The Model Of Economic Growth Based On Production Functions

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2. The model of economic growth based on production functions (the Welfens/Jasinski model and its modifications). To show how FDI influence economic growth of a particular country a model proposed by P.Welfens and P.Jasinski is used. It is based on traditional production functions.
In general the production functionsof Welfens and Jasinski describing the economic growth in the recipient country can bedefined by the following equation[61, p.254]:


where “Y” is an output (GDP or GNP); “K” is fixed assets of local origin (domestic fixed assets); “H” is fixed assets of foreign origin (foreign fixed assets); “L” is the number of employed in the national economy; “z” is the rate of technological progress; “β” is statistically evaluated
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Secondly, in the basic structure of the production function (1.9) proposed byWelfens and Jasinski, domestic fixed-capital and foreign investmentsare supposed to be equally effective, which, as mentioned above, contradicts the observed facts.
Thirdly, the production function of Welfens/Jasinski includes multiplier of scientific and technological progress, which depends on the overall macroeconomic situation and in no way connected with the inflows of FDI. At the same it is obvious that foreign investment primarily perform the function of transferring technological and managerial innovations to the economies of the recipient countries.If we take into consideration the institutional changes in the economy, then they should also reflect the effects related to the openness of the national economy to foreign investments from abroad.
Fourthly, a set of the factors that affect the rate of scientific and technological progress in
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