Investigating the effects of foreign direct investment (FDI) on Croatian business

Abstract

Technological innovation plays a critical role in economic growth. The most advanced and new technologies are created by leading firms in developed countries. Global expansion, strategic outsourcing or off-shoring in leading companies has been growing to enrich their competitive advantage, while technology transfer of leading firms has been of more interest to emerging or developing countries for catching up and following the trajectory of economic growth proved in developed countries. Among various channels to acquire new technologies from leading firms, foreign direct investments (FDI) is one of the most effective channels through which technology can be transferred to subsidiaries in emerging markets. However, empirical study on the roles of technology transfer and the feedback loop from FDI remains still scarce. Thus, the purpose of this study is to analyze the effects of FDI on businesses in partial or complete foreign ownership, with a special emphasis on technology transfer, and to assess the impact of foreign companies on domestic firm performance through technology transfer from foreign companies. This paper aims at investigating the investment climate for foreign investments and intensifying technology transfers and innovations in the Croatian economy. 145 firms responded to the survey we conducted for foreign investment enterprises in Croatia. Structural equation model is employed to examine the hypotheses with respect to effects of FDI on innovation activities of domestic Croatian firms. This study identified critical factors affecting technology innovation to Croatian firms. The results provide empirical evidence that the innovation activities in subsidiaries have a positive influence toward technology transfer from multinational corporations.