Download publication

Policy Contribution

FDI another day: Russian reliance on European investment

Most foreign direct investment into Russia originates in the European Union: European investors own between 55 percent and 75 percent of Russian FDI stock. This points to a Russian dependence on European investment, making the EU paramount for Russian medium-term growth. Even if we consider ‘phantom’ FDI that transits through Europe, the EU remains the primary investor in Russia. Most phantom FDI into Russia is believed to originate from Russia itself and thus is by construction not foreign.

By: , and Date: February 17, 2020 Topic: Global economy and trade

This Policy Contribution is a version of a paper prepared for ‘Russian economy at the crossroads: how to boost long-term growth?’, a seminar co-organised by the Delegation of the European Union to Russia and Bruegel, with the support of the EU Russia Expert Network on Foreign Policy. The seminar was funded by the European Union. The content of this paper does not represent the official position of the European Union. We thank Marek Dabrowski, Guntram Wolff, Maria Demertzis and Martynas Baciulis for comments, and seminar participants for feedback. Larissa Nowjack provided excellent research assistance.

Over the last decade, three main factors have determined FDI flows into Russia. First, the energy sector (oil and gas) plays a predominant role in the Russian economy and dominates exports. It has become a major focus of investment flows, including investment in associated activities dependent on energy extraction. The high concentration of FDI in regions rich in natural resources is evidence of the significance of the energy sector for foreign investment.

Second, the high degree of uncertainty induced by a volatile exchange rate has discouraged foreign investment, while the ruble has been heavily affected by the changing oil price. The gradual evolution in the policy of Russia’s central bank from exchange rate management to inflation targeting has helped macroeconomic stability in the medium term.

Third, FDI into Russia is affected by the wider trade and investment context, which in turn are affected by institutional structures, or the lack thereof. Sanctions have been a major obstacle to investment in recent years.

The EU’s pledge to decarbonise places Russia in a difficult situation because oil and gas have long been at the heart of its economy, especially when it comes to external relations. Furthermore, the literature on the growth impacts of FDI highlights many of the benefits from technology transfers, which are often lacking when FDI is focused on fossil-fuel extraction. The Russian economy needs more investment in higher-value added activities, which the EU is in a position to provide.

Recommended citation

Domínguez-Jiménez, M. and N. Poitiers (2020) ‘FDI another day: Russian reliance on European investment‘, Policy Contribution 03/2020, Bruegel

Read about event More on this topic

Upcoming Event


Green public investment after COVID-19

How can the public sector meet the climate funding needs of the EU?

Speakers: Zsolt Darvas, Elena Flores, Louise Skouby and Laurent Zylberberg Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic

Blog Post

A new European tool to deal with unjustified rising spreads

The European Central Bank needs a new tool to prevent the current rise in spreads, triggered by monetary policy tightening, from escalating into a new euro-area crisis.

By: Grégory Claeys and Maria Demertzis Topic: Banking and capital markets Date: June 20, 2022
Read article Download PDF More on this topic

Policy Contribution

How to make the EU Energy Platform an effective emergency tool

The EU Platform could become an effective emergency tool to safeguard Europe’s security of gas supply in case of a sudden interruption of Russian gas flows, but policymakers need to address challenges to make it work.

By: Walter Boltz, Klaus-Dieter Borchardt, Thierry Deschuyteneer, Jean Pisani-Ferry, Leigh Hancher, François Lévêque, Ben McWilliams, Axel Ockenfels, Simone Tagliapietra and Georg Zachmann Topic: Green economy Date: June 16, 2022
Read article More on this topic More by this author

Blog Post

Food security: the role and limits of international rules on export restrictions

Food and fertiliser export restrictions are exacerbating the current food price crisis. The WTO and EU legal toolkits provide some safeguards but are insufficient. Unblocking Ukrainian ports and facilitating wheat exports through large-scale international coordination remains essential.

By: David Kleimann Topic: Global economy and trade Date: June 8, 2022
Read article More on this topic More by this author



Is China bailing Russia out?

The mystery of China-Russia economic relations in the aftermath of Russia’s invasion of Ukraine and what it means for Europe.

By: The Sound of Economics Topic: Global economy and trade Date: June 8, 2022
Read article More on this topic

Blog Post

Europe’s Russian oil embargo: significant but not yet

The ban on most Russian oil significantly scales up the EU response to aggression against Ukraine, but the bloc should stand ready for retaliatory actions.

By: Ben McWilliams, Simone Tagliapietra and Georg Zachmann Topic: Green economy Date: June 1, 2022
Read article More on this topic More by this author



An embargo on (most) Russian oil

A timely reflection on the EU’s latest round of sanctions banning Russian oil imports.

By: The Sound of Economics Topic: Green economy Date: May 31, 2022
Read article More on this topic

External Publication

Economics of access to energy

This chapter discusses the key obstacles that have so far prevented 840 million people worldwide from gaining access to electricity.

By: Giacomo Falchetta and Simone Tagliapietra Topic: Green economy Date: May 30, 2022
Read article More on this topic More by this author

Blog Post

REPowerEU: will EU countries really make it work?

By acting together, the European Union can optimise its response to the energy crisis in all scenarios but each country will have to make concessions.

By: Simone Tagliapietra Topic: Green economy Date: May 18, 2022
Read article More on this topic More by this author

Blog Post

European governance

Does the war in Ukraine call for a new Next Generation EU?

The European Union should take significant economic measures in response to the war in Ukraine, but a new Next Generation EU is not needed yet.

By: André Sapir Topic: European governance Date: May 17, 2022
Read article

Blog Post

The EU needs transparent oil data and enhanced coordination

The EU lacks the coordination structure and transparent data necessary to most effectively navigate an embargo on Russian oil.

By: Agata Łoskot-Strachota, Ben McWilliams and Georg Zachmann Topic: Global economy and trade, Green economy Date: May 16, 2022
Read article

Blog Post

Now is not the time to confiscate Russia’s central bank reserves

The idea of confiscating the Bank of Russia’s frozen reserves is attractive to some, but at this stage in the Ukraine conflict confiscation would be counterproductive and likely illegal.

By: Joshua Kirschenbaum and Nicolas Véron Topic: Banking and capital markets, Global economy and trade Date: May 16, 2022
Load more posts