Improving Russia's Foreign Direct Investment Policy Regime

24 Pages Posted: 29 Oct 2001

See all articles by Joel Bergsman

Joel Bergsman

World Bank

Harry G. Broadman

World Bank - Europe and Central Asia Region

Vladimir Drebentsov

World Bank - Moscow Office

Abstract

All countries - developing and developed alike - find it difficult to stay competitive without inflows of foreign direct investment (FDI). FDI brings to host countries not only capital, productive facilities, and technology transfers, but also employment, new job skills and management expertise. These ingredients are particularly important in the case of Russia today, where the pressure for firms to compete with each other remains low. With blunted incentives to become efficient, due to inter-regional barriers to trade, weak exercise of creditor rights and administrative barriers to new entrants - including foreign invested firms - Russian enterprises are still in the early stages of restructuring. This paper argues that the policy regime governing FDI in the Russian Federation is still characterized by "old" paradigm of FDI, established before the Second World War and seen all over the world during the 1950s and 1960s. Indeed, Russia is host to relatively little "new" paradigm FDI-investments characterized by state-of-the-art technology and world-class competitive production linked to dynamic global (or regional) markets. The paper suggests specific policy recommendations: (i) amend the newly enacted FDI law so as to give "national treatment" for both right of establishment and for post-establishment operations; abolish conditions that are inconsistent with the agreement on trade-related investment measures (TRIMs) of the WTO (such as local content restrictions); and make investor-State dispute resolution mechanisms more efficient, including giving foreign investors the opportunity to seek neutral, binding international arbitration; (ii) strengthen enforcement of property rights to improve corporate governance incentives; (iii) simplify foreign investor registration procedures and make them rules-based and transparent; and (iv) extend guarantee schemes covering basic non-commercial risks.

Suggested Citation

Bergsman, Joel and Broadman, Harry G. and Drebentsov, Vladimir, Improving Russia's Foreign Direct Investment Policy Regime. Available at SSRN: https://ssrn.com/abstract=288774 or http://dx.doi.org/10.2139/ssrn.288774

Joel Bergsman

World Bank

1818 H Street, N.W.
Foreign Investment Advisory Service
Washington, DC 20433
United States

Harry G. Broadman (Contact Author)

World Bank - Europe and Central Asia Region ( email )

1818 H Street
Washington, DC 20433
United States
202-473-1312 (Phone)
202-522-2753 (Fax)

Vladimir Drebentsov

World Bank - Moscow Office ( email )

Economics Unit
Moscow
Russia

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