ABSTRACT
Economic theory suggests that foreign direct investment (FDI) can generate positive spillovers to domestic firms in the host country. And since multinational corporations (MNCs) are an important source of international capital and technology, their entry can facilitate the transfer of technical and business know-how resulting in productivity gains and competitiveness among local firms. These spillover effects develop through best-practice demonstration and diffusion, or through the creation of linkages with foreign and domestic firms becoming either suppliers or customers, or through the movement of experienced workers from foreign to local firms. The entry of MNCs may also increase competition and force domestic firms to imitate and innovate.
