Determinants of direct foreign investments in the Russian Federation regions: The results of economic-mathematical modeling

Abstract

Direct foreign investment plays an important role in the world economy. Between the countries there is a huge competition for their involvement as they positively affect the economy of a recipient country. In addition to the direct effects, such as GDP growth, budget revenues, reducing unemployment, direct foreign investment positively impacts a host country indirectly in the form of new knowledge, transfer of experience, technology propagation, etc. The aim of the study is to identify and assess factors (determinants) that affect the inflow of direct foreign investment into the regions of the Russian Federation. The paper examines factors that have a significant impact on the volume of direct foreign investment according to the results of previous studies by other authors. The hypotheses of the research are the following assumptions: 1) the choice of a region for investment is influenced by the quality of the infrastructure, including transport infrastructure; 2) the volume of direct foreign investment is influenced by the state of institutions, the "quality" of civil society, the culture of the population; 4) the level of unemployment in the region influences the flows of direct foreign investment; 4) the potential investor considers the geographic characteristics of the region. For the verification of the hypotheses, an economic-mathematical model with fixed effects has been used. At the same time, such factors as availability of natural resources and extraction of minerals have not been considered while modeling the direct foreign investment inflows due to the lack of statistical data. The results of econometric modeling have revealed the presence of a statistically significant positive relationship between the inflow of direct foreign investment and the following indicators chosen to verify the hypotheses: the density of public roads with hard coating; the number of crimes registered by law enforcement agencies during a year per 100 thousand people in a region; the number of museum visits per 1000 population; availability of a port in a region. In addition to the control parameters, the research has revealed other determinants that significantly affect the volume of direct foreign investment in the regions of the Russian Federation. They are market size, urbanization level, and the proportion of unprofitable enterprises in the regions. The research is based on social, economic, political, civil, environmental and other development indicators of 80 subjects of the Russian Federation for 2000–2016. The obtained data and results will be useful for the regional authorities in order to develop and improve investment policy for a significant increase in direct foreign investment inflows.

Keywords

direct foreign investment, regions, determinants, econometric modeling, institutions, infrastructure, economic growth

For citation

Kozhina E.A., Lavrenchuk E.N. Determinants of direct foreign investments in the Russian Federation regions: The results of economic-mathematical modeling. Perm University Herald. Economy, 2017, vol. 12, no. 3, pp. 404–420. DOI 10.17072/1994-9960-2017-3-404-420

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