Fdi in Lithuania

Foreign Direct Investment (FDI) occurs when a firm invests its resources in business activities outside its country (Hill, 2002, pp. 8). This essay willing critically evaluate the impact of inward FDI in an emerging economy of Lithuania. First it will be looked at the impact of FDI on technical development and its splendor 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 public exposure plays central role in the process of sparing development (Borensztein, 1995). Emerging economies domestic exploitation rates ar 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 engine room b y 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 original 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 limit 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 fresh 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. One of them was US based MNC Williams International, whic h promised reconstructing the refinery. However due to legal reasons acquisition was stopped and new investor from Russia came. Yukos promised to modernize and bring Mazeikiu Naftas production to western markets. One of the biggest projects with Yukos was the completion of Bugtine Terminal for crude oil export and import. One of other positive contributions of FDI to a host economy is the upply of capital, management techniques and skills. MNCs have world vide feeler to individuals with more advanced skills and knowledge. Local employees can easily transfer knowledge and skills from more advanced companies to topical anaesthetic firms or even set their own firms. unseasoned organizational practices and management techniques are also brought to country with FDI. Local firms copy them in no time. This happened in Lithuania. Latvian alliance Double-Coffee opened their restaurant in Lithuania, because there was a good market opportunity as there were no other coffee shops.Pretty soo n there were other local anaesthetic coffee restaurants and coffee shops that opened for instance Coffee Inn. This was a clear result of knowledge transfer by FDI. FDI by Latvian company 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 way 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 gain 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 some negative ones too. In foodstuff store market some foreign MNCs came into the country which have greater economic power than some local ones. Swedish Rimi Baltic was one of the offset 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 social costs could outweigh the social benefits. Other small town local shops were also crowded out because they simply couldnt offer same variety of goods. Crowding out in this sector in Lithuania can chat a long-term cost on its economy it if holds back 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 some loss of economic independence. Key decisions that may affect economy are now made by MNCs controlling such important sectors as for example oil refinery or grocery store industry. The concern is that the governments has no square influence over this. For such as small economy a Lithuanias this is a threat, because foreign MNCs have no real commitment to the country, up to now 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 evidence was provided to donjon statement 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. cast out impacts on the economy of Lithuania were also mentioned and the example of grocery stores was provided. References Borensztein, E. & De Gregorio, J. Lee, J-W. , (1998). How Does Foreign Direct Investment Affect Economic Growth? Journal o f 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. Lideika, Petrauskas and Valiunas, Doing business in Lithuania (http//www. lexmundi. com/images/lexmundi/PDF/guide_lithuania. pdf) Accessed 30/11/2009Mazeikiu nafta AB annual report, (http//www. orlenlietuva. lt/repository/pdf/reports/Annual99. pdf) Accessed 07/12/2009 Mazeikiu Nafta (http//www. randburg. com/li/maznafta. html) Accessed 07/12/2009 New Nations, (http//www. newnations. com/Archive/2002/November/lt. html) Accessed 07/12/2009 OECD, Reviews of Foreign Direct Investment, Volume 13, Lithuania RIMI Lietuva, (http//www. rimi. lt/apie-rimi/rimi-lietuva/rimi-istorija/199) Accessed 05/12/2009 UAB IKI (http//www. iki. lt/lt. php/apie/dabar) Accessed 05/12/2009 World Inv estment Report (1999), UNCTAD.