investment context.
Excerpt from the Book
1 FDI during the period of transition: a failure or success?
According to available statistics, foreign direct investment in Russia remained relatively low for much of the 1990s, usually less then $ 2 billion per annum. Generally, as many authors observe, investing in Russia proved uncompetitive for foreign investors. Russia attracted $10.3 billion worth of FDI in the period 1994-1999 that is on average $1.7 billion per annum. After the 1998 crisis the FDI even declined.
The OECD report states that the cumulative figure for FDI in Russia from 1991 through the end of 2001 represents $18.2 billion, or only 5 percent of domestic fixed capital formation. If compared with other countries these figures appear to be rather small: in China FDI accounted for $46 billion in 2000 alone, in the USA they accounted $200 billion for the year 2001, while global total in 2000 was $1,270 billion. The level of FDI in Russia is also very low relative to other transition countries in the region: on a per capita basis, cumulative FDI in Russia is 15 %, compared to 84 % for Poland, 118 % for the Czech Republic and $221 for Hungary. At the same time Russia appeared to be the leading investor in the CEE region, providing about 75% of the regional outflows.
However, according to Ditlbacher, Fidrmuc, Walter, and many other authors, interest in Russia as a destination for investments has been steadily growing, and in spite of the fact that FDI levels have remained relatively low for much of the 1990s, usually little over $2 billion per annum, recently the inflows have increased – including returning flight capital from Cyprus and elsewhere – and there are prospects for higher FDI in future.
Summary of Chapters
Introduction: Provides an overview of the global importance of FDI and introduces the specific challenges and unique context of Russia as a transition economy.
1 FDI during the period of transition: a failure or success?: Evaluates the volume of FDI inflows to Russia throughout the 1990s and 2000s, contrasting them with global and regional benchmarks.
2 Spatial and sector distributions of FDI in Russia: Analyzes how foreign investment is concentrated geographically and across specific industrial sectors, identifying the main drivers of this distribution.
3 Factors behind investment performance of Russia: Investigates the institutional, legal, and economic barriers, such as legislative instability and the legacy of the central planning system, that have hindered FDI performance.
Conclusion: Synthesizes the findings, arguing that while Russia's FDI performance appears modest, it is not a complete failure and highlights key areas for future improvement.
References: Lists the academic, institutional, and statistical sources utilized throughout the research paper.
Keywords
Foreign Direct Investment, Russia, Transition Economies, Capital Flight, Round Tripping, Investment Climate, Economic Growth, Sectoral Distribution, Legislative Reform, Privatization, Business Environment, OECD, FDI Inflows, Market-seeking Investment, Natural Resources.
Frequently Asked Questions
What is the core subject of this paper?
The paper examines the investment performance of Russia during its transition period, specifically focusing on the causes of historically low foreign direct investment (FDI) inflows.
What are the central themes discussed?
Key themes include the impact of the Soviet legacy on modern investment, the role of legislative instability, regional and sectoral disparities, and the relationship between FDI and economic growth.
What is the primary research question?
The central question is why Russia attracted such a small amount of FDI since the beginning of the transition process and whether the country actually benefited from the investments it did receive.
Which scientific methods are applied?
The author employs a comparative analysis of statistical data from various transition economies and evaluates empirical literature to interpret the success or failure of Russia's investment profile.
What is covered in the main body?
The main body analyzes historical FDI data, investigates geographical and industrial concentration, and evaluates the institutional hurdles, such as inconsistent legal frameworks and privatization outcomes.
Which keywords best characterize this work?
The work is defined by terms such as Foreign Direct Investment, Transition Economies, Investment Climate, Capital Flight, and Russian Economic Reform.
What is the "round tripping" phenomenon mentioned in the text?
It refers to the process where Russian capital is transferred offshore to tax havens like Cyprus and then brought back into Russia disguised as foreign investment to take advantage of tax benefits.
How did privatization affect FDI in Russia?
The text suggests that the specific way privatization was conducted resulted in an industrial structure dominated by large, inefficient state-inherited firms, which was less attractive to foreign investors compared to the small-firm environments seen in countries like China.
What is the relationship between political stability and FDI in Russia?
The paper highlights that political and economic stability are crucial determinants; Russia’s comparative lack of these factors, combined with high levels of corruption, has historically discouraged substantial foreign interest.
- Quote paper
- Anonym (Author), 2006, Foreign Direct Investment in Russia, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/356292
