Technology-Intensive FDI and Economic Development in A Small Country – The Case of Estonia

Abstract. This article reviews the role of foreign direct investment in industrialisation of various catching-up economies and draws based on this lessons for policy-making in small countries. The author states that the introduction of proactive foreign investment strategy is one of the most effective means in a small country to rapidly increase the knowledge intensity of the economy. However, the Estonian innovation policy, similarly to most of the EU new member states, has underestimated the power and role of such proactive strategies. The author calls for much better focusing of the activities of foreign investment agencies and closer co-ordination of FDI strategies with education, research, employment and other policies.