Putin’s Russia under the Emerging Markets Research Group Spotligh

Dr John Anchor
Director - Emerging Markets Research Group Thu, 01 Nov 2012 15:15:00 GMT

profileGrahameFallon The Emerging Markets Research Group heard Dr Grahame Fallon, Senior Lecturer in International Business at Brunel University, give a talk entitled “Exploring the impact of culture and institutional conditions on the inward investment climate and inbound foreign direct investment in Putin’s Russia”.

Dr Fallon outlined Russia’s distinctive history and its communist era legacy as well as outlining its contemporary political economy and culture.  He then examined the implications of these for the country’s institutional development and its consequent impact on its attractiveness as a location for international foreign direct investment.

Academic studies on Russia are few in number compared to other BRIC countries.  Yet the scale and scope of the opportunities facing inward investors are very large.  However, the political, economic and institutional challenges facing investors are very large.  Moreover, Russia is still struggling to overcome the perception that it is “a riddle wrapped in a mystery inside an enigma” (Churchill, 1939).

Russia was the second largest recipient of inward investment flows among the BRIC economies over the period 2000-2010.  Dr Fallon used the increasingly popular institutional theory, rather than agency theory and resource based theory, to explain the size and pattern of this investment.

Institutional theory refers both to state driven formal institutions and a parallel set of informal institutions.  These institutions are themselves influenced by national culture in particular and their impact on ‘national business systems’ (which include cultural systems, political systems, financial systems and labour systems).

Dr Fallon argued that Russia’s national culture militates against rapid and radical change in the country’s institutional framework and in fact promotes resistance to change.  Moreover, business behaviours themselves militate again the effectiveness of institutional reforms.  As a consequence, there are major institutional deterrents to FDI such as Russia’s labour code and tax code as well as a more general climate of distrust between government and business.  These factors are unlikely to disappear in the short term.

Dr Fallon’s assertions will be put to the test in due course via econometric/survey research.

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