The transition form a centrally planned to market economy in the Russian Federation has been a dynamic period in the country's development. Within the time frame 1992-2009, Russia's economy has been characterized by a marked lack of stability, high uncertainty, and insufficient transparency in the financial markets. Efforts to improve the efficiency in the manufacturing sector have been futile, as the country has had to rely primarily on its extractive sector, capitalizing on the oil and natural gas assets throughout its large territory. In addition, the legal system during the two terms of Boris Yeltsin was in stagnation, and only Vladimir Putin's reforms after 2000 achieved mediocre success in this field. The shocks in 1998 and 2008 have also exerted their impact on the Russian markets, slowing development significantly. As a result of these events, foreign direct investment in the Russian Federation has undergone dynamic changes in the past eighteen years. Despite the rapid surge in FDI in the period 2004-2007, the Global Financial Crisis has curbed its growth. Still fighting the effects of the credit crunch, Russia is currently in the process of recovery, attempting to attract a substantial number of foreign investors.
In this paper, I will argue that foreign direct investment in the period 1992-2009 has been determined by a combination of economic and political factors, including trade and tariffs, GDP, inflation, the size of the market, labor costs, the fiscal balance, the exchange rate, agglomerations effects, infrastructure, and the methods of privatization. I will also contend that the global financial conditions have had a relatively minor impact on the development of FDI and the primary Factors are, in effect, endogenous. A linear regression with ordinary least squares and selected independent variables can provide a forecast for the levels of FDI in the future. In order to correct for autocorrelations, I will utilize the ARIMA approach, as well. Finally, I will provide a viable prediction for the levels of FDI in the next few years.