Foreign direct investment and technology change

Abstract

Paper focuses on foreign direct investment (FDI) in manufacturing in the Czech Republic, Hungary, Poland and Slovakia (CECs), where FDI penetration jumped to remarkable high levels in recent years. Foreign investment enterprises are more profitable, export oriented and technologically superior compared to domestic companies. FDI is perceived as a main channel of technology transfer and potential source of spillovers in host economy, though, estimates of technology transfer show mixed picture in the CECs. FDI spurs restructuring and productivity growth in foreign investment enterprises but FDI rather crowds-out domestic companies as spillovers are confirmed only to domestic companies with sufficient technological absorptive capacity. Paper concludes with some policy implications regarding FDI promotion and innovation policy.