Trying to explain economic growth is one of the fundamental questions in economics and has generated a large body of research. The importance of technology for economic growth provides an important link between FDI inflows and host country economic growth. It is theoretically straightforward to argue that FDI inflows have a potential for increasing the rate of economic growth in the host country. Inflows of physical capital resulting from FDI could also increase the rate of economic growth but it is argued in this paper that the most important effect comes from spillovers of technology. MNE operations in the host country can result in technology spillovers from FDI whereby domestic firms adopt superior MNE technology which enables them to improve their productivity. Technology spillovers thereby generate a positive externality that should allow the host country to enhance its long-run growth rate.

foreign direct investments, technology spillovers, competitiveness, economic growth