Foreign Direct Investment and Globalization in the Russian Federation

John E. Spillan Associate Professor of Business Administration The Pennsylvania State University - DuBois Campus DuBois, Pennsylvania 15801 U.S.A. E-mail: [email protected] Voice: 814-375-4803

Christopher Ziemnowicz Professor of Business Administration Concord University Athens, West Virginia, 24712-1000 U.S.A. E-mail: [email protected] Voice: 304-384-5122

ABSTRACT

Inward Foreign Direct Investment (FDI) has many beneficial affects on the development of the host country’s economy. The aim of this paper is to advance understanding of the importance of FDI and the location criteria used by foreign investors. Foreign investors are challenged with a set of complex decisions when choosing a location. Immobile assets that include location-bound natural resources and economic clusters, have become very important determinants of location choice. The focus is on the Russian Federation because this nation’s policies toward FDI have improved during the last decade. The issue this paper examines is the role of FDI in transforming Russia into an open, market oriented investment climate. Unfortunately, even with the large investment possibilities, the role of FDI in promoting a more stable and prospering globalized economy within Russia has not been fully accomplished. While the inflow of FDI has been Russia’s main goal, the nation has experienced large- scale capital flight. Additionally, Russian bureaucratic controls and restrictions imposed on FDI together with significant institutional factors negatively affect both domestic and foreign based businesses.

Keywords: foreign direct investment, FDI, location factors, economic development, Russia

INTRODUCTION

Structural changes in the world economy have created greater market and production opportunities leading to a deeply integrated economy. An important factor in this new global economy are the multinational firms that operate across national borders. These transformations in business behavior are fueling scholarly debate on the microeconomic geography of foreign direct investment (FDI) by multinational corporations (MNCs). In addition, FDI brings a variety of assets for the host country. Technology is probably among the most prized assets (Misun and Tomsik, 2002). Other benefits include brand names, specialized technical skills, as well as managerial abilities to organize and integrate production across countries, to establish marketing networks, and to have privileged access to the market for nonproprietary assets. FDI takes the form of: (1) greenfield investment, (2) through mergers and acquisitions (M&As), or (3) joint ventures.

117 Economic trends predict increasing global FDI activity, especially in developing nations. However, it is important to consider the motives of investors. They are confronted with a set of complex decisions when choosing a location. Yet, decisions are less driven by specific FDI policies, but more by a nation’s broad business climate. Therefore, market opportunities, overall policy toward free enterprise and competition, as well as macroeconomic stability are considered critical for FDI decision factors. The transformation of Russia into an open, market oriented business climate will serve as a case study for this research. Post-communist Russia experienced a profound restructuring of its economy. The political and economic collapse of the Soviet Union created a range of uncertainties that are evident in all social relations and enterprises (European Business Forum, 2004). Russia did not follow major examples (such as Poland) to transition itself to a free-market successfully. Most of the FDI inflows in transition countries have been linked with the privatization of state-owned assets. A key measure of Russia’s economic success is its ability to attract FDI from the developed world (Hanes, 1998). However, since the collapse of the Soviet Union, Russia has been struggling to attract meaningful FDI. Both the process and its results have been mixed. Moreover, recent outcomes do not seem to provide for long-term economic development. While there have been some successes in its economic transition, the nation’s major opportunities relates to its geography. Russia’s physical and natural assets -- combined with its large population that is eager to enjoy the benefits of economic progress -- provide justification for multinational corporations (MNC) to invest. However, obstacles such as inadequate protection of property rights, a weak banking sector, and endemic corruption are major constraints against the development of sustained inward flow of FDI (EIU Viewswire, 2003). It is predicted that FDI in Russia will increase as tax reforms and newfound political economic stability enhance the investment climate. The mere fact that Russia has rich deposits of natural resources is a major potential attraction for FDI (EIU Viewswire, 2003).

LITERATURE REVIEW

Empirical studies of national economies highlight four groups of factors that promote recovery and sustained growth: (1) the role of macro economic variables such as inflation and fiscal balance (Fischer, Sahay and Vegh, 1997), (2) structural reforms, in particular liberalization and privatization (Havrylyshyn et al., 2000), (3) initial conditions such as the degree of macro economic and structural distortions at the beginning of transition, or wars and internal conflicts (de Melo et al., 1997), and (4) development of institutions as determinants of growth (EBRD, 1997; Brunetti, Kisunko and Weder, 1997; Havrylyshyn et al., 2000). Most of these studies estimate economic growth using factors belonging to one or two of the above mentioned groups and are considered as relevant explanatory variables. Moreover, FDI inflows facilitate a nation’s economic growth, as was experienced over many years by the developing countries in Asia over a quarter of a century ago. Theoretical explanation of FDI location decisions is provided by location theory (Dunning, 1993; Mudambi, 1998; Benito, Gabriel and Gripsrud, 1992, Wallace, 1998), theory of corporate networks (Pred, 1977; Geldner, 1986; Glickman, 1998; Woodward, 1992) and theory of economic geography (Dunning, 1993; Nachum, 2000). All these major theories and empirical research suggest important role of government and institutional agents in attracting and retaining FDI. Several theories have been advanced to explain the level and pattern of multinational investment (Erdal and Tatoglu, 2002). Many of these theories and empirical studies have focused on the formation of MNCs and their motivation for pursuing FDI by emphasizing differing causal variables. Extensive work by, Buckley and Casson (1985) reviewed the most prominent theories relating the motivation of FDI. Scholars such as Hymer, 1960, 1976; Kindleberger, 1969, Vernon, 1966 and Caves, 1971 have focused on the fundamental economic theories. Other researchers, Buckley and Casson, 1976 and Rugman, 1981 focused their work on internalization. John Dunning’s Eclectic Paradigm (1993) provides the most comprehensive theory of foreign direct investment by MNCs. His explanation for FDI can be illustrated using the Eclectic Paradigm or the OLI (ownership, location and internalization) advantages (See Exhibit 1). Much research has been conducted 118 to evaluate ownership and internalization advantages, but according to Dunning (1998) himself, location has been a neglected factor. Exhibit 1 provides a model of the key determinant factors in the internationalization process. For this analysis, we are evaluating the importance of location factor as a determinant of FDI.

Exhibit 1 - Determinants of FDI

FACTORS INTERNATIONALIZATION FDI

OWNERSHIP WHY? Why undertake FDI?

INTERNALIZATION Why internationalize HOW? through FDI instead of other forms?

LOCATION WHERE? Where to undertake FDI?

Source: adapted from Galan and Benito-Gonazales (2001), p. 269.

The model displayed in Exhibit 1 simplifies reality and displays the decisions that MNCs make when contemplating FDI. The arrow on the left shows the increasing complexity of decisions. As can be observed, location is a major component of this decision process and thus has to be evaluated as rigorously as the other two variables. The eclectic theory of international production (Dunning, 1988, 1993) maintains that the advantages drawn from asset ownership (i.e. tangible assets, patents technology and skills), location- oriented assets (e.g. input process and quality, investment incentives, infrastructure, culture and trade barriers, and internationalization of cross-border market transactions (e.g. minimization of transaction costs such as search and negotiation costs, uncertainty about the character and importance of inputs and the opportunity to acquire the economies of interdependent activities) explain the inclination of firms to participate in foreign investment (Brush, Maritan and Karnani, 1999). While there is a considerable stream of research focusing on a broader set of FDI determinants such as firm specific factors, strategic factors and transaction-related ideas, focusing on locational determinants of inward FDI is an important area of investigation (Erdal and Tatoglu, 2002). Just about all potential host location are distinguished by a set of factors that attract would be investors. The fundamentals of the host location can be generally categorized into two kinds. First, there are the Ricardian-type endowments which include natural resources, most kinds of labor, and proximity to markets. Second, there is a range of environmental variables operating as a function of the political, economic, legal and infra-structural segment of a host location. Individually and jointly these factors play a central role in a firm’s decision to enter a specific state. The sub-themes associated with a host state’s location factors are such elements as market size, economic growth, raw materials, host government policies, level of industry competition, and host state’s geographical proximity to transportation infrastructure (Erdal and Tatoglu, 2002). The impact of globalization on Russia may be positive and negative. Globalization shifts economic competition towards “knowledge-intensive capitalism” and enables regions to gain competitive advantage through accessing global networks of production, consumption, and information exchange. While enhancing the position of core regions due to the presence of most headquarters and associated clusters, globalization widens inequality between regions unless the local and regional government takes the initiative to attract new investment and maintain current location advantages of the region (Hood and 119 Young, 1999). Although MNCs are constrained in their location decision by whole set of exogenous and endogenous variables, many options exist as to where MNC activities can and may be located (Dunning, 1993). According to UNCTAD (1998) host country determinants fall in three major categories: (1) political and regulatory environment, (2) economic determinants, and (3) business facilitators. Government policies and regulations and economic interventions and actions exert direct influence on locational decisions. In an age of global capitalism and knowledge economy, government is increasingly changing locational decisions in their favor at the sub-national level. Governments can influence decisions on investments that are strategic and efficiency seeking. Factors of endowment associated with location is important in attracting FDI. This is problematic in the case of a huge nation such as Russia because locational factors are specific to a region, the country, and even a particular city.

PROFILE OF RUSSIA

Repeated devastating defeats of the Russian army in World War I led to widespread rioting in the major cities of the Russian Empire and to the overthrow in 1917 of the imperial household. The Communists under Vladimir Lenin seized power soon after and formed the USSR. The brutal rule of Josef Stalin (1928-53) strengthened Russian dominance of the Soviet Union at a cost of tens of millions of lives. The Soviet economy and society stagnated in the following decades until General Secretary Mikhail Gorbachev (1985-91) introduced glasnost (openness) and perestroika (restructuring) in an attempt to modernize Communism, but his initiatives inadvertently released forces that by December 1991 splintered the USSR into fifteen independent republics. Since then, Russia has struggled in its efforts to build a democratic political system and market economy to replace the strict social, political, and economic controls of the Communist period. After the 1991 dissolution of the former USSR, a reform program was initiated to effect the transition of the economy to a market-oriented system. Russia became a member of the International Monetary Fund (IMF) in 1992 and a new Constitution was adopted in 1993. Difficulties in implementing further economic reforms led to social unrest through 1996. The ruble was re-valued in January 1998 with three fewer zeros in the new bills. In August 1998, due to the global financial crisis and the nation’s budgetary shortfalls, the country’s financial markets fell sharply with the local currency allowed to float. As the crisis effects continued to dissipate, together with the strong commitment of the government to push through major tax reforms and to maintain a tight fiscal discipline, it seemed that the country is back towards favorable economic recovery.

120 Exhibit 2 - Geographic Area of the Russian Federation

Source: http://www.cia.gov/cia/publications/factbook/geos/rs.html

Endowed with a large domestic market, vast natural resources, considerable reserves of raw materials, and diversified manufacturing base, the Russian Federation has attracted foreign interest. Exhibit 2 illustrates the enormous size and territorial geography of Russia that spans 11 time zones. In comparison, the entire Unites States is about half of Russia’s land mass. The map illustrates how its location and size impact on policy development and implementation. Transportation and communication become major tasks to facilitate business opportinities. In adition to distance, Russia’s severe climate is also a formidable obstacle for developing its considerable resources of oil, natural gas, coal, and many other strategic minerals. Continued structural-reform implementations, for sustaining GDP growth and enhancing the investment climate would encourage FDI for more businesses. Russia has made significant improvements in its business environment since the last decade by adopting laws to protect the property and other rights of investors, as well as establishing the institutions needed for a market economy to function. Official policy for improving FDI within Russia includes its new investment and double-taxation treaties signed with many countries.

Present Economic Situation

Russia has improved its international financial position since the 1998 financial crisis, with its foreign debt declining from 90 percent of GDP to around 28 percent. Strong oil export earnings have allowed Russia to increase its foreign reserves from only $12 billion to some $120 billion at yearend 2004. These achievements, along with a renewed government effort to advance structural reforms, have raised business and investor confidence in Russia’s economic prospects. Nevertheless, serious problems persist. Economic growth slowed down in the second half of 2004 and the Russian government forecasts growth of only 4.5 to 6.2 percent for 2005. Oil, natural gas, metals, and timber account for more than 80 percent of exports, leaving the country vulnerable to swings in world prices. The nation’s manufacturing

121 base continues to be dilapidated. It must be replaced or modernized if Russia is to achieve broad-based economic growth. Other problems include a weak banking system, a poor business climate that discourages both domestic and foreign investors, corruption, as well as the widespread lack of trust in institutions. Russia does not encourage legitimate small businesses and entrepreneurial activity. Both are a critical source of dynamism, growth, and employment opportunities required for a healthy, all-inclusive, market-based economy. On the other hand, pervasive corruption and speculative activities seem to look as if they are drivers of new commercial activities. More troubling are the investigations of the new Russian oligarchs. These new superrich were the result of the so-called “Washington Consensus” that pushed privatization over and above any other considerations. Speedy giveaways of state assets not only failed to achieve goals of economic restructuring, but also exacerbated Russia’s problems enriching a select few to the detriment of millions. Additional policy concerns include the government’s actions targeting a major Russian oil company, culminating with the arrest of its CEO in the fall of 2003. Observers are questioning if President Putin is granting more influence to forces within his government that desire to reassert state control over the economy (CIA Factbook, 2005). Russia as a whole is clearly under-performing in terrms of both gross domestic private investment and FDI. Gross Domestic investment in the Russian Federation contracted during the decade of the 1990s, and has only recently started expanding again. Forward FDI Russia received under one percent of GDP during 1992 to 1998, compared to an average of 3 - 4 percent, or more, in Poland and Romania, as well as even higher rates in may other countries in Central and Eastern Europe (www.baltic.rcsme.ru). The cumulative ratio of FDI to Russian GDP is still only six percent. This is less than one-third the level in many other transition economies. The cumulative FDI per capita is also significantly lower in Russia compared to its neighbors. During 2004, FDI in Russia increased to US$9.4 billion. Although this is a ten percent increase from the previous year, it is lower than other transition economies. Interestingly, a significant portion of new FDI in Russia is returning Russian capital. Recent appreciation of the ruble against the dollar has persuaded some Russians to move their money from popular banking havens as Cyprus and Gibraltar. While some progress has been made on the economic front, recent years have seen a re- centralization of power under Vladimir Putin and an erosion in nascent democratic institutions. A determined guerrilla conflict still plagues Russia in Chechnya (CIA Factbook, 2005). Russia ended 2004 with its sixth straight year of growth, averaging 6.5 percent annually since the financial crisis of 1998. Although high oil prices and a relatively cheap ruble are important drivers of this economic rebound, since 2000 investment and consumer-driven demand have played a noticeably increasing role. Real fixed capital investments have averaged gains greater than ten percent over the last five years, and real personal incomes have realized average increases over 12 percent. Compared to other nations, Russia ranks low in attractiveness for FDI due to the continuing poor business climate, lack of transparency, and its weak legal system. Russia is one of the best examples of a divergence between regulation and implementation. A recent Organization for Economic Cooperation and Development (OECD) survey of the investment environment in Russia found that the otherwise adequate rules-based legal and regulatory environment was consistently being undermined by failures in implementation and enforcement (OECD, 2001). There is no level playing field for businesses in Russia because investors encounter a multitude of administrative barriers and obstacles, particularly at regional level, often in contravention of federal legislation and regulation. The administrative environment surrounding licensing and other business start- up difficulties that this has spawned a new indigenous growth industry: firms specialising in helping establish new enterprises. Despite having abundant raw materials, educated workforce, large domestic market, and proximity to Europe, Russia does not rank among the top FDI destinations. Transparency problems also hinder inbound FDI. Even the nation’s internal investment is very low. This means that Russians themselves are discouraged by the lack of transparency. Many Russians choose to keep their money outside the formal banking sector. The Russian banking system is poorly developed and lacks trust. Therefore, domestic entrepreneurs have difficulty raising capital. At the same time, the capital-rich energy sector cannot diversify risk and facilitate capital transfers to capital-poor sectors, such as agriculture and manufacturing. 122 Russian economic growth during 2005 was due to three main factors: (1) a continuing rapid expansion of domestic incomes and demand, (2) progress in the expectations of investors, and (3) growing competitive demands from the real appreciation of the ruble. Unfortunately, a slowdown continues in most sectors of the economy since the second half of 2004. For example, there is a increasing competitive strain from a stronger ruble. Although higher oil prices have caused greater windfall revenues than anticipated to the federal budget, the core consumer price inflation remains roughly at the same levels (www.worldbank.ogr.ru).

Russian Foreign Trade

Foreign trade influences FDI because it establishes knowledge, linkages, and collaboration. Russia’s size and location, along with its natural resources, means foreign trade is important. Russia’s large population has a great many needs and therefore importation of good and services have been important to the economic welfare of its people and businesses. Moreover, foreign trade demonstrates that as business and consumer needs grow, more FDI will be needed to meet the market needs. Export orientation and openness to trade are other factors that typically enter the determination of the FDI Function (Culem, 1988; Chakrabarti, 2001). Exhibit 3 shows Russian trade activity in US dollars. Exports are higher than imports. Russia is a major trading partner with the West, especially the EU, exporting mostly energy sources (gas and oil), metal, minerals, and timber, while importing a wider range of manufactured products. The nation produces about 470 million tons of oil a year, of which it exports 230 million tons. The country’s oil reserves will suffice for another 35 to 40 years (www.russiajournal.com) thus this sector is very attactive for foreigh FDI acivities. In the longer term, Russian manufacturing is likely to start recovering and hence Russia will need to have improved access to Western markets in order to expand its exports. Increased inbound FDI would help Russia achieve greater economic growth.

Exhibit 3

Foreign Trade of Russia with countries that are not the members of the CIS in billion US dollars 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Exports 42.4 44.3 49.2 63.7 69.2 68.4 57.6 62.2 89.3 85.4 91.0 113.0 (F.O.B) Imports 37.0 26.8 28.3 33.2 31.5 38.8 32.3 21.9 22.3 30.7 36.0 44.1 (C.I.F) Trade 79.4 71.1 77.5 96.9 100.7 107.2 89.9 84.1 111.6 116.1 127.0 157.1 Turnover Balance +5.4 +17.5 +20.9 +30.5 +37.7 +29.6 +25.3 +40.3 +67.0 +54.7 +55.0 +68.9

Source: Official Russian State Customs Committee Statistics, 1994-2004. Note: CIS -12 Former USSR Republics include: Ukraine, Belarus, Kazakhstan, Armenia, Georgia, Azerbaijan, Moldova, Uzbekistan, Kirgizstan, Turkmenistan, Tadjikistan.

FDI in Russia

The level of inbound FDI into a nation with the resource base and market potential of Russia seems almost underwhelming compared to other nations. Complicating the national analysis is that Russia has many distinct regions. For example, St. Petersburg has many attractions for FDI; therefore, it would be expected to attract a large amount. Novgorod, by contrast, has relatively few attractions, but has managed to attract significant amounts of FDI by making the investment climate very business-friendly. Novgorod has clearly benefited from “spill over” investment from businesses that want to enjoy the good features of St. Petersburg but to avoid the bureaucratic difficulties and higher taxes 123 (http://baltic.rcsme.ru/5/default.asp). Compounding the location factors is that four economic sectors received as much as 70 percent of all FDI inflows into Russia in 2004. The Russian Federal State Statistics Service (Rosstat) indicates oil and gas extraction led with a 42 percent share, followed by metallurgy and manufacturing of metal products with 12%, wholesale trade with 9%, and real estate, rental and business services with 7% (www.bof.fi/bofit/fin/4ruec/pdf05/brr0405.pdf). The Foreign Investment Promotion Center, a governmental coordinating body of the Ministry of Economy, is responsible for the promotion of FDI in Russia (UNCTAD, 2004). Even with direct assistance from the highest levels of government, Exhibit 4 illustrates the erratic levels of FDI flows. The peaks and valleys result from the tumultuous economic decision-making. Breaking away from the old economic command-oriented system has been a arduous task for government, society, and the private business sector. Additionally, stabilizing the economy has been more involved than anticipated. As a result, prospective foreign investors in Russia are very hesitant.

Exhibit 4

Summary of FDI flows (in millions of US dollars) 1985-95 2001 2002 2003 2004 Inward 1,282 2,748 3,461 7,958 11,672 Outward 869 2,533 3,533 9,727 9,601

Source: UNCTAD World Investment Report 2005 (www.unctad.org/wir)

Summary of FDI stocks (in millions of US dollars) 1980-90 1980-90 2000 2003 2004 Inward -- 32,204 86,772 98,444 Outward -- 20,141 72,273 81,874

Source: UNCTAD World Investment Report 2005 (www.unctad.org/wir)

Investors look for competitive advantages in operational and seek to reduce risks. Therefore, FDI is attracted to locations with good infrastructure, high skill labor, and closeness to markets. Nations that have a stable political environment are preferred and investors also give priority to business and economic transparency. Impediments facing investors in Russia include the incomplete and contradictory nature of legislation at all levels of government and among numerous regions. This increases transaction costs, as well as adding political and economic risks. The Russians themselves manipulate the business system. According to Rosstat, about 28 percent of Russia’s total FDI stock at the end of 2004 originated from Cyprus. This is actually Russian money returning home. Cyprus has rapidly become an important source of FDI as it accounted for thirteen percent of Russia’s FDI stock in 2001 (www.bof.fi/bofit/fin/4ruec/pdf05/brr0405.pdf). Another troubling trend is that FDI is not increasing a time when world market commodity prices are at record levels and Russian oil and metal companies are garnering huge earnings from their exports. Extractive industries, along with most other Russian industries, are in serious need of investment in order to increase production or at least maintain current levels over the long-run (www.bof.fi/bofit/fin/4ruec/pdf05/brr0405.pdf). The direct effects of FDI on the economy may be limited. Existing domestic industries may have to be restructured to ensure that they are sufficiently competitive to develop the spill overs from the foreign investment. The use of joint ventures may well be a way of achieving additional spin-offs for the indigenous industry. This process will be encouraged if foreign-owned firms perceive that such alliances may be formulated with a minimum of bureaucratic procedure. Domestic enterprises should be encouraged to achieve significant degrees of strategic independence with their foreign partners in order to achieve the maximum possible benefit from the inward investment. Russia has differencial advantage because of its high percentage of educated people. This attracts 124 firms with high value-added activities. There are potential gains, but unless the economy is modernized appropriately and speedily, there is danger that Russia will only attract relatively low-level FDI focused on capturing indigenous locational advantages. In this case, Russia will not become significant in the global integration of international production. Because of the nation’s huge natural resource base, FDI in Russia may serve only as a low-cost extractive resource provider for further processing by MNC operations abroad. This would hinder further domestic economic development typically provided by local high value-added activities and their spin-off benefits. This scenario could place limits on Russia fully achieving its transition process into an advanced market economy. Moreover, much remains in the way to downsize the bloated state sector, as well as the continued government involvement in banking, telecom, transportation, and energy sectors. Structural reform and a rigorous economic adjustment process have posed significant social and political challenges. Over the past years, outcomes in Russia indicate that continuity -- rather than radical change -- characterizes the political and business decision-making environment. Recent trends in the direction and structure of Russian trade and the reforms undertaken seem to show three potential directions for the development of the Russian economy. First is a return to the old centralized model of the economy. Second is a continuing “muddling through” with no bright end in sight. Third is accelerated reforms that could bring Russia into the mainstream of the new global economy. The most likely scenario for the future appears to be the second option: more of the same disorganization that currently exists in Russia. This likely outcome does not bode well in the FDI decision-making model as described in Exhibit 1. However, it may suggest that foreign government mediated investment policies may play a larger role in Russian FDI. For example, the European Union (EU) as its Western neighbor could assist Russia by providing technical assistance to strengthen the institutional infrastructure of foreign trade (i.e. to help reduce transactions costs and risk); and to adopt a more open approach regarding access to EU markets for Russian manufactures (www.ideas.repec.org). In other words, future FDI in Russia may be motivated by Western government officials. Other policy options to improve the FDI environment in Russia include relaxing remaining restrictions on investment in several sectors of the economy, efforts to simplify and make administrative procedures more transparent, as well as ensuring compliance with national laws and regulations at the regional and local government levels.

CONCLUSIONS

Despite its wealth of investment opportunities, Russia has attracted relatively little FDI. It is a rather risky environment for investors. More troubling have been its restrictions on investment in various economic sectors as well as significant institutional impediments impacting both domestic and foreign businesses that have contributed to capital flight. The outlook for Russia’s economic performance is mixed. On the positive side, there seem to be improvements that help the business environment. However, while many other emerging nations had time for FDI inflows to expand their economies, the Russian economy is so fragile that it cannot wait. This is even more critical since the nature of FDI activities is now very different and the process of globalization is more dynamic. Russia is an important player in global business. Its immense size, along with its economic factors of endowment, position Russia into numerous FDI opportunities. Research into specific barriers and the obstacles to attracting FDI are an important area of study. Finding answers as to why Russia has not developed faster since its implosion in 1991 is central to detemining the mistakes to avoid and thus attract more FDI in the future. Some important research questions revolve around politics, economics and culture. A deeper understanding of these elements and factors can provide insight for businesses wanting to invest in the Russian Federation.

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