Foreign Direct Investment and the Development of Local Firms

Abstract

This paper aims to investigate the influence of foreign direct investment (FDI) on the development of local firms with a special emphasis on countries in Central and Eastern Europe. Findings are twofold: FDI may hinder the growth of local firms if it impedes their innovation capacity and contributes to their crowding out, or it can foster their growth in the long run by establishing strong linkages. The outcome depends on the particular context in each country. Therefore, policy-makers need to enact sensitive measures to balance the relationship between FDI and local firms.