FDI and Innovation in the Course of Transition

The paper documents. the changes in innovation generation patterns and approaches the effects of foreign ownership on the technological intensity of production in Central and Eastern Europe. We find that country-specific factors play a determinative role in the amount of FDI received and in the technological intensity of production by foreign affiliates. We speculate that sectors with more foreign investment are not necessarily associated with the higher innovation propensity in Hungary and Russia. We conclude that while indigenous science and R&D complexes have been deteriorating, inflows of FDI may contribute positively towards the re-building of national innovation systems if co-ordinated by government policy.