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July 19, 2011

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Mark

Nice post, Anatoly, and thanks for the shout-out! Congratulations on getting published in such a prestigious forum. I see Mr. Putin is claiming 2007-level (pre-crisis) FDI inflow for Russia year-over-year for the first half of 2011, at over $27 Billion: up 39 percent. Not too shabby, although - as we've generally agreed - FDI is very difficult to quantify; so much so that many economists struggle with it.

http://en.rian.ru/business/20110720/165298144.html

I noticed that in an earlier article, Jesse Heath criticized Putin's figures from a previous such announcement and suggested he was high (figuratively speaking), by billions. We've discussed before that money claimed by Russian government figures as FDI has sometimes been reinvested profits from foreign-shareholder companies operating in Russia (which, to my mind, qualifies as FDI), new investments from outside the country in start-ups or in expanding current operations in Russia (ditto), and money the government simply invested from its reserves to make FDI look healthier (which probably doesn't qualify as FDI simply because it isn't foreign in any way, although investment in Russian companies that isn't stolen or misused unquestionably does help them). What is described as Capital Flight is similarly misunderstood, as there are all kinds of legitimate and profitable reasons for capital outflow from a country, an obvious and sensible one being portfolio diversification.

You can muddy the waters easily where both subjects are concerned, because even economists appear not to understand them that well, assuming they're not deliberately introducing doubt for partisan reasons. But it would be interesting to see a breakdown (which to date I have not) for Mr. Putin's claimed 39% rise from last year in FDI, because few can argue with economic performance which has already occurred.

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