MNE Activity in Poland: Horizontal, Vertical or Both?

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.