FDI in Russia from CESEE and Central Asia: A Micro-Level Perspective

In this paper we study FDI in Russia originating from Central, Eastern and Southeastern Europe (CESEE) and Central Asia. We describe patterns of FDI and examine the determinants underlying these patterns, basing our analysis on firm-level data for the period from 1997 to 2011 obtained from Rosstat, Russia’s Federal State Statistics Service. We split the investor countries under review into two subgroups, i.e. Central Eastern Europe, Baltics and Balkans (CEEBB) and Eastern Europe, Caucasus and Central Asia (EECCA). We find that Belarus and Ukraine are the largest contributors of FDI into Russia among the countries under review. However, firms established by investors from Estonia, Poland and Lithuania are more profitable than those established by investors from Belarus and Ukraine. In our empirical test of locational determinants influencing the choice of a particular Russian region as an FDI destination we, among other things, find evidence against the institutional distance argument, which maintains that FDI flows are more limited among countries that exhibit greater differences in terms of their regulatory and normative business environment.