We study how innovations affect increase of regional TFP as a result of productivity spillovers from FDI, and confirm the presence of phenomenon in Russian data. We model TFP using DEA with the human capital, energy and and capital as inputs and the gross regional product as output. We develop innovations index for the regions of the RF, which proxies for regional absorptive capacity, based on 17 variables, characterizing economic, social and infrastructural aspects of regional development. FDI is measured as the the sum of ratios of sales of firms with FDI to the total sales in the region times squared distance to neighboring regions.
(Published in Review of Business and Economic Sciences, 2(3), September 2014)