Abstract

The former Soviet republics share a common imperial legacy and remain entangled with Russia through trade, energy, and political alliances. Yet the extent to which this entanglement affects foreign direct investment (FDI) from third countries has received little empirical attention. This paper examines whether trade with Russia influences FDI inflows into thirteen post-Soviet economies from 1992 to 2023, using panel data and instrumental-variable methods to account for endogeneity.

The results reveal a clear asymmetry: dependence on Russian imports significantly deters FDI. A one-percent increase in per capita imports from Russia reduces FDI (as a share of GDP) by approximately 1.15 percentage points in the short run, with effects concentrated in non-European countries (Central Asia and the Caucasus). This finding suggests that import reliance signals to international investors a structural vulnerability—an exposure to a dominant supplier whose economic and political leverage creates uncertainty about future policy stability, supply-chain resilience, and institutional autonomy. In contrast, exports to Russia show no significant aggregate effect, but regional disaggregation uncovers striking heterogeneity: exports from European post-Soviet states (the Baltics, Moldova) harm FDI, while exports from non-European states attract it. The former likely reflects investor perceptions of political alignment with Russia; the latter probably captures Russian outward investment into dependable partner economies.

These results underscore that Russia is not an ordinary trade partner in the post-Soviet space; it embodies geopolitical weight that shapes investment climates. The paper contributes to debates on regional integration, dependency theory, and the political economy of FDI in transition economies. It also speaks directly to the conference theme of “Power” by demonstrating how asymmetric economic ties translate into perceived risk for global capital. For policymakers, the findings highlight the importance of diversifying trade partners and strengthening institutional safeguards to mitigate geopolitical risk and enhance investment attractiveness.