Policy Choices of the Post-Soviet States Regarding Foreign Direct Investment in the Key Sectors of Their Economies: the Experience of Kazakhstan, Russia, and Ukraine
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Policy Choices of the Post-Soviet States Regarding Foreign Direct Investment in the Key Sectors of their Economies: the Experience of Kazakhstan, Russia, and Ukraine by Olga Kesarchuk A thesis submitted in conformity with the requirements for the degree of doctor in Political Science Department of Political Science University of Toronto © Copyright by Olga Kesarchuk 2015 Policy Choices of the Post-Soviet States Regarding Foreign Direct Investment in the Key Sectors of their Economies: the Experience of Kazakhstan, Russia, and Ukraine Olga Kesarchuk Doctoral Degree in Political Science Political Science Department University of Toronto 2015 Abstract Why did some post-Soviet states open up their key economic sectors to Foreign Direct Investment (FDI) while others did not? This dissertation argues that the levels of FDI were a result of conscious policy choices rather than ability or inability of the post-Soviet states to create positive investment climate. It explains why Kazakhstan, Russia, and Ukraine made different policy choices regarding FDI into their oil and gas, and metallurgy and mining sectors despite similar sectoral composition of their economies and common past as part of the Soviet Union. I argue that these policy choices were political. The state officials made their policy choices under the influence of two main factors. The first factor was whether or not they believed they could develop a sector exclusively through the use of national resources, with the help of domestic state and private actors. The state ii of the sector's development during the Soviet era heavily influenced this perception. After the collapse of the USSR, all sectors across all republics needed capital and technologies to maintain production, yet needed them to a different extent. The second factor influencing FDI policy choices was the strategy of power maintenance that political regimes chose and, more specifically, the different political roles they ascribed to different sectors. Sectors with their assets became highly material forms of power that were used by the regimes toward attainment of these three goals. iii Acknowledgements The best part about producing this thesis has been meeting all the wonderful people through affiliation with the Department of Political Science and the wider University of Toronto community. This is a good opportunity to thank all of them for all their friendship and support. In the first turn, I would like to thank my supervisor, Professor Antoinette Handley. I do not think I will ever be able to thank her enough for all support, encouragement, patience, and feedback I have received from her. I would also like to thank my committee members, Professors Peter Solomon and Professor Edward Schatz for all the support and guidance they have given me over the years. Professor Lucan Way provided valuable feedback on the earlier draft of this work. I would also like to thank Professors Paul Kingston and Peter Rutland for giving me a lot of suggestions on polishing the text of this dissertation in the future. Daniella Levy-Pinto, Sude Beltan, and Kate Korycki provided that daily encouragement you need in order to get through the program that lasts nearly a decade. Thank you for sharing all the joys and disappointments and providing a shoulder to lean on. You have been fantastic friends! I would also like to say “thank you” to all my wonderful colleagues and friends from the Political Science Department: Suzanne Hindmarch, Kristin Cavoukian, Zack Taylor, Sanjay Jeram, Isabelle Cote, Victor Gomez, Erica Petkov, Yi-Chun Chien, Svetlana Inkina, Elinor Bray- Collins, Melissa Levin, Safiyyah Ally, Ozlem Aslan, Begum Ozun, Dragana Bodruzic, Alexandre Pelletier, Mihaela Mihai, Karlo Basta, Heather Bastedo, Ann Staver, Anna Gradek, Filiz Tutku Aydin, Ethel Tungohan, Noaman Ali, Seung Hyok Lee, Olga Klymenko, Emily Scott, Igor Shoikhebrod, Jessica Soedirgo, Essyn Emurla, Kara Santokie, Patrycia Greve, Israela Stein, Lilian Abou-Tabickh, Vuk Radmilovic, Wayne Chu, Ethel Tunghohan, Pauline Beange. Vojin and Irina Majstorovic, Aneta and Stephen Gilles, Luba Shmygol, Constantin Necrasov, Visnja Soronda, Miki Milinovic, Oksana Polyuga, Vlad Surducki, Jelena Stojkovic, Vid Stambolovic, Ljubica Stambolovic, Srdjana Filipovic have been wonderful and supportive friends. iv I owe a lot of thanks to many wonderful people who have helped me during my fieldwork. In the first turn, I would like to thank all my interviewees to finding time in their busy schedules to meet with me and share their views on the political and economic situation in their countries. I would also like to thank Dmytro Boyarchuk and Vladimir Dubrovskiy for hosting me at CASE Ukraine in Kyiv. I owe a lot to Vladimir Dubrovskiy for helping me understand the essence of business-state relations in Ukraine. I would also like to thank Sergey Guriev and Natalya Volchkova for hosting me at the New Economic School during my fieldwork in Moscow and also to the wonderful staff of the Higher School of Economics. I owe a special thanks to my friend Daniyar Serikov for all support he provided me with during my fieldwork in Kazakhstan. Professors Solomon and Professor Schatz have generously shared their personal and institutional contacts to facilitate my fieldwork in Russia and Kazakhstan. I would like to thank the Petro Jacyk Program for the Study of Ukraine at the Centre for European, Russian, and Eurasian Studies at the University of Toronto for providing me with financial support to pursue my interest in Ukrainian Studies. I have also benefitted greatly from the Ukrainian Studies Scholarships at the University of Toronto. Last but not least, I would like to thank my family for their love and encouragement: to my parents, Lidiya and Oleksandr Kesarchuk, my sister Tetyana, Vasya, Andriy, Sasha, Maryna, and to my Serbian family Nada, Gordan, Milena, and Andreja. My husband Nikola Milicic has provided invaluable support throughout my studies at the University of Toronto: he has been by my side during the madness of comprehensive exam preparation, he has been a keen listerner to all my fieldwork stories, and he has supported me during all those long years of producing the draft. He knows my dissertation inside out even without reading it. Finally, I would like to thank my “big boys” Sasha and Stefan for enriching my life outside the university. They have taught me who Optimus Prime is and also ensured that I read beyond the boring academic literature by introducing me to Dr. Seuss and Eric Carle books, wonderful stories about Curious George, the well-behaved monsters, and the Octonauts. I want to read even more of these books with you after this project is completed. Lublu vas, myli moji. v Table of Contents Abstract ........................................................................................................................................................ ii Acknowledgements ................................................................................................................................... iv Table of Contents ...................................................................................................................................... vi List of Abbreviations................................................................................................................................. xii List of Tables ............................................................................................................................................ xiii List of Figures .......................................................................................................................................... xiv Chapter 1. Introduction .............................................................................................................................. 1 1. Practical Importance of the Study .................................................................................................... 2 2. What Were the Choices? .................................................................................................................. 3 3. How Did the Post-Soviet States Make These Choices? .............................................................. 6 4. Research Method and Design .......................................................................................................... 7 5. Case Selection .................................................................................................................................. 12 5.1. Regimes ......................................................................................................................................... 14 5.2. Sectors ........................................................................................................................................... 15 Chapter 2. Theoretical Underpinnings of This Study .......................................................................... 18 1. International-Domestic Interaction ................................................................................................. 18 2. The Centrality of the State .............................................................................................................. 19 3. How Does a State Make Its Decisions Regarding FDI?............................................................. 22 4. This Dissertation’s Approach .......................................................................................................... 24 5. The Role of Business ......................................................................................................................