DIME Second Research Activity Line (RAL2) The Creation, Accumulation and Exchange of Knowledge in Networks, Sectors and Regions Working papers Series Regional Dimension of the Impact of Foreign Direct Investment on the host economy: a case of Ukraine Victoria Kravtsova Vienna Institute for International Economic Studies (WIIW) Oppolzergasse 6 A-1010 Vienna, Austria
[email protected] Abstract This paper contributes to the methodology of evaluating the impact of FDI on the host country by taking into account the impact of FDI on the regional level. The methodology also accounts for both impact on the technical and efficiency change of domestic firms. The empirical analysis of the economic development with regard to FDI in Ukraine suggests that foreign presence has positive impact on the efficiency change of domestic firms in the Eastern regions of Ukraine, but has a negative effect on the technical change of the firms. At the same time there is a positive spillover effect on the firms operating in the Western regions of Ukraine in terms of technical change. Different impact of foreign presence on the performance of firms in two parts of Ukraine might reflect deep institutional divergence of the West and the East. Key words: FDI, Regional Spillover Effect, Malmquist Productivity Index JEL codes: C67, D24, F2, O3 1. Introduction Some economists argue that internationalization has reduced the importance of national borders and that “the advanced nations have come to share a common technology” (Nelson and Wright, 1992). However, the results of empirical analysis of technology creation and transmission by large corporations to different countries are ambiguous.