The War in Ukraine Deals a Blow to Russia’s Foreign Direct Investment Links

Challenges No. 238 (2022), Institute of World Economics CERS, Budapest

17 Pages Posted: 11 Apr 2022

See all articles by Kalman Kalotay

Kalman Kalotay

Institute of World Economics; United Nations Conference on Trade and Development (UNCTAD); UNCTAD

Date Written: March 4, 2022

Abstract

The war in Ukraine started in February 2022 adds major uncertainties to foreign direct investment (FDI) to and from the Russian Federation and affects it negatively in the short, medium and long run. The degree of the hit will depend on the exact contents of sanctions and counter-sanctions, not fully known yet. However, the severe consequences of some of them are already visible, adding to the financial strain caused by the war. FDI to and from Russia is expected to fall drastically in 2022 and, depending on the length and depth of the conflict, in the subsequent years if no exit strategy is developed fast to stop the conflict and its eventual escalation. This study concludes that the fall in FDI will at the end hurt the economic capacities of the Russian Federation already affected by a previous round of sanctions imposed in 2014. Decoupling of the Russian economy from FDI partners works, if it works, only partially, and at a relatively high cost. That in turn could thwart the very economic fundamentals of the war effort.

Keywords: Foreign direct investment, war, Russia, Ukraine, sanctions

JEL Classification: F21, F23, N44

Suggested Citation

Kalotay, Kalman, The War in Ukraine Deals a Blow to Russia’s Foreign Direct Investment Links (March 4, 2022). Challenges No. 238 (2022), Institute of World Economics CERS, Budapest, Available at SSRN: https://ssrn.com/abstract=4050049 or http://dx.doi.org/10.2139/ssrn.4050049

Kalman Kalotay (Contact Author)

Institute of World Economics ( email )

Tóth Kálmán utca 4
Budapest, 1097
Hungary

HOME PAGE: http://www.vki.hu

United Nations Conference on Trade and Development (UNCTAD) ( email )

Division on Investment, Technology and Enterprise
Palais des Nations
Geneva, 1211
Switzerland

UNCTAD ( email )

Division on Investment, Technology and Enterprise
Palais des Nations
Geneva, 1211
Switzerland

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