Is Russia successful in attracting foreign direct investment? Evidence based on gravity model estimation / Mariev O., Drapkin I., Chukavina K. // Review of Economic Perspectives. - 2016. - V. 16, l. 3. - P. 245-267.

ISSN:
12132446
Type:
Article
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. © 2016 by Oleg Mariev.
Author keywords:
determinants of FDI; gravity model of FDI; Poisson Pseudo Maximum Likelihood method; potential values of FDI
Index keywords:
нет данных
DOI:
10.1515/revecp-2016-0015
Смотреть в Scopus:
https://www.scopus.com/inward/record.uri?eid=2-s2.0-84992061459&doi=10.1515%2frevecp-2016-0015&partnerID=40&md5=b8e23997cf203b60dfa33e0affca9f68
Соавторы в МНС:
Другие поля
Поле Значение
Link https://www.scopus.com/inward/record.uri?eid=2-s2.0-84992061459&doi=10.1515%2frevecp-2016-0015&partnerID=40&md5=b8e23997cf203b60dfa33e0affca9f68
Affiliations Ural Federal University, Graduate School of Economics and Management, Mira Ave 19, Yekaterinburg, Russian Federation
Author Keywords determinants of FDI; gravity model of FDI; Poisson Pseudo Maximum Likelihood method; potential values of FDI
References Ali, F.A., Fiess, N., MacDonald, R., (2010) Do Institutions Matter for Foreign Direct Investment Open Economies Review, 21 (2), pp. 201-219; Africano, A., Fdi and trade in Portugal: A gravity analysis (2005) Research Work in Progress, 174, pp. 1-24; Azeem, S., Hussain, H., Hussain, R., The determinants of foreign investment in Pakistan: A gravity model analysis (2012) Log Forum Scientific Journal of Logistics., 8 (2), pp. 81-97; Baldwin, R., Nino, D.I., V, (2006) Euros and Zeros: The Common Currency Effect on Trade in New Goods, , NBER Working Paper 12673; Battersby, B., Ewing, R., (2005) International Trade Performance: The Gravity of Australia's Remoteness, pp. 2005-2103. , Treasury Working Paper; Bénassy-Quéré, A., Coupet, M., Mayer, T., (2005) Institutional Determinants of Foreign Direct Investment, pp. 1-30. , CEPII Working Paper No. 2005-05 Paris: CEPII research center; Bevan, A., Estrin, S., The determinants of foreign direct investment into European transition economics (2004) Journal of Comparative Economics, 32, pp. 775-787; Bobonis, G., Shatz, H., Agglomeration, adjustment, and state policies in the location of foreign direct investment in the United States (2007) The Review of Economics and Statistics, 89 (1), pp. 30-43; Bormann, C., Jungnickel, R., Keller, D., (2005) What Gravity Models Can Tell Us about the Position of German FDI in Central and Eastern Europe, , HWWA discussion paper. P.1-34; Brainard, S., An empirical assessment of the proximity-concentration trade-off between multinational sales and trade (1997) American Economic Review, 87 (4), pp. 520-544; Broadman, H., Recanatini, F., (2001) Where Has All the Foreign Direct Investment Gone in Russia Policy Research, , Working Paper No. 2640 Washington D.C, World Bank; Brock, G., Foreign direct investment in Russia's regions 1993-95 (1998) Why so Little and Where Has It Gone Economics of Transition, 6 (2), pp. 349-360; Buccellato, T., Santangelo, F., (2009) Foreign Direct Investments Distribution in the Russian Federation: Do Spatial Effects Matter Economics, , working paper No. 99 Centre for the Study of Economic and Social Change in Europe (CSESCE); Castiglione, C., Gorbunova, Y., Infante, D., Smirnova, J., FDI determinants in an idiosyncratic country. A reappraisal over the Russian regions during transition years (2012) Communist and Post-Communist Studies, 45, pp. 1-10; Çevis, I., Çamurdan, B., The economic determinants of foreign direct investment in developing countries and transition economies (2007) The Pakistan Development Review, 46 (3), pp. 13-47; Cheng, I.-H., Wall, H.J., Controlling for heterogeneity in gravity models of trade and integration (2005) Federal Reserve Bank of St. Louis Review, 87 (1), pp. 49-63; Coe, D., Subramanian, A., Tamirisa, N., Bhavnani, R., (2002) The Missing Globalization Puzzle, pp. 1-30. , IMF Working Paper 02/171; Egger, P., An econometric view of the estimation of gravity models and the calculation of trade potentials (2002) World Economy, 25 (2), pp. 297-312; Egger, P., Pfaffermayr, M., Distance, trade and FDI: A sur hausman-taylor approach (2004) Journal of Applied Econometrics., 19 (2), pp. 227-246; Francois, J., Manchin, M., (2013) Institutions Infrastructure, Trade. World Development, 46, pp. 165-175; Folfas, P., (2011) FDI between EU Member States: Gravity Model and Taxes, , Working paper; Grossman, G., Helpman, E., Szeidl, A., Optimal integration strategies for the multinational firm (2006) Journal of International Economics., 70 (1), pp. 216-238; Fujita, M., (2005) Expert Meeting on Capacity Building in the Area of FDI: Data Compilation and Policy Formulation in Developing Countries, p. 21. , DITE/UNCTAD; Hattari, R., Rajan, R., What explains intra-Asian FDI flows: Do distance and trade matter (2009) Economic Bulletin, 29, pp. 122-128; Helpman, E., A simple theory of international trade with multinational corporations (1984) Journal of Political Economy, 92 (3), pp. 451-471; Helpman, E., Krugman, P., (1985) Market Structure and Foreign Trade, pp. 342-376. , Cambridge. MA; Helpman, E., Melitz, M., Rubinstein, Y., Estimating trade flows: Trading partners and trading volumes (2008) Quarterly Journal of Economics., 123, pp. 441-487; Helpman, E., Melitz, M., Yeaple, S., Export versus FDI with heterogeneous firms (2004) American Economic Review, 94 (1), pp. 300-316; Iwasaki, I., Suganama, K., Regional distribution of foreign direct investment in Russia (2005) Post-Communist Economies, 17 (2), pp. 153-172; Kayam, S., Hisarciklilar, M., Revisiting the investment developing path (IDP): A nonlinear fluctuation approach (2009) International Journal of Applied Econometrics and Quantitative Studies, 6 (2), pp. 63-82; Kleinert, J., Toubal, F., Gravity for FDI (2010) Review of International Economics, 18 (1), pp. 1-13; Kristjansdottir, H., (2004) Determinants of Exports and Foreign Direct Investment in A Small Open Economy, , Ph. D Dissertation. University of Iceland. Faculty of Business and Economics; Ledyaeva, S., Spatial econometric analysis of determinants and strategies of FDI in Russian regions in pre-and post-1998 financial crisis periods (2007) BOFIT Discussion Papers, , Bank of Finland, Institute for Economies of Transition; Ledyaeva, S., Linden, M., Testing for Foreign Direct Investment gravity model for Russian regions (2006) Department of Business and Economics, , University of Joensuu, Working paper No.32; Leibrecht, M., Riedl, A., (2012) Modeling FDI Based on A Spatially Augmented Gravity Model: Evidence for Central and Eastern European Countries, p. 239. , Working Paper Series in Economics; Manaenkov, D., (2000) What Determines the Region of Location of An FDI Project An Empirical Assessment, , Working Paper BSP/00/036R Moscow: New Economic School; Markusen, J., Multinationals, multi-plant economies, and the gains from trade (1984) Journal of International Economics, 16, pp. 341-356; Markusen, J., (2002) Multinational Firms and the Theory of International Trade, , Cambridge. MA: MIT Press; Markusen, J., Venables, A., Multinational firms and the new trade theory (1998) Journal of International Economics, 46, pp. 183-203; Martin, W., Pham, C., (2008) Estimating the Gravity Equation When Zero Trade Flows Are Frequent, , Technical report; Màtyàs, L., The gravity model: Some econometric considerations (1998) The World Economy, 21, pp. 397-401; (2003) Offshoring: Is It A Win-win Game, , McKinsey Global Institute San Francisco: McKinsey; Mundell, R., International trade and factor mobility (1957) American Economic Review, 47, pp. 17-29; Pagano, M., Volpin, P., Managers, workers and corporate control (2005) Journal of Finance, 60 (2), pp. 841-868; Paniagua, J., (2011) FDI Gravity Equation: Models, Estimations and Zeros, , Catholic University of Valencia Working Paper; Shepotylo, O., (2009) Gravity with Zeros: Estimating Trade Potential of CIS Countries, , Working Paper; Silva, S., Tenreyro, J., The log of gravity (2006) The Review of Economics and Statistics 2006, 88 (4), pp. 641-658; Sova, R., Albu, L., Stancu, I., Sova, A., Patterns of foreign direct investment in the new EU countries (2009) Romanian Journal of Economic Forecasting, 6, pp. 42-51; Talamo, G., (2003) Institution, FDI and the Gravity Model, , University of Palermo, Department of Political Studies Working Paper; Tinbergen, J., (1962) An Analysis of World Trade Flows. Shaping the World Economy, , New York. NY: Twentieth Century Fund; Talamo, G., Institution fdi and the gravity model (2013) Preliminary Version, pp. 1-24; Wang, Z., Winters, L., (1991) The Trading Potential of Eastern Europe, , CEPR Discussion Paper no. 610 London, Centre for Economic Policy Research; Wei, Sh.-J., (1996) Intra-national Versus International Trade: How Stubborn Are Nations in Global Integration NBER, , Working paper 5531; (2011) Non-equity Modes of International Production and Development, , World Investment Report UNCTAD; Investing in the SDGs: An action plan (2014) Unctad, , World Investment Report; Yukhanaev, A., Sharma, S., Nevidimova, A., Subnational determinants of foreign direct investments in the Russian Federation (2014) Journal of Eastern European and Central Asian Research, 1 (2), pp. 1-10
Publisher De Gruyter Open Ltd
Language of Original Document English
Abbreviated Source Title Review of Economic Perspectives
Source Scopus