Fdi in Lithuania

outside(prenominal) Direct Investment (FDI) occurs when a firm invests its resources in line of credit activities outside its country (Hill, 2002, pp. 8). This essay go out critically evaluate the force of inward FDI in an emerging economy of Lithuania. First it will be looked at the impact of FDI on scientific growth and its importance for a country, particularly in Lithuania. Further discussion will be carried to effect on competition and its development, any(prenominal) negative side personal 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 swear out of economic development (Borensztein, 1995). Emerging economies domestic growth rate are highly dependent on the growth rates of the rest of the world. Therefore, economic growth rates of emerging economies much(prenominal) as Lithuania depends on the extent of a c atch-up do by in take 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 suffer resources in developing own indigenous product and process technology.such(prenominal) countries must rely on FDI by advanced industrialized nations and transnational 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 vegetable 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 new(prenominal)(a) countries. mainstay then with help of Soviet articulation it was one of most advanced(a) oil refineries.Later on after the collision of Soviet Union Lithuania was unable to keep up with technological changes so it started inviting immaterial investors. cardinal of them was US based MNC Williams supranational, which promised reconstructing the refinery. However due to legal reasons acquisition was halt and new investor from Russia came. Yukos promised to modernize and bring Mazeikiu Naftas production to western commercializes. angiotensin converting enzyme of the biggest projects with Yukos was the completion of Bugtine Terminal for crude oil exportation and import. One of other autocratic contributions of FDI to a host economy is the upply of nifty, steering techniques and skills. MNCs have world vide access to individuals with more advanced skills and knowledge. Local employees tin easily transfer knowledge and skills from more advanced companies to topical anesthetic firms or even set their own firms. New organizational practices and management techniques are also brought to country with FDI. Local firms copy them in no time. This happened in Lithuania. Latvian confederation Double-Coffee opened their restaurant in Lithuania, because there was a good market opportunity as there were no other burnt umber computer memorys.Pretty soon there were other local coffee restaurants and coffee shops that opened for instance Coffee Inn. This was a get along about result of knowledge transfer by FDI. FDI by Latvian familiarity had an effect on competition and economic growth of the industry. Adequate level of competition leads to efficient functioning of a market. With different coffee shop brands in Lithuania consumer choice has increased, therefore prices have been driven down this trend the economic welfare of consumers was increased.Increased competition tend to stimulate capital investments by firms in plants, equipment, and R&D as they struggle to raise an edge over their rivals (Hill, 2002, p217). FDI in coffee shop industry had a positive impact on service quality, because here export was not an option so it had to be produced where it is delivered. Despite all the positive effects FDI had most negative ones too. In food market insert market roughly foreign MNCs came into the country which have greater economic power than some local ones. Swedish Rimi Baltic was one of the first big MNCs to come into this sector, then IKI followed.They have crowded out local grocery store Lenstata. Lenstata was unable to reach maturity for full competitiveness against foreign competition, the maturig process also didnt take that long so that the discounted preset brotherly costs could outweigh the social benefits. Other small town local shops were also crowded out because they simply couldnt offer corresponding variety of goods. Crowding out in this sector in Lithuania brook impose a long-term cost on its economy it if holds prat the development capabilities or retards the growth of local innovative base. FDI in Lithuania has some negative impacts on national sovereignty and autonomy.FDI from Yukos, Rimi Baltic or other MNCs can cause s ome loss of economic independence. Key decisions that may affect economy are now made by MNCs lordly such important sectors as for example oil refinery or grocery store industry. The concern is that the governments has no actual influence over this. For such as small economy a Lithuanias this is a threat, because foreign MNCs have no real commitment to the country, however very real impact on its economy. To conclude, this essay has looked at what impact does FDI have on Lithuanian emerging economy.Using various sources separate was provided to support dictation that technological development has an effect on countries overall development. The case of Mazeikiu nafta was mentioned, evidence on what impact foreign MNCs on companys technological development have was provided. Further discussion was brought to economic impact, example of what positive impact did FDI from Latvian MNC have on Lithuanian coffee market was given. Negative impacts on the economy of Lithuania were also m entioned and the example of grocery stores was provided. References Borensztein, E. & De Gregorio, J. Lee, J-W. , (1998). How Does contradictory Direct Investment Affect Economic Growth? Journal of International Economics, vol. 45(1), pages 115-135 Coffee Inn, (http//coffee-inn. lt/blog/apie) Accessed 05/12/2009 Double Coffee , (http//www. doublecoffee. lv/eng/company/history/) Accessed 05/12/2009 Hill, Charles W. L. (2009) International Business Competing in the Global Marketplace, 7/E, McGraw-Hill Irwin. 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