Foreign direct investment: A catalyst for local firm development?

Foreign direct investment (FDI) is recognised as a mechanism by which a host country can upgrade the competitiveness of its resources and capabilities. In the extant literature, empirical assessment of the impact of FDI on development has tended to focus on the aggregate effects associated with capital, employment and technology transfer, without a corresponding emphasis on the longer-term impacts on firm upgrading. In this article, we investigate the effects of inward FDI at the level of the firm, within the context of a small, developed country. Statistical analysis highlights key relationships between resource flows from parent to affiliate, and a) competitive advantage of the affiliate, and b) resource transfer to local firms via linkages. The findings provide evidence that local firm development occurs as a result of direct resource transfer, both within the multinational enterprise and between the affiliate and host country firms. © 2004 Taylor & Francis Ltd.