The Effects of FDI and Exports on Economic Growth of Russia and its Far Eastern District

ABSTRACT

This paper empirically tests the effects of FDI and exports on the sustainable economic growth of Russia in general, and that of its Far Eastern District in particular, using a state-level dataset. The results show that FDI inflows positively facilitate the income growth of Russia in general. However, it is export rather than the FDI that plays a key role in inducing economic growth for the Far Eastern district. Based on our empirical analyses, we suggest the Far Eastern states pursue export-led growth strategy and improve the current FDI structure that is distorted toward the energy sector.

KEYWORDS:

• Russian economy
• Far Eastern district of Russia
• FDI
• international trade
• economic growth
• development policy

JEL CLASSIFICATION:

• F14
• F21
• P25

Acknowledgments

The authors are grateful to the anonymous referees for taking their efforts necessary to carefully review our manuscript, and for suggesting valuable and insightful comments.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. The FDI datasets for the 80 Russian states used in this paper represent gross FDI inflows, not on the net basis.

2. It includes Central, North-western, Southern, North Caucasian, Volga and Urals federal districts.

3. The “Pivot to the East” policy has been adopted since 2012, and actively carried out in a real since 2015 by implementing various policy mechanism.

4. The Federal State Statistics Service of the Russian Federation publishes the yearly consumer price index (CPI) of the Russian states. They calculate the CPI by referencing the previous year (base = 100) instead of fixing a certain year as a common base year. Thereby, the yearly inflation rate is equal to the CPI-100%.

5. Two-step system-GMM estimation is used. See Roodman (2009) for detailed methodology of running two-step system-GMM models using STATA.

6. Program specifications are as follows: i) STATA’s “xtabond2” command with “twostep” option was used. ii) GMM-style instruments are lagged GRP per capita, lagged export/GRP, inflation rate, and openness ratio.

7. For the comparability with the Far East, FDI stock of all Russian states in mining, manufacturing, whole-sale and retail trade, repair of motor vehicles and motorcycles does not include that non-regionally distributed.

Additional information

Notes on contributors

Han-Sol Lee

Han-Sol Lee is a senior lecturer at the Marketing Department of Peoples’ Friendship University of Russia (RUDN University), with expertise in FDI, economic cooperation of South Korea-Russia, Russian Far East, post-communist economies, Russia, and EAEU.

Woosik Yu

Woosik Yu is a research associate at the Center for International Development Studies, Graduate School of International Studies, Seoul National University, with expertise in international economics and development policy.