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Posted on March 24th, 2013, by

“Over the last two decades the substantial progress toward removal of cross-border restrictions on international capital flows and the trend toward an integrated world economy has increased the growth of foreign direct investment activity”¯ (Doukas and Lang 153). Consequently, foreign direct investment (FDI) continues to grow rapidly, increasing the role of international production in the global economy. The defining feature of the currant stage of economic development is globalization, the essence of which lies in the internationalization of production, the international movement of capital, goods and services.

Nowadays, the level of the country’s development is determined by the economic structure, specific gravity of high-tech industries involved in international information exchange, the availability of developed market infrastructure, educational level and quality of the workforce. These indicators determine the country’s investment attractiveness.

Foreign investment is a significant factor in the growth of national economies, an important source of capital investment in domestic production of goods and services. On the one hand, foreign investment serves as a channel for the dissemination of new production technologies and management, and on the other hand, an excessive activity of foreign capital may exacerbate social and political tensions within the country, and preserve a backward industrial structure of national economy.

In general, the impact of foreign investment on the host economy can vary significantly, depending on the national policies, forms of foreign investment, and competitiveness of domestic companies.

Currently, foreign direct investment is an integral part of international economic relations. In addition, it has both indisputable advantages and obvious disadvantages for the economies of the host countries. It is very important for each country to foresee all the effects of foreign investment beforehand and determine the need to attract them.
Thus, this paper introduces the impacts of foreign direct investment on the host country economy, such as the Russian economy. It presents and discusses the impacts on the country’s labor market, capital market, trade balance, using a specific sector of the Russian economy.

To start with, foreign investments are financial resources aimed at the development of the manufacturing process. Being put into circulation, they generate the revenues.
“Foreign direct investment (FDI) has been viewed through several theoretical lenses, with researchers taking different snapshots of the phenomenon”¯ (Sethi et al. 315). “It has become increasingly commonplace for firms to attain their competitive advantages from foreign-based activities, with foreign direct investment (FDI) being the preferred way of organising such activities”¯ (Dunning, qtd. in T. Chen, H. Chen, and Ku 320).

The basic trends of the Russian economy’s development in the medium – long terms determine the need to attract significant amounts of foreign investment. Growing market economy needs a national resource for strategic investment projects, structural reforms, upgrading of productive capital.

According to some estimates, an annual demand for the real sector of the country’s economy in attracting foreign direct investment consists of 15-20 billion dollars.
The current stage of restructuring the Russian economy highlights the problems of attracting foreign direct investment. In the current difficult economic situation that is characterized by an acute shortage of resources for productive investment and economic modernization, the significance of long-term, not speculative foreign investments in Russia can hardly be overestimated.
Taking into consideration, a technological backwardness of the Russian economy for most items, Russia needs foreign capital, which could bring a new technology and modern management techniques, as well as promoting domestic investment.

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