Abstract
The new market economies in Eastern Europe give a unique opportunity to study how agglomeration occurs due to the shift from a planner- constructed to a firm-driven economy. This paper it is investigated how foreign direct investment affects the existing economic geography. How are these changes taking place within the existing landscape of agglomerations inherited from socialism? Do foreign investors sustain existing patterns of agglomeration or are they signposts of change? A conditional logit model is implemented on a representative dataset combining the firm and regionallevel. Controls are made for region- and firm-specific factors such as market access, pre-existing industrial concentrations, regional policy and firm size. The results suggest that foreign investors are agents of both gradual and radical change in a new market economy such as Poland. With the exception of the capital region of Warsaw, past agglomerations are on the reverse and new ones are emerging; however, industrial inertia is quite strong outside Warsaw. Results also show that agglomeration economies in the make are significantly affected by cognitive distance. Foreign firms are more likely to go where other proximate peers (in terms of home country, industry and both) are going or have already gone.
Highlights
IntroductionThe role of agglomeration economies cannot be overestimated
In mature market economies, the role of agglomeration economies cannot be overestimated
The objective of the paper is to investigate whether foreign investors are affected by economic agglomerations from the previous regime in the new market economy of Poland
Summary
The role of agglomeration economies cannot be overestimated. Secondary perspectives have been rendered by industrial organizations and international business studies respectively Maybe these perspectives on collocation are not necessarily contradictory, but instead some theories (behavioral and strategic) potentially provide the foundation for agglomeration economies to arise in the first place.The psychic, or cognitive, distance does appear to play a major role in the observed behavioral patterns across countries (Johanson and Vahlne, 1977, Madsen and Servais, 1997). These underlying arguments for collocation behavior have only been weakly connected to the literature on the regional location choices of firms. This section serves to give a brief overview of the insights offered by these different approaches to the question about location choices of foreign investors
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