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Interestingly, the distance from the recipient region to Moscow matters for the regions in the western part of Russia (relatively close to Moscow) but is not significant for the regions in the eastern part (remote regions). Besides the direct effects (increase in GDP, budget receipts, decrease in unemployment etc.), FDI indirectly positively influences the host economy through, among others, knowledge and technology diffusion, increase in demand for local intermediate goods, investment in further training of workers. According to the UNCTAD World Investment Report 20153, FDI flows to the Russian Federation fell by 70 per cent to billion (in part as a result of an adjustment after the Rosneft—BP megadeal in 2013). The empirical analysis in this paper is based on the gravity approach.
1244-1252 doi 10.17059/2016-4-24 UDC: 332.1 339.9 JEL: F210 R150 O. Interestingly, the distance from the recipient region to Moscow matters for the regions in the western part of Russia (relatively close to Moscow) but is not significant for the regions in the eastern part (remote regions). Furthermore, the top 15 Russian regions received 81 % of total FDI, while the bottom 50 regions received less than 10 %.
They conclude that FDI in Russia is strongly influenced by the institutional context and reform process, and Russia appears to foreign investors as an important potential market and a prospective future production place.
Focusing on regional factors of FDI inflows in Russia, Iwasaki and Suganuma  and Broadman and Recantini  focus on market factors, resource endowments factors and social development factors.
One of the most popular approaches in the empirical literature to explain FDI flows is the gravity approach, first proposed by Timbergen  for trade flows and then applied by Brainard  to FDI flows. The gravity approach is also used to explain FDI flows at the regional level (e.g. In this case, M denotes the size of the region and D j the distance between the investor’s country and the recipient region.
In its simplest form, it can be written as follows: M. There is a wide variety of papers exploring FDI determinants between countries, whereas the number of papers related to the regional distribution of FDI is rather limited.
The empirical analysis is based on a constructed database consisting of the foreign direct investment flows from 179 investor countries into 78 Russian regions for the period 2006-2013. Looking at the structure of FDI inflows into Russia, we can conclude that FDI is very concentrated at the regional level.
according to which investment flows are positively correlated with the size of the investor’s country as well as the size of the recipient region and are negatively correlated with the distance between investor and recipient. Keywords: foreign direct investment, determinants, gravity approach, Russian regions, Poisson Pseudo Maximum Likelihood method, econometric models, distance to Moscow, gravity variables, remoteness, modernization, foreign direct investment concentration 1. ients in the world in the first decade of the 21st century: the cumulative level of FDI inflows into the Russian economy comprises 8 billion for the period of 2001-2011 (8th place among world top FDI recipients)1 2. Therefore, determining the factors that drive FDI inflows into the Russian regions is an important and relevant objective. Agglomeration, adjustment, and state policies in the location of foreign direct investment in the United States.
The empirical analysis is based on a constructed database consisting of the inflows into the Russian economy: the gross domestic product of the investor’s country, the gross domestic product per capita in the recipient region, the distance from the investor to Moscow, the openness of the region, the economic situation in the region, the innovative capacity of the region and the of the previous period. Introduction FDI plays a crucial role in a country’s development, since it is an efficient way to introduce new technologies and modern production technologies. Because of sanctions and the subsequent economic slowdown, the Russian economy has faced a sharp decrease in FDI inflows during the last two years. Defining such set of FDI determinants would help to improve the effectiveness of regional investment and industrial policy and increase amounts of incoming FDI. The Review of Economics and Statistics, 89(1), 30-43.
1 KPMG and Committee on International Cooperation (2010). They define the concept of attractiveness and try to understand why Russia is less attractive from a foreign investor’s point of view.
They identify business climate as well as institutional and transitional precondition for FDI as determinants.