Foreign direct investment (FDI) remains a cornerstone of global economic resilience amid rising uncertainty and geopolitical tensions. Between 2005 and 2024, the ratio of FDI stock to GDP in OECD countries increased from 22% to 53%, underscoring the growing importance of cross-border investment in sustaining growth and productivity. This upward trend reflects the deep integration of economies into global investment networks and highlights the pivotal role of multinational enterprises (MNEs) in enhancing competitiveness, fostering innovation, and generating potential knowledge spillovers to domestic firms.
In the Baltic economies, FDI has been instrumental in supporting economic growth and productivity convergence with the EU, particularly in sectors like information and communication technology (ICT), manufacturing, and financial services. The share of FDI in GDP has risen markedly across all three countries, reaching 95.4% in Estonia, 63.4% in Latvia, and 49.2% in Lithuania in 2023. Deepening integration into global value chains (GVCs) has further strengthened access to foreign markets, capital and knowledge, reflecting the region’s high degree of openness and competitiveness. This integration has created favourable conditions for domestic firms, notably SMEs, to step into higher value-added activities.
However, substantial scope remains to strengthen local linkages across the region, as many foreign affiliates remain weakly integrated into local supply chains, limiting spillovers and collaboration opportunities. At the same time, SMEs often lack the capabilities, standards, and resources needed to partner with MNEs, while coordination between investment, SME, and innovation policies remains limited. As a result, FDI has boosted aggregate productivity but contributed less to productivity convergence and upgrading among local firms.
Strengthening FDI-SME linkages could amplify the contribution of FDI to inclusive growth and productivity. When appropriate diffusion channels and enabling conditions exist, FDI can enhance SMEs’ innovation capacity, product quality, and international competitiveness. Greater policy coherence across investment, SME, and innovation frameworks is needed to foster these linkages, build absorptive capacities, and promote mutual upgrading between foreign and domestic firms.
This report provides an assessment of FDI and SME linkages in the Baltic countries and proposes policy options to improve their contribution to productivity and innovation. It provides a diagnostic assessment of the enabling conditions for FDI spillovers on Baltic SMEs and explores the extent to which spillover channels are at play. It also assesses Baltics’ institutional environment and policy mix across the areas of international investment, SME development, innovation and regional development.
The report was jointly developed by the OECD Committee on SMEs and Entrepreneurship and the OECD Investment Committee and contributes to their respective Programmes of Work. The report was approved by written procedure by the two Committees on 12 November 2025.