Is the effect really so large? Firm-level evidence on the role of FDI in a transition economy


  • The authors would like to thank the anonymous referee, the Editors as well as Tomasz Mickiewicz, Richard Frensch, Grzegorz Koloch, Jens Hölscher, Michal Gradzewicz, Ryszard Kokoszczyński, Marcin Kolasa and Michal Rubaszek for valuable comments. We are also grateful to the participants of EEFS 2009, EEA 2010 and MET-EACES, CEEERC, SGH and NBP workshops. The remaining errors are ours. The views expressed in the paper are those of the authors and are not necessarily those of the National Bank of Poland.


Foreign subsidiaries usually perform better than domestic enterprises, but selection effects have been acknowledged in the literature. This article contributes by quantitatively evaluating the size of the selection effects and direct effects of FDI entry. We use a large panel of firm-level data from Poland and match foreign-owned firms to a control group of non-foreign-owned companies and analyse various performance indicators. In terms of efficiency measures, between 50 and 70 percent of the foreign affiliates advantage may be attributed to direct ownership effects. However, in the case of export intensity, the majority of the differential between the domestic companies and foreign subsidiaries is attributable to selection effects: MNEs choose export-oriented companies and sectors.