Foreign Investment in the Foreign Sector in the Russian Far East and Potential Market Integration with Northeast Asia

Tak, K. (1994). Foreign Investment in the Foreign Sector in the Russian Far East and Potential Market Integration with Northeast Asia. IIASA Working Paper. IIASA, Laxenburg, Austria: WP-94-092

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Abstract

Located in one of the world's most resource-rich regions, the Russian Far East suggests major potential interactions with some of the fastest growing economies in Northeast Asia, namely, Japan, Korea and China. Russian economic reform and opportunity for foreign direct investment have increased the chance of realizing such potential.

The primary purpose of this paper is to investigate the role of South Korean investment in developing the forest resources of the Russian Far East and exporting the raw materials produced to Japan and South Korea. The secondary purpose is to investigate the opportunities for and constraints on the realization of the potential economic complementarity present among the three countries. The Russian Far East could help Japan and South Korea to increase the security of resource supply for the two countries' economies, whereas the Russian Far East could take advantage of these countries' capital and technology to speed up regional economic development and the region's integration into the Asia-Pacific economy.

A case study approach is used for the analysis in this study. The South Korean-Russian forestry joint venture Svetlaya was selected for this purpose. The case study reviewed the joint venture's three year operation through interviews both on site at Svetlaya and in the head office of the Korean investor in Seoul. The interviews were further supported by a field visit to the joint venture's project site in Svetlaya, Primorskiy Kray.

This paper suggests that foreign direct investment is the most powerful agent to realize the resource potential as well as to increase the export of the produced raw materials, though some negative attitudes towards foreign investment in the Russian Far East, as exhibited in the case study, need to be overcome. This study also concludes that a definite interest in forestry investment exists in the Russian Far East, though political and economic instability are the largest barriers to attracting foreign investments in the short term. A broad vision, other than maximizing short-term financial gain, is required for future forestry investments in the region.

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