European Market Integration, R&D Agglomeration Economies, and the Location Choice of Firms in Poland

Abstract

The establishment of a European common market, with the aim of eliminating internal barriers of different kinds, implies an environment in which standard location determinants for firm activities might operate differently than usual or in which new location forces assume importance. Poland has had an exemplary experience as a former planned economy that managed the transition to a market economy within a relatively short period of time. The country is characterized by comparatively low R&D expenditures per capita as well as few patent applications, as compared to other European Union countries in the past decade. Aside from the previous literature’s focus on industrial and service agglomeration economies, we investigate the impact of agglomeration economies stemming from the R&D sector and innovative activities for the location choices of firms in Poland. We also assess what role accession to the European Union played in this process. We use a panel data set comprising Polish NUTS II regions over the period 2003 to 2010. The analysis differentiates the effects for domestic, foreign, and entrepreneurial firms in the economy and enriches the former literature, which focused on the location decisions of FDI. We find a strong impact of R&D agglomeration economies for the location choices of all firms, a positive impact of EU membership on the location decisions of entrepreneurial firms, a positive impact of innovative activity for the location decisions of foreign firms, and a contingent effect of EU membership on the decisions of foreign firms to locate closer to the German-Polish border.