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The impact of macroeconomic indicators on the Foreign Direct Investment (FDI) in Russia




Table of Contents:

Abstract i

Table of Contents: ii

Table of Figures: ii

Table of Tables: iii

Chapter 1: Introduction. 1

Chapter 2: Literature Review.. 4

2.1. Growth Domestic Product (GDP) and FDI 6

2.2. Exchange Rates and FDI 7

2.3. Inflation and FDI 9

2.4. Interest rates and FDI 11

2.5. Taxes and FDI 11

2.6. Overview of the literature on the effect of economic factors on FDI 13

Chapter 3: Methodology. 15

3.1. Methods used in conducting the literature review.. 15

3.2. Methods used in empirical investigation: Variable Based Approach. 16

Chapter 4: Conceptual Framework. 18

Chapter 5: Empirical Analysis. 23

5.1. Data and its characteristics. 23

5.2. Data Analysis Method. 27

5.3. Empirical Results and Discussion. 29

Chapter 6: Conclusions and limitations. 33

References. 36

Appendices: 42

Appendix 1: Variables. 42

Appendix 2: Correlation table 1. 43

Appendix 3: Data. 45

Table of Figures:

Figure 1: Outlook of the Conceptual Framework. Source: Author. 21

Figure 2: FDI inflows into Russia (2000-20012).  Source: Author. 24

Figure 3: Real GDP (Russia, 2000-2012). 24

Figure 4: Inflation (Russia, 2000-2012). 25

Figure 5: Long Term Interest Rate Lending (Russia, 2000-2012). 25

Figure 6: Exchange Rate — Against US$ (Russia, 2000-2012). 26

Figure 7: Taxes applied to income and profit (Russia, 2000-2012). 26


Table of Tables:

Table 1: Preliminary set of variables considered and their summary. 23

Table 2: Result of Shapiro-Wilk Normality Test 27

Table 3: Empirical models considered. 28

Table 4: Empirical Results. 32

 Chapter 1: Introduction

Globalization has affected the economic activity of the countries across the world through liberalization of trade and exchange regimes. The enhancements in information technology in turn have made it possible for firms to coordinate their activities in a more efficient way. In this setting it is easier for firms to outsource their activities to other countries (through direct and indirect investments) in order to gain a competitive advantage. The investments abroad in general can be divided into two main types of investments, namely the foreign direct and indirect investments.  These movements of capital influence the economy of all countries, in particular the economies of host countries attracting foreign investment. This research focuses on Foreign Direct Investment[1] (FDI).

The basic definitions provided for the concept of Foreign Direct Investment (FDI) are provided by Fifth edition of IMF’s Balance of Payments Manual (BPM5; IMF, 1993) and the third edition of the OECD’s Benchmark definition of Foreign Direct Investment (Benchmark Definition; OECD, 1996). The Definition of Direct Investment is provided below:

“Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy. As well as the equity that gives rise to control or influence, direct investment also includes investment associated with that relationship, including investment in indirectly influenced or controlled enterprises (paragraph 6.12), investment in fellow enterprises (see paragraph 6.17), debt (except selected debt set out in paragraph 6.28), and reverse investment (see paragraph 6.40). The Framework for Direct Investment Relationships (FDIR) provides criteria for determining whether cross-border ownership results in a direct investment relationship, based on control and influence. The definition of direct investment is the same as in the fourth edition of the OECD Benchmark Definition of Foreign Direct Investment, which provides additional details on the FDIR and the collection of direct investment data. Appendix 6a, Topical Summary—Direct Investment, provides references to paragraphs in which different aspects of direct investment are discussed in this Manual. “(International Monetary Fund (IMF), BPM 6th edition, 2009, p.100, 6.8)

[1] The definition of Foreign Direct Investment (FDI) and related concepts, considered in this research are provided in Appendix 1.1.


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