Innovations as factor of absorptive capacity of FDI spillovers across regions of Russian Federation

We study how innovations affect increase of regional total factor productivity (TFP) as a result of productivity spillovers from foreign direct investment (FDI), and confirm the presence of phenomenon in Russian data. TFP is modeled using data envelopment analysis (DEA) with the human capital, energy and capital as inputs, and the gross regional product as output. We develop innovations index for the regions of the RF, proxying for regional absorptive capacity, based on 17 variables, characterizing economic, social and infrastructural aspects of regional development. FDI variable accounts for spatial distribution of FDI flows. We confirm the presence of FDI spillovers in Russia and moderating role of innovations.