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trade partners. An appreciated currency can reduce the debt servicing requirements
of loans in foreign currencies (Stephan 1999: 214).
Depending on demand elasticities, currency appreciation can reduce inflationary
pressure by lowering the price of imports. This mechanism can not only offset the
negative effects of appreciation-related export price increases by lowering production costs, but it can also contribute to reducing general inflation. This in turn leads
to a reduction in interest rates, prompting increased investment, as the interest rate
falls below the rate of return on investment allowing capital accumulation (Stephan
1999: ibid; Murphy 1998: 7).
Interest rates are also further reduced by TNCs contributing to state revenues, as
the increased tax intake can contribute to lowering budgetary finance requirements.
Likewise positive fiscal effects can also arise through the direct employment effects
of foreign investments, amounting to increases in income taxes as well as to rising
contributions to pension, social welfare and health funds. Similarly, demand effects
on the host economy stemming from goods and services sourced by TNCs can produce indirect positive results. TNC internal demand can stimulate investment, production and employment by indigenous firms and additionally create positive fiscal
results (Murphy 1998: 7).
3.1.2 Microeconomic Effects
Microeconomic effects characterise the envisaged impact of FDI on the production
structure of the economy. TNCs are regarded to be sources for modern technologies
and management techniques. They can be transferred to the economy via backward
and forward linkages between foreign and indigenous firms. The diffusion of these
assets into the rest of the host economy can raise the international competitiveness
of indigenous firms. Hence, they can enable indigenous industry to overcome its
barriers to entry to international economic participation (UNCTAD 1999: 317). The
transmission of technology via FDI allows the creation of hitherto non-existent hightech industries in a country. This poses the possibility for indigenous firms in a peripheral country to “leapfrog” development stages, enabling the country to catch-up
with technologically advanced countries (Klein et al. 2001: 5).
FDI-related gains to the production structure of the host economy can again be of
direct and indirect nature and result from the entry of TNCs into the factor and
product markets of the host economy. Enderwick (2005: 103-105) mentions a total
of 4 direct effects resulting from links between TNCs and the host economy. The
first set of envisaged gains pertains to the industrial structure. FDI can induce the
development of entirely new industries previously not present in the host economy.
Furthermore, TNC engagement can lead to higher value-added production and support industrial diversification. This can enable a backward country to overcome
previous barriers to entry and participate on the world market by producing high
technology products (Enderwick 2005: 103).
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Secondly, FDI can also lead to the increased efficiency of resource use in the host
economy. They can, therefore, additionally contribute to decreasing inflationary
pressure and to increase productivity. This is linked to competition effects of TNCs
entering the factor and product markets and competing for resources and goods.
Furthermore, industrial upgrading via TNC entry can also create efficiency gains by
improving productivity as well as the servicing the host economy with cheaper final
and intermediary products (Enderwick 2005: 104; Markusen/Venables 1999: 346-
347).
Thirdly, indigenous firms acting as suppliers can benefit from TNC demand for
their products or their involvement in TNC production process through the integration of indigenous firms into global TNC production and value chains. These direct
linkages can lead to increased profits and investments as well as technological upgrading (Enderwick 2005: 105). Finally, the host economy’s production structure
can also gain from the technological upgrading of indigenous firms bought by
TNCs. Depending on the market influence of the firm, this in turn can benefit an
industrial cluster or even an entire industrial sector (Enderwick 2005: ibid.).
Indirect benefits accruing from TNC engagement in the host economy follow the
premise of Endogenous or New Growth Theory (Romer 1986; Romer 1990). It attempts to display the role of the diffusion of intangible assets in the form of knowledge in an economy via spillovers or positive externalities in order to explain the
role of knowledge or human capital in capital accumulation (Mankiew 1997: 109;
Kottaridi 2005: 82). In fact, TNCs are seen as one of the key institutions in the diffusion of knowledge and technology into an economy (Ozawa/Castello 2001: 3;
Moran 2001: 45-46).
The aggregate diffusion of technological progress is the result of the import of
technological spillovers via the attraction of TNCs. Technological progress is transmitted throughout the whole economy via its internalisation through competition,
learning and education effects. This diffusion is guaranteed by the co-operation
between indigenous and foreign firms, the existence of demonstration effects of
best-practice in marketing, production methods and knowledge (Enderwick 2005:
106; Fink 2006: 49-50). Similarly, knowledge diffusion can also take place through
the unleashing of agglomeration economies. This effect describes the unintentional
spillover of skills and know-how in industrial clusters between indigenous and foreign firms. Likewise, skills can be transferred by employees changing their workplace from TNCs to local firms (Enderwick 2005: 107).
3.2 Preconditions
However, the sustainability of such a capital-import strategy depends on certain
preconditions. These requirements are interrelated and refer to aspects of monetary,
industrial and trade policy. The first issue is concerned with the construction and
implementation of an attraction strategy in order to locate export-oriented TNCs in
the host economy. The rationale to devise an attraction strategy stems from the na-
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References
Zusammenfassung
Irland und Ungarn verfolgen eine Entwicklungsstrategie, die in bewusster Abhängigkeit von Globalisierungsprozessen in Form von ausländischen Direktinvestitionen steht und sich als Paradigma in der Peripherie durchgesetzt hat. Doch dieser Entwicklungspfad hat zu einer ungleichen und abhängigen Entwicklung geführt. Dies ist laut dem Autor das Resultat des mangelnden Gestaltungswillens beider Staaten, für einen gleichgewichtigen Wachstumsprozess zu sorgen. Die historische Analyse zeigt, dass eine auf ausländische Firmen fußende Entwicklungsstrategie nicht ausreicht, um traditionelle Peripheralität zu überwinden. Der Autor fordert eine Reform des Entwicklungsparadigmas, um eine gleichgewichtige Entwicklung zu ermöglichen.