Introduction of Fdi to Uzbekistan

In 1991 the Soviet Union collapsed and each former Soviet republic undertook the task of structural change of the economy from socialist to capitalist system. Departure point of the transition process for all the post Soviet economies was very similar. The states started out with set industrial base, relatively educated workforce and satisfactory infrastructure. However under centrally planned economic regime companies got used to forced resource transfer, set prices and absence of free entry to and exit from a market. Thus the existing companies could hardly succeed with the alteration of operation rules to those of free market. They lacked entrepreneurial and innovation skills, they could not react efficiently on price signaling, and were not capable to sustain under fair competition. As a result in 1992 the level of gross domestic product (GDP) started to decline significantly. The majority of countries, i.e. Azerbaijan, Belarus, Russia, Kazakhstan, Kyrgyzstan, managed to reach real GDP level of 1991 only in the beginning of the 2000s (UNCTAD, 2012). Moldova and Tajikistan still have not succeeded in this task.

Economic growth, reduction of the unemployment and inflation rates along with infrastructure modernization, reforms in legal and ownership systems were the top problems for transition СIS countries in the early 1990s. Foreign direct investment (FDI) was found to be a potential stimulator of economic growth. Vu, et al (2008) determined a particularly strong influence of FDI on the development of manufacturing sector in Vietnam and China. De Mello (1999) and Orensztein et al (1998) suggested that the extent of positive FDI contribution to the economic growth depends on quantity of skilled labour in host country. As it was mentioned above skilled labour force is an asset of all former Soviet republics. In its turn Alfaro (2003) found that FDI has an ambiguous effect on host country economic growth. Capital inflows into primary sector tend to have a negative effect on growth, while those into manufacturing sector have positive spillover. Balasubramanyan et al (1996) find that FDI enforces economic growth and its effect is relatively stronger for countries that pursue outward oriented trade policy.

New technology brought by multinational companies and potential enhanced international trade integration is only a short-run portion of FDI advantages for a host country. The vital spillover is knowledge about production methods, product design, and new organizational and managerial techniques. It is a crucial long-run investment into the development of the transition countries. This knowledge is acquired not only by the direct employees and partners of the multinational companies, but also by all other market participants through imitation.

Spillovers of FDI are beneficial for the economic growth enhancement, modernization of the production techniques, market operation and human capital. The transition countries