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This article concerns the determinants of foreign direct investment (FDI) outflow from India to Poland with some insights to other European countries. This topic strongly relates to globalization of foreign trade and especially new economic initiatives between European Union (EU) and India, which was one of the first countries to develop trade relations with EU. According to CEIC data – Financial Data and Economic Indicators, India’s FDI outflow increased slightly to 1.4 billion USD in September 2019 in comparison with 996.5 million USD in September 2018, but it is still below the average of 1.8 billion USD for a period of 2007–2019. Available at: https://www.ceicdata.com/en/india/foreign-direct-investment-outflow/foreign-direct-investment-outflow (accessed October 19, 2019). Very limited number of the scientific research can be found in European literature about India’s FDI outflow to EU countries in period of 2004–2019. Indian economists made some research on that topic. Professor J. Ramachandran (listed among the Best Management Thinkers for the year 2015, the first Bain Fellow in India) from Indian Institute of Management Bangalore in 2004 and Professor Jaya Prakesh Pradhan from Central University of Gujarat in 2008 explored the evolution in Indian outward FDI, referring to a shift in the pattern of overseas expansion and basis of competitiveness of Indian companies. The main goal of this article is to explain what really triggers Indian investors to go to Poland and what kind of businesses they form. Some examples of the Indian-based companies are mentioned to support the analysis. The author of this article also researched on different governmental bilateral trade agreements and initiatives, trying to find any direct impacts of that on the India FDI outflow to Poland and other EU countries. He used empirical method of the analysis based on accessible data for period 2004–2019 and literature in that topic and also direct interviews with private Indian investors who made decision to start and run their business in Poland or other EU countries. The main conclusion is that Poland the leader of Visegrad Group is an interesting investment for India and India can be for Poland a counterpart investment partner to China.

Entry in a homogeneous Cournot-oligopoly is excessive if and only if there is business-stealing (Amir et al., 2014). The excessive entry prediction has been derived primarily for closed economies and using a welfarist benchmark. We extend this framework and allow for (1) horizontal FDI in a multi-period setting and (2) interest group-based government behaviour. Opening the market to greenfield investments from abroad tends to aggravate the entry distortion. Moreover, market opening may reduce welfare if a more pronounced entry distortion dominates the gain in consumer surplus. Finally, a government, which places sufficiently little weight on the interests of consumers, will object to market opening, even if welfare rises., Highlights • Entry in a homogeneous Cournot-oligopoly is excessive if there is business-stealing. • Allowing for horizontal FDI aggravates the excess entry problem. • Nonetheless welfare rises in market equilibrium, but may fall if entry is restricted. • A government maximising a political support function may restrict FDI.

The structure of a multinational firm, that is how its affiliates relate to one another, is critical for understanding where multinationals locate, how policy affects them, and their resilience to localized shocks. Here, we review the two main structures: horizontal investments which replicate activities across borders, and vertical investments which fragment activities across countries. In addition, we use data (primarily from the US) to examine which of these structures seems to dominate the data. This includes a novel use of measures of global value-chain positioning of a country's industries. In each case, the data suggests a dominant role for horizontal investment. We conclude with a discussion of the challenge that intangibles play in multinational data and point towards potentially fertile areas for future research.

Entry in a homogeneous Cournot-oligopoly is excessive if and only if there is business-stealing (Amir et al. 2014). The excessive entry prediction has been derived primarily for closed economies and using a welfarist benchmark. We extend this framework and allow for (1) horizontal FDI in a multi-period setting and (2) interest group-based government behaviour. Opening the market to greenfield investments from abroad tends to aggravate the entry distortion. Moreover, market opening may reduce welfare if a more pronounced entry distortion dominates the gain in consumer surplus. Finally, a government, which places sufficiently little weight on the interests of consumers, will object to market opening, even if welfare rises.

The paper is devoted to consideration of the effects for the economy integrating into the global value chains (GVCs). The main trends in the development of the global value chains in the modern economy are identified. The concrete indicators that may help to measure the degree of integration of the national economy into the GVCs are singled out and deliberated in details. The authors propose a classification of the GVCs-related effects for an integrating economy. In particular, they outline direct and indirect effects, vertical and horizontal effects, as well as upstream, downstream and feedback inter-industry effects. A conclusion is made that the sign of these effects for an integrating economy basically depends on the form of production fragmentation (international outsourcing, horizontal FDI, vertical FDI or of shoring). The factors that influence the sign and the size of the effects in the integrating economy are pointed out. The authors differentiate the factors that influence intra-industry (horizontal) and inter-industry (vertical) effects. The market structure of the industries, the level of the technological gap between international and national companies, the level of import substitution within the investment project and the level of the export orientation of the project comprise the former group of factors. The level of the intra-industry effect, the level local sourcing, the remoteness of the headquarter country and the level of the technological gap between international company and national companies in the vertically linked industry represent the latter group of factors. In conclusion is stressed that the Russia needs to further deepen its integration into the global value chains in order to technologically develop the national economy. (World Economy and International Relations, 2017, vol. 61, no. 4, pp. 16-25) Received 25.11.2016. Sergei A. LUK’YANOV (s.lukyanov@mail.ru), State University of Management, 99, Ryazanskii Prosp., Moscow, 109542, Russian Federation; Ural State Federal University, 19, Prosp. Mira, Ekaterinburg, 620002, Russian Federation; St. Petersburg State University, 62, Chaikovskogo Str., Saint-Petersburg, Russian Federation. Igor’ M. DRAPKIN, (i.m.drapkin@urfu.ru) Ural State Federal University, 19, Prosp. Mira, Ekaterinburg, 620002, Russian Federation. Acknowledgement. The research was supported by the Russian Foundation for Basic Research (RFBR), grant no. 14-06-144 “Determinants of spatial development in the Russian economy”. The paper is devoted to consideration of the effects for the economy integrating into the global value chains (GVCs). The main trends in the development of the global value chains in the modern economy are identified. The concrete indicators that may help to measure the degree of integration of the national economy into the GVCs are singled out and deliberated in details. The authors propose a classification of the GVCs-related effects for an integrating economy. In particular, they outline direct and indirect effects, vertical and horizontal effects, as well as upstream, downstream and feedback inter-industry effects. A conclusion is made that the sign of these effects for an integrating economy basically depends on the form of production fragmentation (international outsourcing, horizontal FDI, vertical FDI or offshoring). The factors that influence the sign and the size of the effects in the integrating economy are pointed out. The authors differentiate the factors that influence intra-industry (horizontal) and inter-industry (vertical) effects. The market structure of the industries, the level of the technological gap between international and national companies, the level of import substitution within the investment project and the level of the export orientation of the project comprise the former group of factors. The level of the intra-industry effect, the level local sourcing, the remoteness of the headquarter country and the level of the technological gap between international company and national companies in the vertically linked industry represent the latter group of factors. In conclusion is stressed that the Russia needs to further deepen its integration into the global value chains in order to technologically develop the national economy. Keywords: global value chains, production fragmentation, spillover effects, vertical FDI, horizontal FDI, international outsourcing, offshoring. About authors: Sergei A. LUK’YANOV, Dr. Sci., Professor, Head of Department of Economic Theory, State University of Management; Professor of Department of International Economy, GSEM Ural Federal University; Professor of Department of World Economy, Faculty of Economics, St. Petersburg State University. Igor’ M. DRAPKIN, Cand. Sci., Associate Professor of Department of International Economics, GSEM Ural Federal University.

This paper deals with the measurement of motives for foreign direct investment (FDI). Due to a lack of information, several indirect measures exist in order to classify multinational firms into the two main types of FDI. While vertical foreign direct investment (VFDI) refers to the international fragmentation of the production process for cost-saving reasons, horizontal foreign direct investment (HFDI) is performed in order to gain access to new markets. One common approach to identify the dominant reason for firms to go abroad is to compare the industry affiliation of the investing company in the home country and the subsidiary in the target country. The question arises as to how reliable this measure is for identifying FDI motives. The IAB-ReLOC survey allows a profound investigation on the issue of classifying the motives of the firms for going abroad into vertical and horizontal FDI. Apart from industry affiliation data applied in conventional approaches to categorize FDI types, the survey data also includes a self-assessment of the firms with respect to the main motive for investing in the neighboring country, and information on intra-firm trade concerning the flow of intermediate inputs between the German headquarters and the Czech affiliates. Against the background of featuring a well-grounded database, we shed a light on the relevance of productivity in the German-Czech FDI relations. We pursue a reference group approach by comparing German multinational firms that have an affiliate in the Czech Republic to German companies without direct investment abroad. The data provided by the German multinationals enables us to investigate the size of FDI under the aspect of the number of employees in their Czech affiliates. By applying a two-step Heckman procedure, we control for sample selection bias: in the first stage we analyze the extensive margin of FDI, i.e. the probability to select into the group of multinational investors. The second stage examines the relationship between productivity and the intensive margin of FDI. We find evidence that productivity is not only a crucial factor for the decision to invest in the neighboring country, but plays also a relevant role for the number of employees in the Czech subsidiary. Differences are revealed between direct and indirect measures of FDI types. The size of horizontal investments is significantly affected by productivity only in the case of classifications that are based on survey responses. This result confirms theoretical expectations and previous empirical literature by standing in marked contrast to the outcome for indirect measurement concepts. Our finding leads us to the conclusion that one should be more cautious in interpreting differences between vertical and horizontal FDI when using approximative classification concepts. Dieses Papier beschäftigt sich mit der Klassifikation von Motiven für ausländische Direktinvestitionen (FDI). Da häufig keine direkten Informationen zum Motiv vorliegen, existieren mehrere indirekte Maße um multinationale Unternehmen den zwei Haupttypen von Direktinvestitionen zuzuweisen. Während vertikale Direktinvestitionen (VFDI) mit einer internationalen Aufteilung des Produktionsprozesses aus Gründen der Kostenersparnis zusammenhängen, werden horizontale Direktinvestitionen (HFDI) getätigt um neue Märkte zu erschließen. Ein häufig verwendeter Ansatz um den Hauptgrund der Unternehmen für die Auslandsinvestition zu bestimmen ist, die Branchenzugehörigkeit des Mutterunternehmens mit derjenigen des Tochterunternehmens zu vergleichen. Es stellt sich die Frage, wie zuverlässig dieses Maß für die Identifikation der Investitionsmotive ist. Die Daten der IAB-ReLOC Befragung ermöglichen es, die Einteilung der Investitionsmotive von multinationalen Unternehmen in vertikale und horizontale Direktinvestitionen im Detail zu untersuchen. Neben der Branchenzugehörigkeit, die in konventionellen Ansätzen verwendet wird, um FDI-Typen zu kategorisieren, beinhalten die Befragungsdaten auch eine Selbsteinschätzung der Unternehmen hinsichtlich ihres Hauptmotivs für die Investition im Nachbarland und Informationen zum firmeninternen Handel mit Vorprodukten zwischen dem deutschen Mutter- und dem tschechischen Tochterunternehmen. Auf Basis dieser fundierten Datenbank beleuchten wir die Relevanz der Produktivität in den deutsch-tschechischen FDI-Beziehungen. Wir verfolgen einen Referenzgruppenansatz, indem wir deutsche multinationale Unternehmen, die eine Tochterfirma in Tschechien haben, mit deutschen Unternehmen ohne ausländische Direktinvestitionen vergleichen. Die Angaben der deutschen multinationalen Unternehmen ermöglichen es uns, die Höhe der Auslandsinvestition gemessen als Zahl der Beschäftigten in der tschechischen Niederlassung zu untersuchen. Wir verwenden ein zweistufiges Heckman-Verfahren um für eine mögliche Selektionsverzerrung zu kontrollieren: Auf der ersten Stufe analysieren wir die Wahrscheinlichkeit, dass ein Unternehmen zur Gruppe der multinationalen Investoren gehört. Die zweite Stufe untersucht die Beziehung zwischen Produktivität und der Größe der ausländischen Tochterfirma. Unsere Ergebnisse zeigen, dass Produktivität nicht nur ein entscheidender Faktor für die Investitionsentscheidung ist, sondern auch eine wichtige Rolle für die Zahl der Beschäftigten in der tschechischen Niederlassung spielt. Insbesondere decken wir Unterschiede zwischen direkten und indirekten Klassifikationsmaßen auf. Die Höhe horizontaler Investitionen wird nur bei den Klassifikationen, die auf den Angaben aus der Befragung basieren, signifikant von der Produktivität des Mutterunternehmens beeinflusst. Dieses Ergebnis bestätigt sowohl theoretische Erwartungen als auch bisherige empirische Untersuchungen und steht im Kontrast zu den Resultaten für indirekte Messkonzepte. Daraus schließen wir, dass hinsichtlich der Interpretation von Unterschieden zwischen vertikalen und horizontalen Direktinvestitionen besondere Vorsicht geboten ist, wenn approximative Klassifikationskonzepte verwendet werden.

This paper studies the link between production transfer within Swedish-headquartered multinational enterprises (MNEs) in the manufacturing industry and skill upgrading in their parent companies in the 1990s. The analysis distinguishes between horizontal and vertical foreign direct investment (FDI). The increased employment share in the affiliates in non-OECD countries (vertical FDI) has a non-trivial, significantly positive effect on the share of skilled labor in the Swedish parents. On the other hand, the parents’ skill upgrading is unrelated to employment changes in their affiliates in other OECD countries (horizontal FDI). This is consistent with implications of the newly developed horizontal MNE models., Swedish Council for Work Life Research (RALF); Lars-ErikThunholm’s Foundation

The study analyses the role played by technological determinants, using the approach of National System of Innovation (NSI), in enhancing or hampering Foreign Direct Investments (FDI) with different motivations, namely horizontal and vertical FDI. The empirical analysis is carried out using data relative to the final destination of sales of US foreign subsidiaries in 42 host countries grouped according to income criteria. A two step empirical strategy is employed: first, we estimate a benchmark model finding that technological determinants mainly drive HFDI rather than VFDI. Secondly, applying a dynamic panel data approach we take into account that agglomeration economies may play a role as well more than other FDI determinants. Finally, through a sensitivity analysis we account for different ways of measuring HFDI and VFDI finding that measurement issue matters especially to establish which component of NSI results of greater relevance.

The study analyzes the role played by technological determinants, using the approach of National System of Innovation (NSI), in enhancing or hampering Foreign Direct Investments (FDI) with different motivations, namely horizontal and vertical FDI. The empirical analysis is carried out using data relative to the final destination of sales of US foreign subsidiaries in 42 host countries grouped according to income criteria. A three step empirical strategy is employed: first, we estimate a benchmark model finding that technological determinants exert a greater in influence in high income countries especially for vertical FDI. Secondly, applying a dynamic panel data approach we take into account that agglomeration economies may play a role as well as other FDI determinants. Finally, we are able to further disentangle the destination of sales according to whether they are directed towards other foreign affiliates or to unaffiliated persons recognizing that they are affected by different determinants.

Wholesale and retail trade affiliates owned by parent firms in manufacturing account for a considerable fraction of overall affiliate sales. Although quantitatively important, this Export-Supporting FDI (ESFDI) activity has received little attention in the literature. This paper includes ESFDI into a model of trade and horizontal FDI with heterogeneous firms. ESFDI is characterized by export-supporting distribution and service activities in the foreign market while production remains in the home country. This introduces some complementarity between trade and FDI. In the model falling trade costs lead to an increase in both overall trade and overall FDI activity. This provides a possible explanation for the simultaneous rise in trade and FDI in the data. An empirical analysis using German firm level FDI data confirms the quantitative importance of ESFDI. The data also support crucial implications of the theoretical model. Parents choosing ESFDI are smaller than firms choosing to produce in the foreign market. And the importance of ESFDI relative to horizontal FDI is strongest when variable trade costs are low.

This paper analyzes the determinants and effects of firm-level FDI flows on the basis of German micro-level data. Concering the determinants of FDI, I differentiate between different target regions and motivations for FDI (market seeking/horizontal FDI versus cost reducing/vertical FDI). The main result is that most firms engage in FDI because of market access. Further, I focus on the employment effects of direct investment projects abroad. From a theoretical point of view, the effects of FDI flows on labor demand at the firm level are uncertain. Therefore, this paper analyzes this question empirically using theory-based labor demand regressions and and an econometric framework based on the generalized method of moments (GMM). As a main result I find that there is no negative effect of firm-level FDI flows on employment. Positive effects seem plausible in many specification. Further, theory and anecdotal evidence suggest that unskilled workers are acted worse than highly or medium-skilled employees. Hence, the analysis distinguishes between different skill groups. Again, I cannot find negative effects of firm-level FDI flows on any skill group.

Distinguishing between vertical and horizontal foreign direct investment (FDI), this paper examines how the location determinants of the two types of FDI differ. Based on a conditional logit model and data on Japanese foreign affiliates, the main findings are that the most important determinant for horizontal FDI is a large market, whereas labor costs play a significant role in the case of vertical FDI. Concerning the effect of tariffs, geographical distance, and labor quality on the location decision, this study obtains results that differ from those of previous studies on the determinants of location choice of Japanese multinationals. First, tariffs and distance have opposite effects on the location decisions in the case of horizontal and vertical FDI. Second, labor quality has a positive effect only on the location decision of horizontal FDI., 21世紀COEプログラム = 21st-Century COE Program

This paper investigates the determinants of intra-firm trade of multinational firms located in France, using data on French companies. Results on the vertical pattern of production networks differ according to the affiliates? location. Lower wage and transportation costs in the developing countries increase, as expected, the vertical segmentation of production. In the developed countries, lower trade and unit wage costs, and hence, a strong and positive labour productivity matter a lot in explaining French MNCs? preferences. Among the other variables of interest, partnership and market potential have been given special attention. The results substantiate a mix of vertical and horizontal FDI, mainly when we separate out capital intensive from labour intensive intermediate products.

Wholesale trade affiliates account for a considerable fraction of the sales of Multinational Companies (MNCs). However, this and similar types of FDI, aiming at facilitating export activities, have received little attention in the literature. In this paper export-supporting FDI (ESFDI) which is characterized by destination-market specific export-supporting distribution and service activities in the foreign market, keeping production in the home country, is introduced as a theoretical concept. It is included into a model of international trade and FDI with heterogeneous firms. In equilibrium lower trade costs increase ESFDI. This implies that both FDI activities and trade volumes increase at the same time. The model thus provides a rationale for the positive correlation between trade and FDI activity observed in the 1990s and the prevalence of intra Euro-area investments in the FDI activities of Euro-area MNCs, which are both at odds with the 'proximity-concentration trade-off' governing standard models of horizontal FDI.

We study a firm which serves two unequally-sized markets and must choose where to locate its first production plant, and whether to open a second plant to serve the other market through local sales rather than exports. An exporter pays taxes only to the country where it locates its single production plant. A double- plant multinational pays taxes in both countries, but may shift taxable profits across countries, at a cost. We show that the usual proximity-concentration trade- off between fixed and trade costs is modified, depending on both the average tax of, and the tax difference between, the two countries. Moreover, in contrast to a standard result of the FDI literature, we find that increased market size asymmetry may make it more likely that the firm engages in horizontal FDI. From a global welfare viewpoint, it is always desirable to control the firm's profit shifting when the multinational structure is taken as given. However, the fact that the firm may react by changing its production structure may be a reason not to control profit shifting activities.