This paper contributes to the methodology of evaluating the impact of FDI on the host country by taking into account the impact of FDI on the regional level. The methodology also accounts for both impact on the technical and efficiency change of domestic firms.

The empirical analysis of the economic development with regard to FDI in Ukraine suggests that foreign presence has positive impact on the efficiency change of domestic firms in the Eastern regions of Ukraine, but has a negative effect on the technical change of the firms. At the same time there is a positive spillover effect on the firms operating in the Western regions of Ukraine in terms of technical change. Different impact of foreign presence on the performance of firms in two parts of Ukraine might reflect deep institutional divergence of the West and the East.