The Macro-economic Consequences of the Inflow of Direct Foreign Investments for the Host Country

This article investigates the macro-economic effects of the inflow of direct foreign investments for the economy of the host country with the use of a three-factor model of general equilibrium. In the analysis three kinds of effects connected with the activity of international enterprises were distinguished: technological change, capital transfer and the diffusion of knowledge. This allowed to establish in what conditions the activity of these enterprises is advantageous for the host country. It was shown that the position of the employees in the host country may get worse as a result of the starting up of activities by foreign investors in the situation when their commitment is limited only to the transfer of knowledge from abroad and the technology used is more capital-intensive than that of the rest of the economy. In the remaining cases, when the activity of international enterprises is accompanied by an inflow of capital and knowledge diffusion, the real wages increase.