MNE Activity in Poland: Horizontal, Vertical or Both?

ABSTRACT

The purpose of this article is to validate empirically the theoretical predictions of the knowledge capital model of multinational enterprise and identify the reasons for undertaking international production in Poland. This model allows taking into account both horizontal and vertical reasons for foreign direct investment (FDI). The empirical implementation of the theoretical framework is based on the negative binomial model and the bilateral dataset covering 143 countries over the period 1995–2015 which yields a total of 3003 observations. In contrast to previous studies the actual data on differences in human capital per worker that come from the most recent edition of PennWorld Table 9.0 are employed as the measures of differences in relative factor endowments. The empirical evidence confirms the predictions of the knowledge capital model and points to the horizontal as well as vertical motives for undertaking FDI in Poland. In particular, our estimation results show that MNE activity in Poland is related to both differences in relative factor endowments and in market size which confirms the importance of both reasons for undertaking FDI in Poland. However, these reasons are different for different groups of parent countries.

KEY WORDS:

• Count data
• multinational enterprise
• negative binomial model
• Poland

JEL CLASSIFICATION:

• F23
• P33

Acknowledgments

The Author would like to thank two anonymous reviewers and the participants of the “Leading Issues and Challenges in Emerging Economies” Society for Study of Emerging Markets (SSEM) scientific conference at the University of Sichuan held on 9th October 2017 in Chengdu for their helpful comments and suggestions on the earlier draft of this paper.

Notes

¹ CSO, 2016, The economic activity of firms with foreign capital participation, Zakład Wydawnictw Statystycznych, Warszawa.

² The zero values constitute about 41% of the observations in the full sample.

³ The LR test with p-value 0.000 rejects the Poisson model in favor of the Negative Binomial model for all estimated specifications.

Additional information

Funding

The article came into being within the project no. [2015/19/B/HS4/03230] entitled ‘Determinants of Foreign Direct Investment in Poland’ financed by National Science Centre conducted by Andrzej Cieślik in the years 2016-2018.