Spatial Econometric Analysis of Foreign Direct Investment Determinants in Russian Regions


  • I would like to thank Ronald Davies, Iikka Korhonen, Mikael Linden and an anonymous referee for their helpful comments on earlier versions of this paper. I also wish to express my gratitude to Ronald Davies for the idea of applying multiple spatial lags’ approach to analyse spatial relationships in FDI based on the presence of a port in a region. Finally, I am grateful to the Bank of Finland Institute for Economies in Transition (BOFIT) and the Finnish Centre for International Mobility (CIMO) for the financial support that made this study possible.


Using a spatial autoregressive model of cross-sectional and panel data, we study the determinants and dominant strategies of foreign direct investment (FDI) inflows into Russia before and after the 1998 financial crisis. The important determinants of FDI inflows into Russian regions since the start of transition appear to be market size, the presence of large cities and sea ports, oil and gas availability, proximity to European market, and political and legislative risks. Since 1998, it appears the importance of big cities, the Sakhalin region, oil and gas resources, proximity to European markets, and legislation and political risks has increased. Our results also reveal a shift from horizontal FDI strategy to vertical FDI strategy in the post-crisis period. Using a multiple spatial lags approach, we show that neighbouring port-endowed regions tend to have emerged in the post-crisis era as competitors for FDI.