Abstract

Multinational enterprises exist because they hold certain competitive advantages over their local counterparts
and affect local economies through their spillover effects. Research streams exploring the raison d’ etre and
consequences of MNEs are quite distant and remote. This paper analyzes and integrates these two streams of
literature, i.e. the competitive advantages that MNEs hold and their spillover effects in developing countries. The
paper proposes a relationship and predicts the nature of spillover effects on the basis of competitive advantages
of MNEs. This paper can guide the policymakers of developing countries to differentiate between the FDI that is
good for their countries and FDI that weakens the already fragile economies of developing countries. The paper
also opens a new avenue for the researchers by pointing towards a potential connection between MNEs’
competitive advantages and their spillover effects for the local economies. The relationship between FDI and
competitive advantages of MNEs has rarely been researched previously and thus this paper contributes
significantly to the existing literature.

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