Formal and Actual Foreign Direct Investment in the Russian Economy

Abstract

According to the Bank of Russia (BR), Russian inward and outward foreign direct investments (FDI) are quite significant. However, the article shows that no less than half of them in practice can only formally be viewed as direct investments since the main sources for most FDI in Russia are Russian corporations round-tripping their investments “Russia → the rest of the world → Russia”, with foreign special purpose entities being transfer agents in this chain. It is shown that the statistics provided by the Bank of Russia on FDI flows from the European Union to Russia is very different from that of the Eurostat. There seem to be two main reasons for such a discrepancy: a part of the funds presented by BR statistics as the Russian FDI to the EU is regarded by the Eurostat as irreversible capital flows from Russia; the Eurostat does not fully consider the Russian FDI movement. The FDI circular flows in the production of tradable goods in Russia (manufacturing, mining and quarrying) are assessed. The article presents comparative price levels (as key indicators of FDI appeal) in Russia, Hungary, Poland and the Czech Republic.