Foreign direct investment and governance quality in Russia

This paper studies the effect of poor governance quality on foreign direct investment in Russia. Using a survey of businesses across forty administrative districts, we find that higher frequency of using illegal payments and higher pressure from regulatory agencies, enforcement authorities, and criminals, negatively affect foreign direct investment. Our identification strategy builds on the exogenous cross-regional variation in worker strikes during 1895-1914, the period before the October Revolution. We find that moving from the average to the top governance quality across Russian regions more than doubles the FDI stock. Journal of Comparative Economics 42 (4) (2014) 874-891. New Economic School, Nakhimovsky pr., 47, Office 1721, Moscow 117418, Russia. (C) 2014 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.