Search

Based on micro-level data of German companies from 1873 to 1927, we identified horizontal and vertical FDI applying a Knowledge-Capital model and analyzed individual FDI decisions. Our KC model revealed that market-driven FDI predominated; however, wage gaps and differences in human capital stimulated cost-driven FDI flows, which accounted for up to 10% of total FDI. On an individual level, large companies with high profitability conducted more FDI. Higher tariffs after WWI enhanced FDI, as companies could circumvent trade barriers-but declining openness reduced FDI. In spite of disintegration after WWI, the propensity to invest increased due to higher market concentration and firm specific investment patterns-albeit industry agglomeration effects were of minor importance. [ABSTRACT FROM AUTHOR]

Abstract: The paper explores the persistence of former borders in an integrating economic area, the reborn Polish nation state after World War I. It uses a gravity model of trade for the years 1926–1934 in order to assess the impact of former partition borders that Poland inherited from its period of partition between Germany, Russia, and the Habsburg monarchy (1795–1918). The findings point to a persistent but decreasing impact of former borders over time, interrupted during the Great Depression. Compared to recent findings on border effects between Canada and the US or home bias effects across member states of the contemporary European Union or even between US states the Polish domestic market was quite well integrated. [Copyright &y& Elsevier]