Foreign Direct Investment in the Emerging Economy of Lithuania

Topics: Investment, Economic development, Economy Pages: 4 (1113 words) Published: April 25, 2010
Foreign Direct Investment (FDI) occurs when a firm invests its resources in business activities outside its country (Hill, 2002, pp. 8). This essay will critically evaluate the impact of inward FDI in an emerging economy of Lithuania. First it will be looked at the impact of FDI on technological development and its importance for a country, particularly in Lithuania. Further discussion will be carried to effects on competition and its development, some negative side effects will be mentioned. Later it will be looked at what effect FDI has on Lithuanian national sovereignty and autonomy. Finally conclusions will be provided.

Technological diffusion plays central role in the process of economic development (Borensztein, 1995). Emerging economies domestic growth rates are highly dependent on the growth rates of the rest of the world. Therefore, economic growth rates of emerging economies such as Lithuania depends on the extent of a “catch-up” process in level of technology by adopting and implementing it from leading countries such as for example United States. The main reason is that developing countries lack their own resources in developing own indigenous product and process technology. Such countries must rely on FDI by advanced industrialized nations and multinational corporations (MNCs) for much of technology required to stimulate economic growth. Findlay (1978) claims that FDI increases the rate of technical progress in the host country. Lets look at the example of Mazeikiu Nafta - the largest oil refinery complex in the Baltic region. Lithuania was not able to keep up with technological advances, therefore from early 1980 it had to trust on FDI from other countries. Back then with help of Soviet Union it was one of most modern oil refineries. Later on after the collision of Soviet Union Lithuania was unable to keep up with technological changes so it started inviting foreign investors. One of them was US based MNC Williams International, which...

References: Borensztein, E. & De Gregorio, J. & Lee, J-W., (1998). "How Does Foreign Direct
Investment Affect Economic Growth?" Journal of International Economics, vol.
UAB “IKI” ( [Accessed: 05/12/2009]
World Investment Report (1999), UNCTAD.
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