Foreign direct investment in the business services sector

Foreign direct investment in the business services sector

Research project financed by the National Science Centre (NCN), Poland
Period: 2016-2019
Principal investigator: Dr. Artur Klimek

Description

The primary objective of the research project is to provide systematic and up-to-date knowledge about the determinants and implications of foreign direct investment (FDI) in the business services sector. The sector includes: business process outsourcing, shared service centres, information technology outsourcing and research and development centres.

Implementation of the main goal will take a form of development of an innovative economic model of multinational corporations (MNCs) comprising advanced business services. Afterwards, the theoretical assumptions will be verified using quantitative methods based on a unique dataset.

The empirical research will be conducted on the population of companies providing modern business services and, at the same time, being foreign subsidiaries of MNCs in Central and Eastern European countries. The selection of these economies is justified by a significant increase in number and value of investment projects in the analysed sector in the last decade.

Research on inflows of FDI to the business services sector is justified by the major gaps in theoretical and empirical knowledge on the one hand, and significance and relevance of the identified economic phenomenon on the other hand. The proposed issue requires thorough examination due to the increasing role of the business services sector in many countries, including the economies of Central and Eastern Europe, with particular emphasis on Poland. One of the measures of the significance of business services sector is the level of employment, which had reached 150,000 in Poland in year 2015, including 130,000 in enterprises with foreign capital. Approximate numbers of jobs in other countries in the region are as follows: Hungary – 50,000; Czech Republic – 40,000; Slovakia – 30,000. According to some estimates in the coming years, this level may rise to about 1 million throughout the region.

Progress

1. Klimek, A., Determinants of foreign direct investment in the modern business services, paper presented at ETSG 2016 conference – Helsinki

Abstract

This paper has been devoted to the analysis of determinants of foreign direct investment into modern business services (BS). The aim was to investigate factors affecting location decisions of multinational corporations (MNC) using both macroeconomic and regional perspectives. The latter proved to be an especially efficient approach. This is due to the fact that foreign companies operating in BS are highly unequally distributed across particular economies. In general, there are only few regions attracting bulk of operations in BS. The research method applied in the paper was negative binomial regression, which measures the outcome variable that is affected by various factors. The advantage of the conducted analysis was combining macroeconomic, regional and firm-level data. The explanatory variables were divided into two groups: demand and supply. The main conclusion of the research concerns high significance of supply factors. In other words, foreign companies focus on locations offering large number of skilled workers at the reasonable price.

JEL Classification: F21; F23
Keywords: foreign direct investment, modern business services, regions, European Union

2. Klimek, A., Agglomeration economies and foreign direct investment in modern business services in Poland, paper presented at ENTIME 2017 conference – Gdańsk

Abstract

Since many years services attracted most of foreign direct investment (FDI) in Central and Eastern European countries (CEEC). Recently, a distinctive type of business services, that is, modern business services (MBS) become the focal point in FDI in the region. This paper is aimed at defining the role of agglomeration economies in FDI in MBS in Poland. The topic is important from the policy point of view, as foreign investment is supported by the host country’s authorities and various incentives are provided. The research method applied in this paper is the negative binomial regression. The outcome variable was the number of firms operating in MBS in particular regions. Explanatory variables pertain to the characteristics of sixteen NUTS 2 regions in Poland. The main conclusion of the research is the importance of agglomeration economies in the decision of the firms investing in Poland in MBS. The most important was concentration of supply factors, like abundance of educated employees. The specific features of MBS is associated with lower importance of demand factors in a region.

JEL Classification: F21, F23
Keywords: modern business services industry, foreign direct investment, agglomeration economies





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