ABSTRACT
There has been a voluminous literature on the direct and indirect effects of foreign multinationals on host economies. Direct effects stem from the superior characteristics of multinational firms compared to those of domestic ones: affiliates of multinationals firms tend to be larger and more productive, internalize greater technological know-how and modern management practices and they attract skilled labour by paying wages higher than domestic firms (Doms and Jensen, 1998). In addition to these superior characteristics, the presence of affiliates of multinationals generates indirect effects on domestic firms through competition in the marketplace as well as spillover effects through pecuniary and knowledge externalities (Blomström and Kokko, 1998).
