Foreign direct investment (FDI) has long been seen as a crucial instrument in the process of transforming the former centrally planned economies of Eastern Europe into vibrant market systems. This paper analyze direct (as a capital inflow) and indirect impact of FDI inflows on economic growth of transition countries during 1990s. The main conclusion of this paper and a recommendation for policy makers is that FDI does not in every situation bring long-term benefits for the host countries. By improving the absorptive and adaptive capabilities of domestic firms and by adopting more active policies toward FDI, the development effects of FDI inflows are more likely to occur.
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