The purpose of the article is to analyse and assess the economic effects of direct foreign investment of two kinds: buy-out of a part of domestic enterprises and greenfield investments in conditions of some deficiencies in the local production markets. The analysis presented in the article has been based on an extended theoretical model of general equilibrium developed by Batry (1986), which indicates three production factors: work, capital and knowledge.

In the case when activities carried out by international corporations are more intensive in terms of the capital invested than the activities of domestic companies and know-how coming from abroad can be taken over in full, this take-over by the foreign investors without any transfer of capital from abroad leads to a decline in employment and national revenue in the host country. The above-mentioned effects may not take place if foreign know-how can be diffused among domestic entrepreneurs. Transfer of capital from abroad leads unambiguously to an increase in employment and hence the revenues in the host country.