Factor Endowments, Economic Integration, Sanctions, and Offshores: Evidence from Inward FDI in Russia

This paper studies the determinants of inward foreign direct investment (FDI) in Russia using a modified knowledge-capital model. In particular, we investigate the impact of factor endowments, trade agreements, sanctions, and round-trip FDI on inward investments by multinational firms over 2009–2019. Our results demonstrate how differences in physical capital levels can identify aggregate vertical FDI activity in the presence of round-trip destinations such as Cyprus, Luxembourg, and the Netherlands. We discover that bilateral economic sanctions introduced in 2014 have had a short-lived negative effect on both outward and inward FDI activity across genuine investors. Finally, we show that expansion of economic links through the Eurasian Economic Union (EUEA) has facilitated FDI coming into Russia.