The impact of FDI on the host economy

The volume of foreign direct investment (FDI) in CEE countries has been in- creasing in the past twenty years. It has generally been encouraged by domestic governments because the presence of a foreign rm is considered to have a strong potential to improve domestic economic conditions, among other the performance of domestic rms. Empirical studies of the actual impact of FDI on domestic rms, however, present rather ambiguous results. I argue that this is due to some limi- tations of prevalently used methodology, which does not separate the FDI spillover eects from the changes in competitive environment faced by domestic rms. In my research, I propose a novel estimation strategy that allows me to disentangle FDI spillovers from the eects of competition changing in response to the entry of a foreign rm. I consider this issue on the industry level and I compare the eects of FDI to the impact of international trade on the domestic economy. My identication strategy leads me to conrm the presence of positive spillovers stemming from FDI