Institutional Policy and the Role of Foreign Direct Investment in the Far East of Russia

Abstract—: The article studies investment flows and their impact on the diversification of regional economies of eastern federal subjects in the context of new institutional incentives created by state policy in the Far East after 2013. The dynamics of foreign direct investment (FDI), including the main sectors, and its relationship with the rate of economic growth are considered. The study was based on official statistical information from the Federal State Statistics Service and the Bank of Russia using GIS technologies and comparative and correlation analysis. The distribution of FDI flows by type of economic activity uses the classification of the Bank of Russia, which corresponds to the methodology of the UN International Standard Industrial Classification (ISIC4) and its European equivalent (NACE2). Calculations have shown that while there is some regression between per capita investment from all sources and rate of economic growth in regions in Eastern Russia, there is practically no correlation between FDI and GRP growth. New state policy tools aimed at attracting FDI during the period under review made no significant contribution to diversification of the economy of eastern regions. In most regions, the bulk of this investment went to the minerals sector. The shares of FDI directed at the manufacturing, agriculture, construction, trade, hotels and restaurants, and the entertainment industry, since 2015, as a rule, have amounted to no more than 1% of the total Russian values in the corresponding sectors. There is no reason to believe that to date, FDI, the incentives for which were intended to create new Far Eastern institutions, have made a significant contribution to the development of a modern high-tech economy in eastern regions. The Far Eastern institutional transformation did not change the “extractive” nature of economic (and political) institutions. Economic preferences for Russia’s East to some extent have contributed to attracting investment, but mainly only in conditions of support from the federal budget and state guarantees. The authors believe that the problem of gradual transformation of institutions towards increasing their “inclusiveness” is coming to the fore. Integration at the regional level of investment policy and supporting entrepreneurship can become a significant step along this path, if Far Eastern development institutions are “reformatted” to solve this problem, providing the necessary resources. © 2021, Pleiades Publishing, Ltd.