Hostname: page-component-78c5997874-ndw9j Total loading time: 0 Render date: 2024-11-19T06:07:33.111Z Has data issue: false hasContentIssue false
  • English
  • Français

Bypassing weak institutions in a large late-comer economy

Published online by Cambridge University Press:  18 February 2015

EVGUENIA BESSONOVA  and
KSENIA GONCHAR
EVGUENIA BESSONOVA*
Affiliation:
Centre for Economic and Financial Research (CEFIR) and Higher School of Economics (HSE), Moscow, Russia
KSENIA GONCHAR*
Affiliation:
Higher School of Economics (HSE), Moscow, Russia
*
*Email: [email protected]
**Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper addresses the link between the strong inflow of FDI into Russia in the 2000s and its weak institutions, using plant-level data across subnational regions. The findings imply that investors have responded positively to improved quality of institutions in certain regions, which offered a combination of wealth, skills and good infrastructure. High development levels in host regions helped to bypass some institutional shortcomings. Investors from source countries exhibiting comparable institutional environment appeared to be more immune to political conflict. Round-trip investors reacted to institutional determinants in almost the same manner as genuine investors, except for tolerance to labor market imperfections.

Type
Research Article
Information
Journal of Institutional Economics , Volume 11 , Issue 4 , December 2015 , pp. 847 - 874
Copyright
Copyright © Millennium Economics Ltd 2015 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Acemoglu, D. and Robinson, J. A. (2008), ‘Persistence of Power, Elites, and Institutions’, American Economic Review, 98 (1): 267–293.CrossRefGoogle Scholar
Acemoglu, D. and Dell, M. (2010), ‘Productivity Differences Between and Within Countries’, American Economic Journal: Macroeconomics, 2 (1): 169–188.Google Scholar
Acemoglu, D., Aghion, P., and Zilibotti, F. (2006), ‘Distance to Frontier, Selection, and Economic Growth’, Journal of the European Economic Association, 4 (1): 37–74.CrossRefGoogle Scholar
Acemoglu, D., Johnson, S., and Robinson, J. A. (2005), ‘Institutions as the Fundamental Cause of Long-Run Growth’, in Aghion, P. and Durlauf, S. (eds.), Handbook of Economic Growth, Amsterdam: North-Holland.Google Scholar
Aleksynska, M. and Havrylchyk, O. (2013), ‘FDI from the South: The Role of Institutional Distance and Natural Resources’, European Journal of Political Economy, 29 (7): 38–53.Google Scholar
Alfaro, L., Kalemli-Ozcan, S., and Sayek, S. (2009), ‘Foreign Direct Investment, Productivity, and Financial Development’, The World Economy, 32 (1): 111–135.Google Scholar
Asiedu, E. (2002), ‘On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?’, World Development, 30 (1): 107–119.Google Scholar
Barassi, M. R. and Zhou, Y. (2012), ‘The Effect of Corruption on FDI: A Parametric and Non-parametric Analysis’, European Journal of Political Economy, 28 (3): 302–312.Google Scholar
Barro, R. J. (1991), ‘Economic Growth in a Cross Section of Countries’, Quarterly Journal of Economics, 106 (2): 407–443.Google Scholar
Bénassy-Quéré, A., Coupet, M., and Mayer, T. (2007), ‘Institutional Determinants of Foreign Direct Investment’, The World Economy, 30 (5): 764–782.Google Scholar
Blonigen, B. (2005), ‘A Review of Empirical Literature on FDI Determinants’, Atlantic Economic Journal, 33 (4): 383–403.Google Scholar
Brock, G. (1998), ‘Foreign Direct Investment in Russia's Regions, 1993–95: Why so Little and Where Has it Gone?’, The Economic Transition, 6 (2): 349–360.Google Scholar
Brock, G. (2005), ‘Regional Growth in Russia During the 1990s—-What Role Did FDI Play?’, Post-Communist Economies, 17 (3): 319–329.Google Scholar
Castiglione, C., Gorbunova, Y., and Smirnova, J. (2012), ‘FDI Determinants in an Idiosyncratic Country. A Reappraisal over the Russian Regions During Transition Years’, Communist and Post-Communist Studies, 45 (1–2): 1–10.Google Scholar
Chang, H.-Y. (2011), ‘Institutions and Economic Development: Theory, Policy and History’, Journal of Institutional Economics, 7 (4): 473–498.Google Scholar
Cheng, L. K. and Kwan, Y. K. (2000), ‘What are the Determinants of the Location of Foreign Direct Investment? The Chinese Experience’, Journal of International Economics, 51 (2): 379–400.CrossRefGoogle Scholar
Claessens, S. and Van Horen, N. (2008), ‘Location Decisions of Foreign Banks and Institutional Competitive Advantage’, Working Paper No. 172, Amsterdam: DNB.Google Scholar
Cuervo-Cazurra, A. (2006), ‘Who Cares About Corruption?’, Journal of International Business Studies, 37 (6): 803–822.Google Scholar
Cuervo-Cazurra, A. and Genc, M. (2008), ‘Transforming Disadvantages into Advantages: Developing-Country MNEs in the Least Developed Countries’, Journal of International Business Studies, 39 (6): 957–979.CrossRefGoogle Scholar
Daude, C. and Stein, E. (2007), ‘The Quality of Institutions and Foreign Direct Investment’, Economics & Politics, 19 (3): 317–344.Google Scholar
Deichmann, J., Karidis, S., and Sayek, S. (2003), ‘Foreign Direct Investment in Turkey: Regional Determinants’, Applied Economics, 35 (16): 1767–1778.CrossRefGoogle Scholar
Dininio, P. and Orttung, R.W. (2005), ‘Explaining Patterns of Corruption in the Russian Regions’, World Politics, 57 (4): 500–529.CrossRefGoogle Scholar
Disdier, A.C. and Mayer, T. (2004), ‘How Different is Eastern Europe? Structure and Determinants of Location Choices by French Firms in Eastern and Western Europe’, Journal of Comparative Economics, 32 (2): 280–296.Google Scholar
Dixit, A. (2009), ‘Governance Institutions and Economic Activity’, American Economic Review, 99 (1): 5–24.Google Scholar
Djankov, S., La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. (2002), ‘The Regulation of Entry’, Quarterly Journal of Economics, 117 (1): 1–37.CrossRefGoogle Scholar
Dreher, A., Nunnenkamp, P., and Vadlamannati, K. Ch. (2013), ‘The Role of Country-of-Origin Characteristics for Foreign Direct Investment and Technical Cooperation in Post-Reform India’, World Development, 44 (6): 88–109.Google Scholar
Du, J., Lu, Y., and Tao, Z. (2008), ‘Economic Institutions and FDI Location Choice. Evidence from US Manufacturing Firms in China’, Journal of Comparative Economics, 36 (3): 412–429.Google Scholar
Fan, J., Xu, L.C., and Yeung, B. (2009), ‘Institutions and Foreign Direct Investment: China versus the Rest of the World’, World Development, 37 (4): 852–865.Google Scholar
Gonchar, K. and Marek, P. (2014), ‘The Regional Distribution of Foreign Investment in Russia. Are Russians More Appealing to Multinationals as Consumers or as Natural Resource Holders?’, The Economics of Transition, 22 (4): 605–634.CrossRefGoogle Scholar
Gwartney, J., Lawson, R., and Hall, J. (2012), ‘Economic Freedom Dataset’, in Economic Freedom of the World: 2012 Annual Report. Fraser Institute. Vancouver, http://www.freetheworld.com/datasets_efw.html (accessed 12 April, 2014).Google Scholar
Hayakawa, K., Kimura, F., and Lee, H.-H. (2013), ‘How Does Country Risk Matter for Foreign Direct Investment?’, The Development Economies, 51 (1): 60–78.Google Scholar
Helmy, H. E. (2013), ‘The Impact of Corruption on FDI: Is MENA an Exception?’, International Review of Applied Economics, 27 (4): 491–514.CrossRefGoogle Scholar
Holcombe, R. G. and Rodet, C. S. (2012), ‘Rule of Law and the Size of Government’, Journal of Institutional Economics, 8 (1): 49–69.Google Scholar
Iwasaki, I. and Suganuma, K. (2005), ‘Regional Distribution of Foreign Direct Investment in Russia’, Post Communist Economy, 17 (2): 153–172.Google Scholar
Javorcik, B. S. and Wei, S.-J. (2009), ‘Corruption and Cross-Border Investment in Emerging Markets: Firm-Level Evidence’, Journal of International Money and Finance, 28 (4): 605–624.Google Scholar
Joshi, S. and Dadibhavi, R. V. (2008), ‘An Analysis of the Regional Distribution of Foreign Direct Investment (FDI) in India during Post-Liberalisation (1991–2003)’, Indian Economic Journal, 55 (4): 116–132.CrossRefGoogle Scholar
Kalotay, K. and Sulstarova, A. (2010), ‘Modelling Russian Outward FDI’, Journal of International Management, 16 (2): 131–142.Google Scholar
Kinda, T. (2010), ‘Investment Climate and FDI in Developing Countries: Firm-Level Evidence’, World Development, 38 (4): 498–513.CrossRefGoogle Scholar
Kuzmina, O., Volchkova, N., and Zueva, T. (2014), ‘Foreign Direct Investment and Governance Quality in Russia’, Journal of Comparative Economics, 42 (4): 874–891.Google Scholar
Ledyaeva, S. (2009), ‘Spatial Econometric Analysis of Determinants and Strategies of Foreign Direct Investment in Russian Regions’, World Economy, 32 (4): 643–666.Google Scholar
Ledyaeva, S., Karhunen, P., and Kosonen, R. (2013a), ‘Birds of a Feather: Evidence on Commonality of Corruption and Democracy in the Origin and Location of Foreign Investment in Russian Regions’, Journal of Political Economy, 32 (1–2): 1–25.Google Scholar
Ledyaeva, S., Karhunen, P., and Whalley, J. (2013b), ‘Offshore Jurisdictions (Including Cyprus), Corruption Money Laundering and Russian Round-Trip Investment’, NBER Working Paper No. 19019.Google Scholar
Lee, K.-D. and Hwang, S.-J. (2014), ‘Regional Heterogeneity and Location Choice of FDI in Korea via Agglomeration and Linkage Relationships’, Journal of the Asia Pacific Economy, 19 (3): 464–487.Google Scholar
Lu, Y., Png, I., and Tao, Z. (2013), ‘Do Institutions not Matter in China? Evidence from Manufacturing Enterprises’, Journal of Comparative Economics, 41 (1): 74–90.Google Scholar
Lucas, R. (1990), ‘Why Doesn't Capital Flow from Rich to Poor Countries?’, The American Economic Review, 80 (2): 92–96.Google Scholar
Mina, W. M. (2012), ‘The Institutional Reforms Debate and FDI Flows to the MENA Region: The “Best” Ensemble’, World Development, 40 (9): 1798–1809.Google Scholar
Mody, A., Razin, A., and Sadka, E. (2003), ‘The Role of Information in Driving FDI Flows: Host-Country Transparency and Source-Country Specialization’, NBER Working Paper No. 9962.Google Scholar
Noorbakhsh, F., Paloni, A., and Youssef, A. (2001), ‘Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence’, World Development, 29 (9): 1593–1610.Google Scholar
North, D. C. (1991), ‘Institutions’, Journal of Economic Perspectives, 5 (1): 97–112.Google Scholar
Parker, S. C. (2009), The Economics of Entrepreneurship, Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
Rodrik, D. (2008), ‘Second-Best Institutions’, American Economic Review, American Economic Association, 98 (2): 100–104.Google Scholar
Smarzynska, B. K. and Wei, S.-J. (2000), ‘Corruption and composition of Foreign Direct Investment: Firm-Level Evidence’, NBER Working Papers No 7969.Google Scholar
The World Bank (2013), Doing Business 2014: Understanding Regulations for Small and Medium Size Enterprises, Washington DC.Google Scholar
Train, K. (2009), Discrete Choice Methods with Simulation, Cambridge, UK: Cambridge University Press.Google Scholar
Wei, S.-J. (2000), ‘How Taxing is Corruption on International Investors?’, Review of Economics and Statistics, 82 (1): 1–11.Google Scholar
Wheeler, D. and Mody, A. (1992), ‘International Investment Location Decisions: the Case of U.S. Firms’, Journal of International Economics, 33 (1–2): 57–76.CrossRefGoogle Scholar
Williamson, O. (2000), ‘The New Institutional Economics: Taking Stock, Looking Ahead’, Journal of Economic Literature, 38 (3): 595–613.Google Scholar
Witt, M. A. and Lewin, A. Y. (2007), ‘Outward Foreign Direct Investment as Escape Response to Home Country Institutional Constraints’, Journal of International Business Studies, 38 (4): 579–594.CrossRefGoogle Scholar
Wu, S.-Y. (2006), ‘Corruption and Cross-Border Investment by Multinational Firms’, Journal of Comparative Economics, 34 (4): 839–856.Google Scholar
Yakovlev, E. and Zhuravskaya, E. (2013), ‘The Unequal Enforcements of Liberalization: Evidence from Russia's Reform of Business Regulation’, Journal of European Economic Association, 11 (4): 808–838.Google Scholar
Yeaple, S. (2003), ‘The Role of Skill Endowments in the Structure of US Outward Foreign Investments’, Review of Economics and Statistics, 85 (3): 726–734.Google Scholar
Zuber, C. I. (2011), ‘Understanding the Multinational Game: Toward a Theory of Asymmetrical Federalism’, Comparative Political Studies, 44 (5): 546–571.Google Scholar