The impact of Scandinavian inward foreign direct investment on the Baltic States

Abstract

Although foreign direct investment (hereinafter FDI) has been the matter of discussion since the early 1970s, it is still one of the most controversial topics in both economic and political terms. The intensity of FDI shows the host country’s openness to the foreign capital, its integration into the international market and economic growth. The proponents of the positive attitude state that foreign capital increases competitiveness and labour productivity in the host country and creates new jobs and the host country adopts new technologies. Other scientists are not so optimistic in respect of FDI impact. Inward FDI may be determined by political decisions of the host government. However, some researchers even point out that stimulation of FDI is harmful for the host economy. FDI promotion is acceptable if indirect initiatives are adopted and an appropriate legal system for controlling multinational corporations’ (hereinafter MNCs) activities exists. It is noticeable that the main negative consequence of activating inward FDI stimulation is that the host economy becomes dependent on a foreign capital over a certain period of time and MNCs have effect on decisions of the host government. Some studies show that the mobility of foreign capital may exist under an imperfect market conditions only. MNCs are likely to invest into economically weak countries benefiting from a low labour cost. Thus, under the present economic conditions, it is important to identify the benefits of FDI for the host country and to analyse MNC motives for investment. The article investigates the importance of foreign direct investment in the country, its role in economic development and promotion peculiarities. The authors examine the problems, which exist in attracting FDI. The object of research is the role of Scandinavian capital in the Baltic States. The aim of research is to measure the impact of Scandinavian foreign direct investment on the development of the Baltic States. The final results reveal that the Baltic States are dependent on foreign capital. These countries are characterised by favourable business environment, good geopolitical situation and infrastructure and scientific-technological potential. This proves that the Baltic States are attractive for MNCs, which tend to invest in R&D. The research indicates that the Baltic States compete for FDI, especially for investors from Scandinavia.