Determinants of MNE Activity in Poland: The Case of Firms from EU-15

Abstract

Objective: The main purpose of this paper is to validate empirically the theoretical predictions of the modified knowledge capital model of multinational enterprise and identify the main reasons for undertaking international production in Poland by foreign firms from the EU-15 countries.

Research Design & Methods: Our theoretical framework refers to the physical capital augmented knowledge capital model that combines both horizontal and vertical reasons for foreign direct investment. The empirical implementation of the theoretical framework is based on the negative binomial model and the bilateral dataset covering 15 old EU member states over the period 1989-2014 which yields a total of 390 observations.

Findings: Our estimation results indicate that the extent of multinational activity in Poland is positively related to both differences in relative factor endowments and similarity in the relative country size which confirms the importance of both reasons for undertaking foreign direct investment in Poland.

Implications & Recommendations: The empirical evidence confirms the predictions of the modified knowledge capital model and points to the horizontal as well as vertical motives for undertaking foreign direct investment in Poland. These findings suggest that government should not try to attract only one type of FDI.

Contribution & Value Added: The originality of this work lies in the empirical implementation of the theoretical framework that allows distinguishing between horizontal and vertical reasons for foreign direct investment.

Keywords

count data, European Union, foreign direct investment, negative binomial model, multinational enterprises, Poland

Supplementary File(s)

References

1. Ancyparowicz, G. (2009). Bezpośrednie inwestycje zagraniczne w Polsce po akcesji do Unii Euro-pejskiej, Zeszyty Naukowe SGGW, Ekonomika i Organizacja Gospodarki Żywnościowej, 77, 89-103.
2. Baniak, A., Cukrowski, J., & Herczyński, J. (2005). On the determinants of foreign direct investment in transition economies, Problems of Economic Transition, 48(2), 6-28.
3. Benacek, V., Gronicki, M., Holland, D., & Sass, M. (2000). The determinants and impact of foreign direct investment in Central and Eastern Europe: A comparison of survey and econometric ev-idence, Transnational Corporations, 9(3), 163-212.
4. Bergstrand, J.H., & Egger, P. (2007). A knowledge and physical capital model of international trade flows, foreign direct investment and multinational enterprises, Journal of International Eco-nomics, 73(2), 278-308.
5. Bergstrand, J.H., & Egger, P. (2013). Shouldn’t physical capital also matter for multinational enter-prise activity?, Review of International Economics, 21(5), 945-965.
6. Bevan, A.A., & Estrin, S. (2004). The determinants of foreign direct investment into European transition economies, Journal of Comparative Economics, 32(4), 775-787.
7. Braconier, H., Norbäck, P.J., & Urban, D. (2005). Reconciling the evidence on the knowledge capital model, Review of International Economics, 13(4), 770-786.
8. Brainard, L.S. (1993a). A simple theory of multinational corporations and trade with a tradeoff between proximity and concentration, NBER Working Paper 4269.
9. Brainard, L.S. (1993b). An empirical assessment of the factor proportions explanation of multina-tional sales, NBER Working Paper 4580.
10. Brainard, L.S. (1997). An empirical assessment of the proximity concentration tradeoff between multinational sales and trade, American Economic Review, 87(4), 520-544.
11. Brenton, P., Di Mauro, F., & Lucke, M. (1999). Economic integration and FDI : An empirical analysis of foreign investment in the EU and in Central and Eastern Europe, Empirica, 26(2), 95-121.
12. Carr, D.L., Markusen, J.R., & Maskus, K.E. (2001). Estimating the knowledge capital model of the multinational enterprise, American Economic Review, 91(3), 693-708.
13. Carr, D.L., Markusen, J.R., & Maskus, K.E. (2004). Competition for multinational investment in developing countries: Human capital, infrastructure and market size. In R.E. Baldwin & A.L. Winters (eds.), Challenges to Globalization: Analyzing the Economics, Chicago: University of Chicago Press.
14. Carstensen, K., & Toubal, F. (2004). Foreign direct investment in Central and Eastern European countries: A dynamic panel analysis, Journal of Comparative Economics, 32(1), 3-22.
15. Chen, Y., Horstmann, I.J. & Markusen, J.R. (2012). Physical capital, knowledge capital, and the choice between FDI and outsourcing, Canadian Journal of Economics, 45(1), 1-15.
16. Cieślik, A. (1996). FDI in Central Europe’s Transition: Early Results, Faculty of Economic Sciences Economic Discussion Paper 28.
17. Cieślik, A. (2006). Why do multinational firms invest in Poland? Horizontal vs. vertical FDI. In The Influence of the Globalisation Processes on Central and Eastern European Region (pp. 379-390). Sopot: Gdańsk University Press.
18. Cieślik, A. (2013). Horizontally-integrated MNE and plant heterogeneity, Bank i Kredyt, 44(6), 605-622.
19. Cieślik, A. (2015a). North-North FDI, exporting and the first mover advantage, Bank i Kredyt, 46(2), 109-128.
20. Cieślik, A. (2015b). Imperfect competition, productivity differences and proximity-concentration trade-offs, Ekonomia, 40, 7-30.
21. Cieślik, A. (2016). Exports versus FDI in Smith-Motta framework, Equilibrium. Quarterly Journal of Economics and Economic Policy, 11(2), 189-218.
22. Cieślik, A., & Ryan, M. (2004). Explaining Japanese direct investment flows into an enlarged Eu-rope: A comparison of gravity and economic potential approaches, Journal of the Japanese and International Economies, 18, 12-37.
23. Cieślik, A., & Ryan, M. (2012). Productivity differences and foreign market entry in an oligopolistic industry, Open Economies Review, 23(3), 531-557.
24. Collie, D.R. (2011). Multilateral trade liberalization, foreign direct investment and the volume of world trade, Economics Letters, 113(1), 47-49.
25. Davies, R.B. (2008). Hunting high and low for vertical FDI, Review of International Economics, 16(2), 250-267.
26. Garibaldi, P., Mora, N., Sahay, R., & Zettelmeyer, J. (2001). What moves capital to transition econ-omies?, IMF Staff Papers, 48, 109-145.
27. Gorbunova, Y., Infante, D., & Smirnova, J. (2012). New evidence on FDI determinants: An appraisal over the transition period, Prague Economic Papers, 2, 129-149.
28. Helpman, E. (1984). A simple theory of trade with multinational corporations, Journal of Political Economy, 92, 451-471.
29. Helpman, E. (1985). Multinational corporations and trade structure, Review of Economic Studies, 52, 443-458.
30. Helpman, E. (1987). Imperfect competition and international trade: Evidence from fourteen indus-trial countries, Journal of the Japanese and International Economies, 1(1), 62-81.
31. Helpman, E., & Krugman, P. (1985). Market structure and foreign trade: Increasing returns, imper-fect competition and the international economy, MIT Press, Cambridge M.A.
32. Helpman, E., Melitz, M.J., & Yeaple, S.R. (2004). Export versus FDI with heterogeneous firms, American Economic Review, 94(1), 300-316.
33. Horstmann, I., & Markusen, J.R. (1987). Strategic investments and the development of multina-tionals, International Economic Review, 28, 109-121.
34. Jasiniak, M. (2014). Bezpośrednie inwestycje zagraniczne w Polsce w warunkach międzynarodo-wego kryzysu gospodarczego, Zeszyty Naukowe Uniwersytetu Szczecińskiego, 804, 793-802.
35. Kemp, M.C. (1962). Foreign direct investment and the national advantage, Economic Record, 38(81), 56-62.
36. Krugman, P. (1983). The ‘New Theories’ of international trade and multinational enterprise. In D.B. Audretsch & Ch.P. Kindleberger (eds.), The Multinational Corporation in the 1980s (Ch.3.). Cambridge MA: MIT Press.
37. Lansbury, M., Pain, N., & Smidkova, K. (1996). Foreign direct investments in Central Europe since 1990: An econometric study, National Institute Economic Review, 156, 104-113.
38. Liberska, B. (1999). Czynniki przyciągające zagraniczne inwestycje bezpośrednie. Wnioski dla Polski z doświadczeń innych krajów, in: Z. Sadowski (ed.), Kapitał zagraniczny w Polsce. Warunki działania (pp. 35-64). Warszawa: PTE.
39. Lizińska, W. (2012). Zmiany motywów podejmowania bezpośrednich inwestycji zagranicznych w Polsce, Prace i Materiały Instytutu Handlu Zagranicznego Uniwersytetu Gdańskiego, 31(1), 673-686.
40. MacDougall, G.D.A. (1960). The benefits and costs of private investment from abroad: A theoreti-cal approach, Oxford Bulletin of Economics and Statistics 22(3), 180-211.
41. Markowicz, I., & Miłaszewicz, D. (2007). Analiza determinant bezpośrednich inwestycji zagranicz-nych w Polsce, Wiadomości Statystyczne, 6, 24-33.
42. Markusen, J.R. (1984). Multinationals, multi-plant economies and the gains from trade, Journal of International Economics, 16, 205-226.
43. Markusen, J.R. (2002). Multinational firms and the theory of international trade, MIT Press, Cam-bridge M.A.
44. Markusen, J.R. (2013). Multinational firms, In D. Bernhofen, R. Falvey, D. Greenaway, & U. Kreickemeier (eds.), Palgrave Handbook of International Trade (pp. 236-262). Basing-stoke: Palgrave Macmillan.
45. Markusen, J.R., & Stähler, F. (2011). Endogenous market structure and foreign market entry, Re-view of World Economics, 147(2), 195-215.
46. Markusen, J.R., & Strand, B. (2009). Adapting the knowledge-capital model of the multinational enterprise to trade and investment in business services, World Economy, 32(1), 6-29.
47. Markusen, J.R., & Venables, A.J. (1998). Multinational firms and the new trade theory, Journal of International Economics, 46, 183-203.
48. Markusen, J.R., & Venables, A.J. (2000). The theory of endowment, intra-industry and multination-al trade, Journal of International Economics, 52, 209-234.
49. Motta, M. (1992). Multinational firms and the tariff jumping argument, European Economic Re-view, 36, 1557-1571.
50. National Bank of Poland, (2015). Foreign direct investment inward position at the end of 2014 broken down by country and economic zone, http://www.nbp.pl/homen.aspx?f=/en /publikacje/ziben/ziben.html
51. Neary, P.J. (2009). Trade costs and foreign direct Investment. International Review of Economics & Finance, 18(2), 207-218.
52. Owczarczuk, M. (2014). Atrakcyjność inwestycyjna Polski z perspektywy instytucjonalnej, Studia Ekonomiczne, 184, 168-180.
53. Polak, W. (2002). Determinanty napływu zagranicznych inwestycji bezpośrednich do Polski w okre-sie transformacji, Zeszyty Naukowe Akademii Morskiej w Gdyni, 43, 63-80.
54. Przybylska, K. (1998). Czynniki determinujące przypływ zagranicznych inwestycji bezpośrednich do Polski, Ekonomista, 2-3, 325-340.
55. Przybylska, K. (2001). Determinanty zagranicznych inwestycji bezpośrednich w teorii ekonomicznej: Empiryczna weryfikacja czynników lokalizacji zagranicznych inwestycji bezpośrednich w Cze-chach, Polsce i na Węgrzech, Zeszyty Naukowe / Akademia Ekonomiczna w Krakowie. Seria Specjalna, Monografie nr 144.
56. Sinha, U.B. (2010). Strategic licensing, exports, FDI, and host country welfare, Oxford Economic Papers, 62(1), 114-131.
57. Smith, A. (1987). Strategic investment, multinational corporations and trade policy, European Economic Review, 31, 89-96.
58. Wach, K., & Wojciechowski, L. (2016). Determinants of inward FDI into Visegrad countries: Empiri-cal evidence based on panel data for the years 2000-2012, Economics and Business Review, 2(1), 34-52.
59. Witkowska, J. (1996). BezpoÅ›rednie inwestycje zagraniczne w Europie Åšrodkowowschodniej: próba interpretacji na gruncie teorii bezpoÅ›rednich inwestycji zagranicznych i teorii integracji, Wy-dawnictwo Uniwersytetu Åódzkiego.