The impact of foreign direct investment on regional development in Poland

The transformation and modernization process of the Polish economy in the last 15 years has created a big demand for foreign capital. A successful stabilization process and opening up of the Polish market brought a dynamic inflow of foreign capital by the mid-1990s, which reached the highest absolute level in Central Europe in 1998. Although this record level of capital inflow resulted from the privatization process, Poland remains an attractive target for foreign investors. Privatization has not ended, but the long and sometimes bureaucratic processes in this field mean that many investors today prefer greenfield investment, which accounts for the largest share of FDI flows.

Economists widely accept that foreign direct investment (FDI) has been an important tool for financing the transformation process and catching up in Poland. Firms with foreign capital participation created workplaces and took part in modernizing the economy’s production structure. Their influence on domestic firms was benign, for they had a positive impact on the introduction of modern technologies, management and organization techniques. Poland’s large domestic market has meant that FDI made a smaller contribution to export activity than to imports. Although firms with foreign participation have an important share in the creation of GDP and in investment, they have contributed much to the country’s big trade deficit.

Poland is regionally differentiated, and its spatial disparities have been reinforced by the transformation process, rather than diminished. The most favourable socio-economic conditions are found in conurbations with a large share for services and in some of the country’s western regions. The past decade has shown a high correlation between GDP per capita and foreign investment per capita. Poland’s most developed regions – Mazowieckie, Slaskie and Wielkopolskie – have had the highest rates of foreign capital inflow, as measured in cumulated value. Empirical research shows that although FDI
has played an exceptional part in modernizing certain sectors of the economy, its overall impact on regional development has been adverse: regional disparities have widened as a result of FDI allocation.

Investors are generally attracted to regions where incomes are higher and densely populated conurbations are also attractive in this respect, while the western border also exerts a small positive effect. Finally, human capital is probably the biggest single factor behind investors’ location choices, along with other agglomeration factors. On the other hand, research shows that regional investment policy has not had a big impact. So the conclusion can be drawn that the equity model in Poland has had a neutralizing impact on the divergences in poorer regions. Overall, such policy does not help to bring about regional spillover effects.

Regions facing with heavy tasks of industrial restructuring (diversification out of textiles in Lodz, or mining and quarrying in Upper Silesia) show that structural deficiencies cannot be solved by FDI unless there is a state policy strategy and an atmosphere conducive to business. The success factors, apart from an advantageous geographical setting, good transport and communication systems, and a favourable population structure in terms of age and educational attainment, are concerned with private-sector specialization in technologically more advanced industries (transport industry, electrical engineering). A major task for Poland’s unsuccessful regions is to restructure agriculture and modernize traditional heavy industry. The upgrading of a
region’s economic structure, either by domestic players or with foreign capital, is a major factor in speeding up the modernization process.