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Modelling Russian outward FDI

Modelling Russian outward FDI. ’Emerging Multinationals’: Outward Foreign Direct Investment from Emerging and Developing Economies 10 October 2008, Copenhagen Business School. Kalman Kalotay UNCTAD Astrit Sulstarova UNCTAD. CONTENTS. Dynamics of outward FDI from Russia

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Modelling Russian outward FDI

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  1. Modelling Russian outward FDI ’Emerging Multinationals’: Outward Foreign Direct Investment from Emerging and Developing Economies 10 October 2008, Copenhagen Business School Kalman Kalotay UNCTAD Astrit Sulstarova UNCTAD

  2. CONTENTS • Dynamics of outward FDI from Russia • How FDI theorems explain Russian outward FDI • Hypotheses • Econometric results • Conclusions

  3. Dynamics of Russian outward investment • Early 1990s: Russia was a major informal capital exporter • Since 1999: quick rise of registered outward FDI stock, surpassing other BRICS (next slide) • OFDI from Russia is partly driven by cross-border mergers and acquisitions (M&As) • Largest Russian transnational corporations (TNCs) have strong oligopolistic /monopolistic advantages

  4. Dynamics of outward FDI stock from Russia

  5. Features of cross-border M&A purchases by Russian TNCs • Russian TNCs have targeted mostly developed-country firms (next slide) • The UK has been the largest target, followed by Canada • The share of CIS limited; highest (28%) in 2001-2004 Sectoral distribution (subsequent slide): • The bulk (60%) of acquisitions in the primary sector • Manufacturing was the main target sector in the early 1990s but fell behind

  6. Cross-border M&A purchases by Russian TNCs(by host country/region)

  7. Cross-border M&A purchases by Russian TNCs(by host sector/industry)

  8. The universe of Russian TNCs • Capital exports are driven by large industrial conglomerates concentrated in • natural-resource-based industries (Gazprom, Lukoil) • metal processing (Severstal, UC Rusal, Norilsk Nickel and Evraz) • telecommunications (Sistema, Mobile TeleSystems and VimpelCom)

  9. The 20 largest Russian TNCs

  10. How the OLI paradigm can explain Russian outward FDI Paper focuses on OLI. Main hypotheses: • The internalization (I) aspect of TNCs strategies can explain the behaviour of Russian firms. • Ownership (O) advantages are less straightforward although • Oa advantages consisting of property rights and intangible assets and advantages of common governance • Ot advantages consisting of organization and management • Home country advantages (H) play a key role in determining outward FDI

  11. Formal hypotheses for modelling

  12. Econometric results 1(determinants of outward FDI worldwide) • GDP per capita is a key determinant of outward FDI (1% rise in GDP per capita will cause a 0.65% increase of outward FDI stock) • Exports (entry of national firms through arm’s length transactions) is important determinants of outward FDI (a 1% growth in exports will result in a 0.96% increase in the FDI outward stock)

  13. Econometric results 2(determinants of outward FDI from Russia) • GDP per capita has more impact on outward FDI than exports (1% rise in GDP per capita will increase outward FDI stock by 0.95%, compared to only 0.17% in the case of exports) • Policy change (1999) is also significant

  14. Econometric results 3(locational determinants of outward FDI) • Most of the econometric results confirmed our preliminary hypotheses • Home country market size (measured by GDP per capita) is the variable with the highest significant coefficient • Three main host-country variables (absolute size of the economy, natural resources endowments and services) are significant with the expected sign • In contrast, asset-seeking motives, distance and exchange rate were not significant

  15. Econometric results 3(table)

  16. Conclusions • Among the first attempts to model formally Russian outward FDI • In terms of main variables explaining Russian OFDI, • home-country market size has been found as a particularly important factor • market size of the host countries and equally • host-country natural resources have been found to be important drivers of Russian OFDI

  17. Thank you Kalman Kalotay UNCTAD kalman.kalotay@unctad.org Astrit Sulstarova UNCTAD astrit.sulstarova@unctad.org

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