Scientific paper ID 1410 : 2016/2

FDI is associated with many positive effects on economic growth in transition economies, especially in the case of insufficient competition on domestic markets, but provided that no monopoly positions of MNCs subsidiaries are allowed by policy-makers in the host country. Multinational Corporation (MNCs) sometimes take advantage of their economic power and create distorting conditions in which domestic firms are not able to compete. However, the macro- and micro-economic conditions within the country also may impact the emergence and extent of these theoretical effects. Economic theory asserts that FDI may have several positive effects: immediate increase in productivity following takeover by foreign investors, and spillover effects on the rest of the economy through technology transfer, human capital development and the shaping of a more competitive environment. Increased competition provides for the reallocation of resources, stimulates firms to be more productive, and furthermore invest in physical and human capital. Through labour training and transfer of managerial skills domestic firms “import” significant for them organisational knowledge and labour skills, which have a positive effect on productivity of domestic firms. Technological upgrading is also reinforced by domestic firms desire to switch from the available to the MNCs technologies.