This paper looks at the impact of foreign direct investment on host country firmsÕ capabilities, industry competitiveness, and long-term economic development. Focussing on the case of Portugal over a period of three hundred years, it develops a framework of the types of knowledge spillovers, based on the behaviour of, and the interactions between, foreign investors and local players. This study argues that the impact of FDI in Portugal has evolved in stages, from closed to interactive approaches, increasing the learning by local players. These ultimately lead to the long-term upgrade of firmsÕ capabilities, industry competitiveness, and host country economic development.
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