Prague Economic Papers 2014, 23(1):42-62 | DOI: 10.18267/j.pep.472

Mothers and Daughters: Heterogeneity of German Direct Investments in the Czech Republic

Daniel Münich1, Martin Srholec1, Michael Moritz2, Johannes Schäffler2
1 CERGE-EI, Economics Institute, Academy of Sciences of the Czech Republic, P.O. Box 882, Politických vìzòù 7, 111 21 Prague, Czech Republic (martin.srholec@cerge-ei.cz).
2 Institute for Employment Research (IAB), Germany.

Much has been written on the distinction between vertical and horizontal foreign direct investment. However, most of the empirical literature relies on indirect and aggregated measures only. The aim of this paper is to help fill this gap by examining the differences between German affiliates in the Czech Republic and their mother companies in Germany on the basis of direct evidence on factor requirements. Using a cluster analysis on firm-level data from the unique ReLOC survey, we identify four main groups of firms that partition the sample by broad sectoral lines and by technological, educational and skill intensity of their operations within each of them. More detailed analysis of the clustering reveals that the vertical model dominates in manufacturing, while the horizontal model of investment prevails in the service sector.

Keywords: Czech Republic, Germany, multinational enterprise, cluster analysis, foreign affiliate, vertical investment
JEL classification: D21, F23, L16, O23

Published: January 1, 2014  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Münich, D., Srholec, M., Moritz, M., & Schäffler, J. (2014). Mothers and Daughters: Heterogeneity of German Direct Investments in the Czech Republic. Prague Economic Papers, 23(1), 42-62. doi: 10.18267/j.pep.472
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Arndt, S. W., Kierzkowski, H. (2001), Fragmentation: New Production Patterns in the World Economy. Oxford: Oxford University Press.
    2. Acemoglu, D., Autor, D. (2011), "Skills, Tasks and Technologies: Implications for Employment and Earnings" in Ashenfelter. O., Card, D., eds., Handbook of Labor Economics. Vol. 4b, Amsterdam: Elsevier, pp. 1043-1171. Go to original source...
    3. Barba Navaretti, G. B., Venables, A. J. (2004), Multinational Firms in the World Economy. Princeton: Princeton University Press. Go to original source...
    4. Blomström, M., Kokko, A. (1998), "Multinational Corporations and Spillovers." Journal of Economic Surveys, Vol. 12, No. 2, pp. 247-278. Go to original source...
    5. Brainard, L. S. (1993), "An Empirical Assessment of the Factor Proportions Explanation of Multinational Sales." NBER Working Paper No. 4583. Go to original source...
    6. Buch, C., Kleinert, J., Lipponer, A., Toubal, F. (2005), "Determinants and Effects of Foreign Direct Investment: Evidence from German Firm-Level Data." Economic Policy, Vol. 20, No. 41, pp. 52-110. Go to original source...
    7. Buch, C. M., Schnitzer, M., Arndt, C., Kesternich, I., Mattes, A., Mugele, C., Strotmann, H. (2007), "Analyse der Beweggründe, der Ursachen und der Auswirkungen des so genannten Offshoring auf Arbeitsplätze und Wirtschaftsstruktur in Deutschland." Tübingen /München: IAW /LMU.
    8. Calinski, T., Harabasz, J. (1974), "A Dendrite Method for Cluster Analysis." Communications in Statistics, Vol. 3, No. 1, pp. 1-27. Go to original source...
    9. Cantwell, J. (1995), "The Globalization of Technology: What Remains of the Product Cycle Model?" Cambridge Journal of Economics, Vol. 19, No. 1, pp. 155-174.
    10. Caves, R. E. (1971), "International Corporations: The Industrial Economics of Foreign Investment." Economica, Vol. 38, No. 149, pp. 1-27. Go to original source...
    11. CNB (2012), Foreign Direct Investment in 2010. Prague: Czech National Bank.
    12. CZSO (2012), Zahranièní obchod s Nìmeckem [External trade with Germany]. Prague: Czech Statistical Office.
    13. Deutsche Bundesbank (2012), Foreign Direct Investment Stock Statistics: Special Statistical Publication, 10 April 2012. Frankfurt: Deutsche Bundesbank.
    14. Duda, R. O., Hart, P. E., Stork, D. G. (2001), Pattern Classification and Scene Analysis, 2nd Ed. New York: Wiley.
    15. Dunning, J. H. (1981), "Explaining the International Direct Investment Position of Countries: Towards a Dynamic or Developmental Approach." Weltwirtschaftliches Archiv, Vol. 117, No. 1, pp. 30-64. Go to original source...
    16. Dunning, J., Narula, R. (1995), "The R&D Activities of Foreign Firms in the United States." International Studies of Management & Organization, Vol. 25, No. 1-2, pp. 39-73. Go to original source...
    17. Ernst, D., Kim, L. (2002), "Global Production Networks, Knowledge Diffusion, and Local Capability Formation." Research Policy, Vol. 31, No. 8-9, pp. 1417-1429. Go to original source...
    18. Eurostat (2012), Eurostat on-line. Luxembourg: Eurostat (download 19. 9. 2012).
    19. Faeth, I. (2009), "Determinants of Foreign Direct Investment - A Tale of Nine Theoretical Models." Journal of Economic Surveys, Vol. 23, No. 1, pp. 165-196. Go to original source...
    20. Feenstra, R. (1998), "Integration of Trade and Disintegration of Production in the Global Economy." Journal of Economic Perspectives, Vol. 12, No. 4, pp. 31-50. Go to original source...
    21. Fujita, M., Krugman, P. R., Venables, A. J. (1999), The Spatial Economy. Cities, Regions, and International Trade. Cambridge: MIT Press. Go to original source...
    22. Gauselmann, A., Knell, M., Stephan, J. (2011), "What Drives FDI in Central-Eastern Europe? Evidence from the IWH-FDI-Micro Database." Post-Communist Economies, Vol. 23, No. 3, 343-357. Go to original source...
    23. Gereffi, G., Humphrey, J., Sturgeon, T. (2005), "The Governance of Global Value Chains." Review of International Political Economy, Vol. 12, No. 1, pp. 105-128. Go to original source...
    24. Görg, H., Greenaway D. (2004), "Much Ado about Nothing? Do Domestic Firms really Benefit from Foreign Direct Investment?" The World Bank Research Observer, Vol. 19, No. 2, pp. 171-197. Go to original source...
    25. Görg, H., Mühlen, H., Nunnenkamp, P. (2010), "Firm Heterogeneity, Industry Characteristics and Types of FDI: The Case of German FDI in the Czech Republic." Aussenwirtschaft, Vol. 65, No. 3, pp. 273-295.
    26. Günther, J., Gauselmann, A., Marek, P., Stephan, J., Jindra, B. (2011), "An Introduction to the IWH FDI Micro Database." Schmollers Jahrbuch, Vol. 131, No. 3, pp. 529-546. Go to original source...
    27. Havranek, T., Irsova, Z. (2011), "Estimating Vertical Spillovers from FDI: Why Results Vary and What the True Effect Is." Journal of International Economics, Vol. 85, No. 2, pp. 234-244. Go to original source...
    28. Hecht, V., Litzel, N., Schäffler, J. (2013), "The ReLOC Project - Method Report for Implementing a Cross-Border Company Survey in Germany and the Czech Republic. " IAB Research Report. Nürnberg: Institute for Employment Research (IAB), 04/2013.
    29. Helpman, E. (1984), "A Simple Theory of Trade with Multinational Corporations." Journal of Political Economy, Vol. 92, No. 3, pp. 451-471. Go to original source...
    30. Helpman, E., Krugman, P. (1985), Market Structure and Foreign Trade. Cambridge, MIT Press.
    31. Kogut, B. (1985), "Designing Global Strategies: Comparative and Competitive Value-Added Chains." Sloan Management Review, Vol. 26, No. 4, pp. 15-28. Go to original source...
    32. Kogut, B., Zander, I. (1993), "Knowledge of the Firm and the Evolutionary Theory of the Multinational Corporation." Journal of International Business Studies, Vol. 24, No. 4, pp. 625-645. Go to original source...
    33. Krugman, P. (1995), "Growing World Trade: Causes and Consequences." Brookings Papers on Economic Activity, Vol. 25, No. 1, pp. 327-362. Go to original source...
    34. Kuemmerle, W. (1997), "Building Effective R&D Capabilities Abroad." Harvard Business Review, Vol. 75, No. 3, pp. 61-70.
    35. Marin, D., Lorentowicz, A., Raubold, A. (2003), "Ownership, Capital or Outsourcing: What Drives German Investment in Eastern Europe?" in Herrmann, H., Lipsey, R., ed., Foreign Direct Investment in the Real and Financial Sector in Industrial Countries. Berlin: Springer-Verlag, pp. 147-163. Go to original source...
    36. Marin, D. (2006), "A New international division of Labor in Europe: Outsourcing and Offshoring to Eastern Europe." Journal of the European Economic Association, Vol. 4, No. 2-3, pp. 612-622. Go to original source...
    37. Markusen, J. R. (1984), "Multinationals, Multi-Plant Economies and the Gains from Trade." Journal of International Economics, Vol. 16, No. 3-4, pp. 205-226. Go to original source...
    38. Markusen, J. R., Venables, A. J. (1998), "Multinational Firms and the New Trade Theory." Journal of International Economics, Vol. 46, No. 2, pp. 183-203. Go to original source...
    39. OECD (2002), Frascati Manual: Proposed Standard Practice for Surveys on Research and Experimental Development, 6th Ed. Paris: OECD.
    40. Protsenko, A. (2003), "Vertical and Horizontal Foreign Direct Investments in Transition Countries." Mimeo, doctoral dissertation, Ludwig-Maximilians-Universität München.
    41. Stancik, J. (2007), "Horizontal and Vertical FDI Spillovers." CERGE-EI Working Paper No. 340.
    42. Stata (2009a), Stata Multivariate Statistics Reference Manual, Release 11. College Station (Texas): StataCorp LP.
    43. Stata (2009b), Stata Base Reference Manual, Release 11. College Station (Texas): StataCorp LP.
    44. Vernon, R. (1966), "International Investment and International Trade in Product Cycle." Quarterly Journal of Economics, Vol. 80, No. 2, pp. 190-207. Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content