To Make or to Serve – Industrial Specialization Drivers of Foreign Subsidiaries in Service and Manufacturing Sectors Across Agglomerations in a Transition Economy

Abstract

This paper examines the dynamics of the location patterns of the foreign direct investment(FDI)subsidiaries in manufacturing and service sectors across regions in a developing economy before and after the accession of the European Union in 2004. The data at the NUTS level 2 on regions in Poland is analyzed employing the revealed location advantage (RLA) index for industrial specialization (RLAis) of the regions. The study tests the concentration patterns of industrial sectors along with the industrial specialization level of regions’ participating foreign enterprises across all regions of Poland. The findings allow answering for the presented hypothesis testing the level of industrial specialization across regions and its impact on narrowing industrial specialization, wages and the level of R&D investment. The results determine that the location of foreign firms in service-related industries is concentrating mostly in the largest agglomerations with the presence of large markets and universities. While, also, several regions seem to be able to narrow their manufacturing specializations, they generally locate at, or near, the legacy centers of those industrial sectors. This provides answers for, and confirms the raised hypothesis and generally follows the existing theoretical path of the developed economies. The study, also, shows that Polish regions attracting a higher number of foreign service-related investments also seem to increase their industrial specialization in select manufacturing sectors that can increasingly attract R&D investment.