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MasterThesis ForeignDirectInvestmentincohesiontoemployment caseofPoland

BusinessAdministration May2008


HristijanTodoroski


Departmentof BusinessAdministration SchoolofManagement BlekingeInstituteofTechnology Box520 SE37225Ronneby Sweden


ContactInformation: Author(s): HristijanTodoroski Address:VeraCiriViriNo.14,1000Skopje,Macedonia Email:hristijantodoroski@yahoo.com Universityadvisor(s): Dr.StefanHellmer SchoolofManagement,BTH


Departmentof BusinessAdministration SchoolofManagement BlekingeInstituteofTechnology Box520 SE37225Ronneby Sweden

Acknowledgments
First and foremost I would like to thank my supervisor, Dr. Stefan Hellmer, for his invaluable guidance throughout the thesis. This Thesis Work wouldnt be feasible without his guidance and supervision. His encouragement and motivation was necessary and immensurable while conductingthis thesis. I appreciate his effortandpositivefeedbackinevaluatingandsupervisingmyresearch. Finally I would like to express my gratitude to Mr. Anders Nilsson, for his ability and speediness in evaluatingmyliteraturereviewandthesisproposal. Karlskrona,May2008 HristijanTodoroski

Abstract
This Thesis Work has examined the FDI effects on employment in the case of Poland. The main objective is proving how foreign capital inflows affect on job creation and recent unemployment rate (from 19912007) in different economic sectors. Valuable foundation has been discovered that indicate the consistent movement between foreign capital inflows and employment/unemployment in the years observed. FDIwerehoistingfromyeartoyear,buttheunemploymentratestillremainsonhighlevel. It is irrevocable fact that other neighboring countries have better utilized the foreign capital inflows in propitiating the unemployment especially among the young workers. The case of Poland was interesting to be inquired just because of high foreign investment but also high unemployment rate that in 2003 has exceed 20%. Theoretical and empirical examinations have shown plain influence of Foreign Direct Investment on employment creation in Polish economy during transition and after EU membership. From analytical approach wehaveascertainedthepositiveimpactthatFDIhaveonperformanceofdomesticindustryintermsofexport, import and GDP and labor productivity as well. Analytical findings attested that without domestic investment calibration as well as domestic firm evolvement cannot be expected foreign enterprises to contrive full employment among the labor force. Minimizing unemployment requires undertaking various actions and establishingpriorities.TherearesomepropoundsonhowunemploymentcanbereducedinthecaseofPoland. SomeeconomicareasareunfledgedandGovernmentshouldpolarizeiteffortstoadoptmoreforeigncapitalin those areas to support better utilization and by that reducing the unemployment. This Thesis Work has dissected the FDI effects on employment/unemployment in Poland due period of communist independence until EU membership and indicated whether they were successful or not. Sizeable increase in employment has been registered and is giving signal for even better results in foreseeable future. However when confronting with other economies from the former communist bloc, Poland still remains as country with highest unemploymentrateinEU. When analyzing other CEE experience with FDI in terms of cutting unemployment and favor employment, overall judgment is that FDI were not as much successful or better say utilized in Poland. Nevertheless we can confirm the FIEs role in improving employment structure and decline in unemployment rate among workable population. However surveys show better FDI harvest on employment in other neighboring countries then in Poland. The final inference is that the Polish economy was not in readiness to utilizeFDIinfluencewhenitcomestolabormarketcondition.
Keywords:FDI,Transition,Employment.

Tableofcontents Chapter1
Problemdiscussion. Researchobjective.. Methodology.. Methodsused. Thesisstructure. 6 6 7 8 8

Chapter2
Introduction 10 Investmentmeasures.. 13 Privatization 15 TheimportanceofFDIforthePolisheconomy 17 Economicperformances... 18 FDIoverviewbysectorsandregions. 21 SpecialEconomicZones. 24 MajorinvestorsinPoland. 25 MNCsandemployment. 26

Chapter3
FDIonnationallevel 28 Employment/Unemploymentfluctuations. 30 Chapter4 PrivatesectorinPoland.. 32 Privatesectorandemployment. 34 FDIandemploymentbydistricts........36 Chapter5 FDIcomposition.. 38 FDIconfigurationineconomicsectors 39 Polishlabormarket.. 41 Chapter6 Conclusion.. 44 References.. 45

CHAPTER1
Problemdiscussion
This paper presents potential effects of FDI on the quantity and quality of employment in the host economy,inthiscasePoland.Thequantitativeeffectsaredefinedasjobscreatedorlostandqualitativeeffects are defined as beneficiaries that foreign enterprises offers to domestic employees such as high wages, job security, upgrading skills and knowledge and technological spillovers for the local firms (see Anna Golejewska AnalyziIOpracowaniap.5,6,7,and8). Mostly I willrelyon the quantitativeeffectstotrytoshowthedirectmeasurable relationbetween FDI andemployment/unemployment. Governments are striving to attract more foreign companies since they can improve the technological and capital development, and are fully responsible for managerial and technological spillovers. But in some cases they bring only quantity instead of quality that will not have sizeable impact on the economic growth. However in the last few decades foreign capital accumulation seems to have respectable place in action to declineunemployment(seeEnderwick,1996andHunya,1998a). As many scientific editions and surveys shows high FDI penetration in Poland all years after 1990, high unemployment rate still gives signal for solicitude (see Boleslaw DomanskiForeign manufacturing investment inruralPoland:regularitiesandconditions). What was the weakness that FDI couldnt accomplish the same effect as they did in other Central European countries? This is a discussable theme that still needs investigating. I find it important to dissect the effect of FDI on employment and employment structure in Poland from the period of communist independence towards EU membership. I consider my Master Thesis as one contribution in understanding the roleofforeigncapitalinthehostcountrysunemployment.


ResearchObjective
Whendomesticbusinesssectortogetherwithpublicadministrationarenotsufficienttocreateenough jobs,onefocusshouldbeputonexternalinitiativeslikeFDI.Governmentsshallpolarizetheireffortsinseeking newwaysoftacklingeconomicproblemsandstimulationsforeconomicgrowthbyFDIaccumulations.Inquest forfastereconomicgrowthFDIisconsideredasonegoodsolution. CanFDIhavethesameinfluencewhenitcomestojobcreation? This Thesis Work is to examine the employment effects that come from FDI inflows in one host economyinthiscasePoland.Themainobjectivewastoprovehowforeigncapitalinflowsaffectonjobcreation

7 and recent unemployment rate (from 19912007) in different economic sectors. It is also valuable to indicate that while FDI accumulation were hoisting from year to year, still Poland remain to be a country with highest unemploymentrateinCentralEurope. It is an irrevocable fact that some Central European countries (Ex: Hungary) had benefit from foreign capital inflow in propitiating the unemployment especially among the young workers (see The Value of DiversityForeign Direct Investment and Employment in Central Europe during economic recovery). But the case ofPoland isinteresting tobe inquiredjustbecauseofhigh FDI accumulation but also high unemployment rate that in nova days overshot 20% (in 2003). Deeper scanning into Polish economy can give the right answer whether FIEs contribute to economic growth in terms of employment effects they brought. Thats why I consider this problem as very crucial to be tested since it will give new outlook what different countries can expectfromFDI. In my opinion this inquiry is interesting and can be efficient example for other countries that are strivingtoincreaseFDIinordertodecreaseunemployment. ItisverynormalforcountriestosearchforwaystobringonFIEswhenunemploymentisquitevisible. CountrieshavevastexpectationsofFIEssothiscouldbeusefulattempttounderstandtheirrole. As contribution to my Thesis Work I would like to give some suggestions and propounds about which spheres ofthePolisheconomyneedtobetransformedorbettersayimprovedinordertoattractmoreFDIandbythat tosubsidizeformorejobcreation.


Methodology
In my Thesis Work I rely on publications that come from Press releases, Statistics in focus, Central Statistical Office analyses and publications, statistics from National Bank of Poland (NBP), Panorama of the EuropeanUnion,UnitedNationReports,Catalogues,andKeyIndicatorsthatwillserveasfirststeptoapproach the problem. They gave me immediate key information through analyses, tables, graphs and maps. Supplementary datas concerning GDP growth, employment, and labor structure were enlisted from Euro stat surveysandPolishCentralStatisticalOfficepublications. In order to assess the determinants of FDI to employment effects I have assembled a large panel dataset that covers the period from 1991(transition start up) to 2007(3 years after EU membership). This exploration starts with detailed overview of unemployment/employment as well as FDI accumulated in all those years. By slightly comparison between foreign capital inflows and employment (unemployment) on a national level we can get broad image about what we can expect later in our analyses. This will be a starting point for another investigation in different Polish regions (Voivodeships) where the major focus is deposed on number of private entities, people employed and foreign capital inflows. Eventually this inquiry ends up with investigation of foreign capital inflows and employment/unemployment by different economic sectors

8 (manufacturing, services, agriculture, construction, trade). Thereby with deeper insight in economic divisions alongwithFDIamountsaccumulatedwecangetmoresharpviewabouttheroletheyplayedinthosedivisions. AsassistanceinmydocumentationandwhendrawingthefinalconclusionIwillcomeroundonFDIexperience fromotherCentralEuropeancountriesassupporttomyclaims. From this distance more acceptable way to investigate the FDI fulcrum onemployment is by crosswise comparison between employment/unemployment in different economic sectors and the amount of foreign capital inflow each year. The collection module, methods and nomenclatures, viewport, tables and research suittheneedsoftheanalystthatispreparedtospendmoretimeanalyzingandscanningtheproblembyusing verydetailedinformation,resourcesandtables.

Methodsused
This research is planned to be both deductive and inductive oriented. I will start with using existing publications and surveys done on the same research theme and try to involve them in my investigations. This literature will be used to reach broad image about different foundations and surveys previously made concerningtheFDIimpacttoemployment/unemployment.AfterwordIwillcomparetheliteraturefoundations with my own discovers. However using the inductive method will be another way to approach the problem. HereIwillmakemyownspeculationsaboutFDIinfluenceonemployment/unemployment. I will start with the hypothesis: FDI have significant role in cutting unemployment and upgrading employment among workable population and will test it by conferring to other foundations and surveys previouslymade.ByusingbothmethodsandaddingmyfoundationswilldrawthefinalconclusionwhetherFDI havebeeneffectiveinemployment/unemploymentinthecaseofPoland.

Thesisstructure
The Thesis contains three different stages. Each part will reflect different FDI impact in upgrading employment or declining unemployment. Chapters 3, 4 and 5 involve stages that represent the technical part ofthisThesiswhereempiricalinvestigationhasbeendone. Stagesareasfollows: First stage will start with comparing the foreign inflows and employment/unemployment rate on a national level. While investigating in this stage, the Least Square Method has been used as first step to approachtheproblem. Second stage will start with overview of the private sector in Poland. This will involve surveillance of the number of private establishments in each district, as well as private sector share in employment. Secondly

9 the amount of foreign capital accumulated will be taken in account as well investigating which district has distinguishedintermsofFDI,employment/unemployment,privateestablishments. Third stage will include deeper overview of the foreign penetration in each economic sector. I will makeaslightlycomparisonbetweennumberofemployeesinnationaleconomyandthoseemployedinforeign enterprises, the amount of FDI in each economic division will be taken into account as well. I have implementedthe modelused in The Value ofDiversity: ForeignDirectInvestment andemploymentinCentral EuropeduringeconomicrecoveryconductedbyT.Mickiewicz,SlavoRadosevic,UrmasVarblane.Iwillrelyon their model when drawing the final conclusion since they used the same one when investigating four different countriesinCentralEurope. TheoryandsurveysconcerningthelabormarketinPolandwasusedwhendrawingthefinalconclusion.

10

CHAPTER2

his chapter presents economic facts about Poland. Economic performances and privatization process have beenanalyzedtogetinitialbasisforfurtherdeeperanalyses.

Introduction
In 2004 Europe experienced the largest enlargement ever when honoring 10 new countries from the Central and Eastern block to join the Union. All these new members were excommunist countries, with one party system represented by the Communist party and centralized economy in particular. There were many prerequisites for all of them in the process of EU enlargement that in many occasions were harmful to their citizens.Reformprocessgotsomecriticsforitsinefficiencyandslowstartthatmostlyreflectsslowlyandheavy reforms typical for transition economies. The basic precondition of the successful transition of these socialist republics was their integration in the world economy along with economic and political reforms and their freenesstothetradeandforeigncapitalmovement. The process of privatization was the initial bullet for making suitable environment for a better and planned economic growth and by that making basis for foreign capital accumulation. All those reforms and regulative gave results in putting Poland closer to EU standards. Poland as biggest Central European country experienced maybe one of the highest economic growth before and after EU membership. Foreign capital accumulationalongwithEUaccessionplayedthecrucialroleinthatsense.Polandwasfarmorepopulatedand territorylargerthanotherCentralEuropeancountries. With almost 40 million inhabitants, Poland is the most populous country in CEE and among the countries aspirantsforEU.

Graph1:PopulationinCentralEuropein2001

Source:EuropeanCommission.EmploymentandlabormarketinCentralEuropeanCountries,2002p.13

11 Large population and strategic geographical location (bridge between Western Europe and Eastern Europe and Asia) can contribute in improving the investment climate in Poland. Few reasons why Poland can beconsideredasanattractivesightforFDIactivitiesincludethefollowing: InvestmentPotential Ranked1stinplannedinvestmentsinEuroepe Ranked2ndinEuropeinFDIConfidenceIndex Ranked5thintop10globalinvestmentdestinations HumanCapital 50percentofthepopulationunder35yearsold Nationwidenetworkof427centersofhighereducation StrategicLocation IntheheartofcontinentalEurope PartoftheTransEuropeanNetwork Competitivecostbaseofferssignificantlocationbenefits InvestmentIncentives Over90billioneuroavailablefordevelopment,infrastructureandhumancapital 14SpecialEconomicZonesandTechnologyParkswithincentives
Source:TheSarmatianReview.AnUpdateandAnalysisofthePolishEconomy.RichardJ.Hunter,Jr.andLeoV.Ryan,C.S.V.p.2,3

All these characteristics and attributes placed Poland among countries with best investment climate andbusinessstartup.Asforeigncapitalinflowswererisingprogressivelyfromyeartoyear,PolishGovernment put more effort to improve the infrastructure, public administration reforms, legislative in overall to improve the institutional setup. Inaccordance to thesemeasuresFDIwere imposing from yearto yearandremarkone successful transition economy. Over 38 million Polish today live far better and opulent than in years of communistregime. Howeverwithonly14.300dollarspercapita,PolandisstillfarfromtheoldEUmembersaverage,but the Polish economy is rapidly going forward. The economic growth in 2006 was 6,2%, and in the beginning of 2007thesamewas7,1%.Themainpartoftheforeigncapitalisinvestedinproductionsector(36%),infinancial services(20%)andintransport;logisticsandinformatics(8%)1. In some sense we can expect some employment variations in those sectors as consequence to more capital penetrationinthesame(seeTable1). After 1990 the capital inflow from EU designated insistent increase. In 1993 the whole FDI inflow from EU was 47% and in 2005 reached 82% of total foreign investment. After EU, USA is second important investor in Poland. Volkswagen, Procter & Gamble, Bridgestone, Microsoft, Nissan are just some of the foreign companiesthathaveshowngoodresultsfromtheirestablishmentsinPoland2.
1 2

http://todorovski.blog.com.mk/node/111603from(www.blog.com.mk)publicationsonthewebsiteareentirelyinMacedonianLanguage http://todorovski.blog.com.mk/node/111603from(www.blog.com.mk)publicationonthewebsiteareentirelyinMacedonianLanguage

12 Many hotels and financial branches had settle up their representative offices. In year 2007 Ernst & Young establishmenthasclassifiedPolandasoneofthe10topcountriestoinvestin3. Table1(Employmentsharesbycombinedeconomicsectors,qu.14,1999and2000)
PL sector CDE F G HI JK LQ AB 1999(Q4) 13.8 3.9 8.0 4.3 3.3 12.8 9.3 2000(Q1) 13.6 3.7 7.9 4.3 3.5 12.6 9.0 2000(Q2) 13.3 4.2 7.8 4.4 3.3 12.4 9.6 2000(Q3) 13.2 4.1 7.8 4.5 3.5 12.2 10.2 2000(Q4) 13.4 3.8 7.9 4.3 3.5 12.1 9.7

CDEmanufacturing,Fconstruction,Gtrade,HIhotel,JKfinanceandbusiness,LQpublicandpersonalservice,ABagriculture

Source:OnesectionfromTable3a.EmploymentandlabormarketinCentralEuropeancountries3/2001(EuroStat)p.22

But regardless of all these facts a number of unexpected economic problems arise. Unemployment rate is very high and was rising from year to year, which put Poland in the group with highest unemployment rate in EU (see Graph 6). The level of recorded employment rate is low, and there is visible number of economically inactive people (many of these may be active in the informal economy). This may be a signal for worryandthereismoretobedoneinsearchingforwaystoattractmoreforeigncompaniesthatmighthelpin thatmatter.

Graph2:Unemploymentrates20052007
Source:EUunemploymentwww.wikipedia.com

http://todorovski.blog.com.mk/node/111603from(www.blog.com.mk)publicationsonthewebsiteareentirelyinMacedonianLanguage

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Investmentmeasures
Previous surveys have repeatedly criticized Poland for high levels of product market regulation (PMR) and other barriers to competition. Much has been done to improve the situation, especially in terms of reducingthecostsofsettingupbusinesses4. Lower taxation may empty the public budget, but these subsidiaries will certainly give support to foreignanddomesticentitiesforhigherproductionandinmanycasesforhigherexportthatstillcanendupas internationalrevenueinthebudget. Nevertheless, underlying economic growth is likely to provide sufficient revenue for some combination of faster deficit reduction, moderate but welltargeted increases in growthenhancing public spendingandtaxcutsovertime5. ThishasbeenanotherprovethathighlighttheGovernmenteffortsinimprovingdomesticinvestment environment, and encouraging domestic enterprises to take part. Another basic element for higher foreign capital inflows was training and skills of the domestic labor force as well as reforms of the education system thatactuallyhappenedaftertransitionstartup. Better education and training background can help to a better involving of the labor force on the needsandrequestsofFIEs.InthestruggleforhighereconomicgrowthGovernmentalmeasuresforinvestment and economic policy reforms were more or less defined as successful considering the high interest for investment as well as high capital inflows each year. Some measures shouldnt be underestimated when it comes to improving and sustaining development. Conjunctively we disport some of them that were vital while developinginvestmentpolicy: Balancedmonetaryandfiscalpolicy Educationsystemreforms,supporttoundertaketrainingprograms Balancedlabormarketpolicy Reducingprerequisiteforprivateestablishment,givingsubsidiariesinsomeeconomicoccasions

Therehavebeenotherfactorsaswell,thathelptoattractFDIintoPoland,suchas: PolandsOECDmembership(asof1996)broughtnewqualityinproceduresandregulationsappliedto foreigninvestors,ensuring,amongotherthings,equaltreatmentonparwiththeirPolishcounterparts. Polands entry into NATO (1999) has been an encouraging factor, in that it ensured the countrys geopoliticalstability. Polands imminent EU membership and the implementation of acquis communautaire will surely help to create an ever more auspicious investment climate in Poland, thus boosting the allocation of directforeigninvestmentfunds.
Source:MarzennaAnnaWeresa.CanforeigndirectinvestmenthelpPolandcatchupwiththeEU?p.418

4 5

OECD.PolicyBriefEconomicSurveyofPolandp.10 OECD.PolicyBriefEconomicSurveyofPolandp.5

14 Poland was condemned to a higher investment ratio by measures and reforms that were giving benefits to bothdomesticandforeigncompanies: Capacitytoofferfairtreatmenttobothdomesticandforeignentities Taxrefundingforreinvestedprofit Alienationofanybarriersforforeigncapitalpenetration Givingrighttoforeignerstopurchaserealestate
Source:InvestmentOpportunitiesandPrivatisationinPoland.AgnieszkaWyrzykowskaDepartmentofEuropeanIntegrationandForeign Relationsp.17

HoweversomeoftheseimprovementswerewitnessingfortheGovernmentaleffortstospeedupthe transition process that was assuring better future for the Polish economy. Foreign capital inflows cannot be expected when domestic investment are at low level, so this step can contribute to a better business environmentwherebothdomesticandforeigncompetitorswillhaveusefulness. Tosubsidizeforabetteremploymentstructureanddeclineofunemploymentrateamongworkable population,Polandhasadoptednewinvestmentpolicythatallowsinvestorstobeexemptedoftaxforevery jobcreated6(TablesareusedfromthearticleInvestmentOpportunitiesandPrivatisationinPolandp.35). TaxexemptionforeveryjobcreationTaxexemptionforeveryjobcreation jobscreated exemption jobscreated exemption <515 1year <550 1year <1525 2years <50250 2years <2535 3years <250500 3years <3545 4years <5001000 4years 1000andmore 5years 45andmore 5years
Bialystok,PodlaskievoivodshipKobierzyce,Dolnoslaskievoivodship

Polish Governmenthasadopted a law on financial support for investmentthat entered into force on 19th of May 2002. Some of the measures include financial support to domestic and foreign firms for every establishment;thelawwassectionaltotheEUlegislativeforenterprisesubsidiaries7. Improvementsandreformshaveinfluenceforhigherinvestmentamplitudeinrecentyearsandestimatingover 41billiondollarsinyear2001.Therewassomemisbalancebetweencapitaloutflowsandinflows,butinoverall inflowsremainaboveoutflowsinallyears.
InvestmentOpportunitiesandPrivatisationinPoland.AgnieszkaWyrzykowskaDepartmentofEuropeanIntegrationandForeignRelations2006p.35 BasedontheMinistryofEconomy.EconomicPolicyofPoland

15 Table2:FDIinflows/outflowsfrom19902001 FDI Inflow(in mln) Outflow Inward stock Outward stock 1990 88 9 109 95 1992 678 13 1370 176 1993 1715 18 2307 194 1994 1875 29 3789 223 1995 3659 42 1996 4498 53 1997 4908 45 1998 6365 316 1999 7270 31 2000 9341 17 2001 5713 14

7843 11463 16593 22479 26075 34227 41031 539 735 678 841 1365 1025 1039

Source: Marzenna Anna Weresa tabulations from Polish National Bank (NBP) and UNCTAD data (Enlist from book Can foreign directinvestmenthelpPolandcatchupwiththeEU?)p.418

Foreigncapitalinflowsweresomewhatunsteadyinyearsafterbutstillgreat(11billionwereinvestedin2006), givingsignalforevenhigherexpectationinthefuture.

Privatization
Reformsofthemarketstructurehavebroughteconomicgrowthandstabilitythatwereregardedasa necessity for adopting foreign capital that previously was not in the focus of the Polish Government. All these reforms and alterations were needful so foreign investors can operate successfully on the market. But still the political instability as reality to new situation signaled to foreign investors that Poland did not accomplish the desirable climate suitable for doing business. Reform were harmful and entire process last too long. As expected the investment ratio was poor. As most significant step forward was the privatization process of the state owned enterprises together with reform of the banking system. The progress was slower than expected making inadequate conditions for more foreign capital presence. Political instability was another reason correlated to delays to transformation of state owned companies. FIEs were crucial for the privatization process as they gave new image to national economy that was planned one day to join EU. Many ways to a successfultransitionweretakenintoaccount. However liquidation method has proved the most successful. Around 55 per cent of those state owned enterprises registered in 1990 had been privatized by 1994 and the private sector's share of the economyhadrisentomorethan60percentofGDPbytheendof19958. More than onethird of the indirectly privatized entities were privatized with the participation of foreigncapital.Amajorityoftheseenterprisesoperatedintheareaofindustrialprocessing(73.5%ofthetotal) and, in particular, food and beverage production (13.3%). Directly privatized enterprises included those operatingintheareaofindustrialprocessing(37.4%),construction(23%)andcommerce(17.2%).Theassetsof privatized enterprises were usually transferred to employeeowned companies for use against remuneration

P.Cooke,R.WilsonandK.Bialon(1996)InwardInvestmentandEconomicDevelopmentinPolandp.2

16 (65.9%).Thelargestnumberofenterprisesliquidatedforeconomicreasonswerethoseoperatingintheareaof industrialprocessing(32.6%)andtheconstructionindustry(19.4%)9. Afterword all these divisions are recognizing high productivity, low unemployment rate and number of job created for years after investment. Many theoretical assumptions will underwrite that privatization along with proper modification of public firms will make them more suitable for foreign capital ingress. So far mostcompaniesthatpassunderthesereformsareshowinggoodresults.

TowalskiRafal(25.09.2002).Privatisationandindustrialrelations.

17

TheimportanceofFDIforthePolisheconomy
TheUSBureauofEconomicAnalysis definestheFDIasanacquisitionofforeignassets(based on residence) with the intention to exert control, which, in practical terms, usually means ownership of morethan10percent10. Why FDI is important for Poland? One illustration is the fact that after independence the national economy was somewhat weak because major market was lost (Ex: Soviet Union). Polish companies that mostly were in state hands were disoriented, unstructured and would have been easily bring to collapse if reforms were not to be introduced. Need for greater foreign capital presence was considered as one solution to overcome the problem. But despite of foreign inflows, other what give heed to is that FDI as resort to better economical performance cannot come on utterance without domesticinvestmentimprovementsandveers. The privatization process together with tax liberation in this occasion was first door to foreign investmentpresence.Reformedinvestmentandeconomicpoliciesaswellasstructuraladjustmentwere assistinginthatmatter. The main regression results indicate that FDI has a positive overall effect on economic growth, although the magnitude of this effect depends on the stock of human capital available in the hosteconomy11. Foreigncapitalcanbebeneficialforbringingonnewtechnology,knowhow.Indiceslikehigher productivity, technological development, human capital accumulation, technological and productivity spillovers couldnt be entirely achieved without foreign capital presence. However FDI impact on economic growth cannot be accomplished if not having proportional domestic investment activeness. Foreigncompaniesmaybeorientedjustonthelocalmarketorcouldbeexportoriented. When local oriented mainly they strive to increase domestic market share, competitive level and holdover capitol part of the customers. When export oriented the main aim is to seek for new destinationwherestartupandproductioncostswillbelower,andrawmaterialsanddiversifyresources willbesecured12. Foreign investment enterprises operating in the host market always create some positive externalities, which can provide positive feedback to sustain growth in the long run. These externalities are an effect of technology transfer and technology spillovers. They can also be created indirectly throughsubcontracting,strategicalliances,licensingagreementsorimportofcapitalgoods13. Acquiring new technology can be done through a variety of channels. There are two ways of achievingtechnologicaldevelopmentandupgradingtheeconomicperformanceofdomesticcompanies:
10 11

ValerijaBotriandLorenakufli.MainDeterminantsofForeignDirectInvestmentintheSouthEastEuropeancountries. p.3 E.Borenszteina,*,J.DeGregoriob,JW.Leec.Howdoesforeigndirectinvestmentaffecteconomic1growth?p.123 12 GborHunyaandIngoGeishecker.EmploymentEffectsofForeignDirectInvestmentinCentralandEasternEuropep.3 13 MarzennaAnnaWeresa.CanforeigndirectinvestmenthelpPolandcatchupwiththeEU?Article2.1Technologyandinnovation

18 Purchasingorlicenseforeigntechnologicalequipment Opennesstoforeigninvestorsthatcanbringuponnewtechnology In the case of Poland the second choice was more visible. FIEs were counted as capitol cradle to higher technologicaldevelopmentthatinsomelevelhelpPolandtocatchupwithrestofEU. As resource for better capital, technological and managerial improvement, foreign capital inflowscanhelpaswelltobetterpovertysituationoftheeconomy.Foreigncompanieswillbringonnew knowledgeandskills. Local companies can learn and use management styles from Multinational Enterprises. Modern advanced management is introducedby foreign investors and helpto raise the competitiveness andeffectiveness.Positiveeffectsoftenemergethroughinvestorswhotraintheiremployees,inorderto improvethehumancapital14. FDI will bring influx of experts, new management techniques, innovations, efficiency growth, rise in living standard and etc. In some cases foreign presences can help to better environmental progress. We can expect FIEs to contrive in this matter by bringing clean technologies, adopting strict environmental standards and regulations as well as implementing new environment management system.

Economicperformances
Inthetransitionprocesstheeconomicgrowthcanberegardedassatisfactory.Insomerespect Poland can be considered as successful transition economy that accomplishes an economic turnaround. Economic activity as well as foreign investment is recording significant growth, giving signals for even bettergrowthinthefuture.Surveillancemadethroughyearsshowspromisingeconomicperformancein termsofGDP,export,importandetc.
NielsEimers,Jan Toorman, JorisNouwens.Theeffects of ForeignDirectInvestmentonlocalcompanies.Case:ThePolishconstructionsector. p.14
14

19 Table3
GDPatmarketprices(Zlbn) GDP(US$bn) RealGDPgrowth(%) Consumerpriceinflation(av;%) Population(m) Exportsofgoodsfob(US$m) Importsofgoodsfob(US$m) Currentaccountbalance(US$m) Foreignexchangereservesexcl gold(US$m) Totalexternaldebt(US$bn) Debtserviceratio,paid(%) Exchangerate(av)Zl:US$ 2003(a) 843.2 216.8 3.9 0.8 38.2 61,007 66,732 4,599 32,579 93.7 24.8 3.89 2004(a) 924.5 252.9 5.3 3.5 38.2 81,862 87,484 10,677 35,324 97.3 34.6 3.66 2005(a) 982.6 303.9 3.6 2.1 38.2 96,395 99,161 5,105 40,864 98.8 28.7 3.23 2006(a) 1,057.7 340.8 6.1 1.0 38.1 117,294 122,247 7,926 46,381 121.5(b) 17.5(b) 3.10 2007(b) 1,164.2 409.9 6.5 2.3 38.1 137,533 147,648 13,353 57,008 151.0 16.5 2.84

(a)Actual.(b)EconomistIntelligenceUnitestimates. Source:Sep27th2007FromtheEconomistIntelligenceUnitSource:CountryProfile http://www.economist.com/countries/Poland/profile.cfm?folder=Profile%2DEconomic%20Structure

From the foundation above we can perceive the significant progress in terms of GDP and export, butin import unitsas well. Main export destinations are Germany,Italy, France and UK.Asmain importersareGermany,Russia,ItalyandChina. WhencomparingtootherCentralEuropeancountries,Polandmaybestillstaybehindinterms of unemployment and GDP per capita. However the GDP growths as well as economic growth are far from being underestimated. Polish GDP growth was growing with 6,1% in 2006, and 6,5% in 2007 with predictionsforevenbettergrowthinfuture. Poland is a large and increasingly open economy: exports account for roughly one quarter of GDP, which makes the openness of the Polish economy comparable to that of EU Member States of a similarsizeintermsofpopulation15. IntermsofexportFIEshaveplayedcrucialroleinraisingtheexportbutalsoimport. Foreign investment not only contributes to modernizing the economy but also influences Poland's foreign trade. Companies with foreign capital involvement are the major source of trade growth,accountingforover60percentofthecountry'sexportsandimports16. Poland continues to expand its exports especially to the EU nationsfurther distancing the Polish economy from its heavy industry orientation toward the former Soviet Union. Receipts from
Agenda2000CommissionOpiniononPolandsApplicationforMembershipoftheEuropeanUnion.DOC/97/16Brusselsp.26 RatajczykAndrzej.Polandisattractingmoreandmoreforeigninvestment,asdemonstratedbythelastyearsrecordofnearly15billionUS dollars.
16 15

20 exports expressed in the euro increased by 10.2 percent and exporters reported that their sales increased on a yeartoyear basis by an impressive 39.7 percent, with threequarters of Polish exporters reportingnetprofits.ExportstotheEUnowaccountfornearly70percentoftotalPolishexports.17 As an open market economy Poland facilitate higher foreign financial presence. This enables adoptionofforeigncapitalinsectorsvitalforthewholeeconomythatwerepreviouslyinpoorcondition (Ex:Manufacturing sector). As one of them, manufacturing division manages to collect the highest amount of FDI, helping to maintain the development that in years after independence was to be left in badcondition. The manufacturing sector experienced strong productivity growth. Between 1994 and 1996, manufacturing output grew by almost 10% per year, while employment remained roughly constant. Most other manufacturing industries show similar output growth. The manufacturing of motor vehicles, by far the fastestgrowing industry, nearly doubled. Several western and East Asian car manufacturers haveopenedassemblyoperationsinthecountry18. Main contributors to GDP were agricultural and forestry products, industry, construction, trade,transport,financialservices,publicadministrationandgovernmentservicesinsomerespective.As main export items machinery, transport equipment, manufacturing products, miscellaneous goods, food &liveanimalsconsistthemostoftheexport19. Table4
Periodofobservation 1993 1994 FDI(inmln)
2830 1491 5,2 1995 2510 7 1996 5107 6 1997 1998 1999 2000 2001 2002 2003 2004 2005 9515 4,5 5678 9574 7891 10601 7116 6064 6420 12355 6,8 4,8 4,1 4 1 1,3 3,8 4

GDPgrowthrate(in%) 3,8

Source: Based on calculations from Off shoring Emerging Opportunities for Poland and the Lublin Region. Matylda Bojar. p.3,5

GDP growth rate was increasing till year 2000 and afterword designated some fluctuations with drastic decline in 2001 and 2002 (only 1%). In 2001, 2002, 2003 foreign capital inflows have been poor and had negative effects to GDP growth rate that achieve improvement in years after (2004 and 2005).Overaperiodfrom1993to2005theaverageannualGDPgrowthratewas4,3%.Intheyearsafter independence we can certify the cohesion between foreign inflows and GDP growth that in some years comeatlowestlevelwhenFDIwerepooraswell. Districts having the highest GDP per capita income are as follows: Malopolskie, Wielkopolskie, Mazowieckie, Pomorskie, and Dolnoslaskie. Remarkable GDP growth can be found in districts as ZachodnioPomorskie,SlaskieaswellasinKujawskoPomorskieandLubuskie20.

17 18

RichardJ.Hunter,Jr.&LeoV.Ryan,C.S.V.TheSarmatianReview.AnupdateonthePolishEconomy Agenda2000CommissionOpiniononPolandsApplicationforMembershipoftheEuropeanUnion.DOC/97/16Brusselsp.21 19 Basedontablesandgraphsfromhttp://www.economist.com/countries/Poland/profile.cfm?folder=Profile%2DEconomic%20Structure 20 BasedontheassumptionsfromBusinessPortalforPolandor(http://www.polishmarket.com/index.php?item=5)

21 The essential ingredients for a rapid economic upturn are now in place: the ongoing efforts to cut expenditure have resulted in a considerable improvement in the financial position and liquidity of companies21. However summarized by GDP per capita Poland takes the last place among all other countries inCentralEurope,farbehindSlovenia,CzechandHungary.

FDIoverviewbysectorsandregions
Foreign investments have been mostly situated in the industrial processing, construction, finance and financial intermediaries and IT sector and transport. In this occasion it is needful to be mentioned that all this divisions were characterized by high productivity, as well as number of job createdtowhichIwillfocusfurtherinmyanalyses. ProfileofcombinedFDI*asoftheendof2004(%)
Manufacturing(excludingproductionofmeansoftransport)39.9 Financialservices23.4 Tradeandrepairs11.8 Transport,storageandcommunications9.7 Manufactureofthemeansoftransport8.3 Construction2.6 Power,gasandwatersupply4.0 Other8.6

Source:PolishInformationandForeignInvestmentAgency(PAIiIZ) (Found The Automotive and Transport Equipmentsector in Poland, Polish Information and Foreign Investment Agency www.paiz.gov.pl)p.8)

Each Polish region distinguishes by its investment potential and attractiveness for companies operating in different economic sectors. However from analyses made, all these divisions mentioned above recognized highest amount of FDI accumulated. Different districts are offering different potential and attractiveness for foreign capital penetration. In further illustration I present the attractiveness of each Polish district in adopting FDI. Each region shows different potentials and capabilities to attract foreign capital, and in order to help and facilitate this claim I present map of Polish regions and their capitols(mapisusedfromwww.paiz.gov.pl).

21

BankAustriaCreditanstalt.InvestmentGuidePoland.3rdEdition,July2004.P.12

22

Figure1:RegionalmapeofPoland Automotive. Districts as Wielkopolskie, Mazowieckie, Dolnoslaskie, and Slaskie have been foundasmostattractiveforinvestmentintheautomotiveindustry22. The major centers for automotive industry are Katowice, Wroclaw, Poznan and Warsaw. Major part of the production is consist of engines, rubber parts, car seats, auto electronics, electrical cables, braking system parts and etc. Companies operating in this sector are as follows: General Motors, Isuzu,Man,Michelin,Toyota,Volkswagen,VolvoandFIAT23. The automotive FDI reflects 8% of the total FDI value in Poland and 25% of the FDI value located in the industry (PAIiIZ 2005). The biggest foreign automotive investors in 2005 were Fiat Auto Poland (1,6 billion USD), General Motors Corporation (1 billion USD), Volkswagen AG (835 million USD) andToyota(507millionUSD)24. The utilization of SEZ (Special Economic Zones) was high beneficial since many automotive companiesplacedtheirfactoriesinthesezones(GeneralMotors,Delphi,Toyota,Isuzu).

22 23

forforeigndirectinvestments.p.8

AssumptionsaremadebyusingCSOstatistics,InvestmentGuidePoland3rdEditionandwww.paiz.gov.pl http://www.paiz.gov.pl/index/?id=769ac34a4012ab69c069de0bab7d9e81 24 AndrzejMaksymiuk.WorkingPapersinManagement,FinanceandEconomicsNo.2.TheattractivenessoftheautomotiveindustryinPoland

23 Construction. Districts as Opolskie, Swietokrzyskie and Mazowieckie have shown as more suitableforthissector25. FewyearsbeforeandafterEUenlargementthissectorwasbooming,adoptinghugeamountof foreign capital. Warsaw as capital was most desirable in this respect since in previous years many buildingsandinfrastructuralprojectswererealized. The Polish construction sector is highly fragmented, but the largest construction groups are Exbud, Budimex and Mostostal Warszawa, all of which now have foreign investors, some of whom have increasedtheirholdingsinthepastyear.Theincreasingpresenceofforeigncontractorsandinvestorsis introducingcompetitionandencouragingconsolidation26. Metal and metal products. Swietokrzyskie as district has indicated as most suitable for this 27 sector . Industrial processing of metal and metal products has been the most develop branch in years under Soviet Regime. Years after independence this sector suffered economic collapse. Not proper reforms, and transformation as well as low technological up growth, made him harmful and unprepared forchangesintheindustry.Howeverinyearsafterindependencemanyinvestorshaveshowninterestin investmentinthissector. Butwhatisactivelytomentionisthatthenumberofemployeeswasreducedespeciallyinthe steel production, falling from 87,000 in 1997 to 30,000 workers in 2003. There are four main mills, Huta Senszimira,HutaFlorian,HutaCedlerandHutaKatowicewhichtogetheraccountforsome70percentof domesticoutput.PolandisnowtheworldsfourthleadingshipmakerwithaUS$4billionorderportfolio and, unlike its main competitors in South Korea, Japan and the EU, does not subsidies production. The main shipyards are at Gdynia and Szczecin. Both are controlled by their management as a result of successfulMBOs28. Food products. Zachodniopomorskie, Lubuskie, Opolskie, KujawskoPomorskie, Varminsko mazurskie,Podlaskie,Mazowieckie,Lubelskieareregionsmoresuitableforthisbranch. The food industry accounts for some 20 per cent of the added value of the entire manufacturing sector, and some 25 per cent of its total production (compared with 15 per cent in the EU).Morethan90percentofthesectorisinprivatehands,andthereishealthycompetitionamongthe mainly mediumsized enterprises. Annual investment ranges around US$ 1.5 billion. In the 1990s, some US$ 11 billion was invested, of which US$4.6 billion camefrom abroad. As main investors in thisbranch areCocaCola(UK),Nestle(Switzerland),HarbinBV(Netherlands),Heineken,PepsiCo,MarsInc(US)29.

25 26 27 28 29

AssumptionsaremadebyusingCSOstatistics,InvestmentGuidePoland3rdEditionandwww.paiz.gov.pl PolandInvestmentProfile2001.BusinessForum.LondonApril2001.p.21,22

AssumptionsaremadebyusingCSOstatistics,InvestmentGuidePoland3rdEditionandwww.paiz.gov.pl
PolandInvestmentProfile2001.BusinessForum.LondonApril2001.p.25,26 PolandInvestmentProfile2001.BusinessForum.LondonApril2001.p.16

24

Specialeconomiczones
Currently there are fourteen SEZ (Special Economic Zones) existing in Poland. Their main purpose is to offer foreign companies suitable environment to set up their businesses along with Governmentassistanceandsupport.Privilegesthattheyofferareasfollowing: terrainpreparedforinvestment,availableatcompetitiveprice exemptionfromrealestatetax freeassistanceindealingwithformalitiesrelatedtoinvestment grantsforemployeetrainingprograms grantsforcreationofnewjobs
Source:http://www.polandguangzhou.com/en/content/280.htm

In struggle for more investors SEZ were crucial component of the Governmental investment policy.Theresultisobvious,manycompanieshavesettleduptheirbusinessinthesezonesutilizingtheir privilegesandmakeprofit. Table5:SEZandforeigncompaniesthatoperatesinthem SEZ KamiennaGora Katowice KostrzynSlubice Cracow Legnica Lodz EuroParkMielec Pomorze Slupsk Starachowice Suwalki Tarnobrzeg Walbrzych WarmiaMazuria In the first place companies from automotive industry as well as manufacturing companies have shown great interest to invest in these zones. Since then many firms from trade, construction, pharmaceutical,chemicalandfoodprocessingsectorestablishedtheirbusinessesintheseareas30. Companieswithforeigncapital TakataPetri,SOPP,CeramikaMarconi,CM3Polska,BDN,Lubatex,Autocam Poland Opel,GeneralMotors,FIAT,IsuzuMotors,DelphiPolska,MartiferPolska FaureciaGorzow,VWPoznan,PodravkaPolska,BarlinekSA,ICTPolska MotorolaInc,RRDonnelley,AMS,ComArchSA,AZSoftSA,ABMSolidSA Volkswagen,Sitech,ViessmanTechnikaGrzewcza,GatesPolska,TBMeca,Royal Chipita,HTLancet,WKiZBSA,Kofola,DSSmithSA,GiletteInternational KronoflooringMielec,BRWSp,Formaplan,OndulineProduction AllTech,AmhilEuropa,GemplusPologne,Hubner+Suhner,MBFSp,Tapflo AthleticManufacturing,Bajcar,ElfaPolska,HomeSystems,PPPProbet,PHU Romex BaumaSystem,BiellaPolska,Cerrard,CersanitIISA,STARDUST PortaKMISystem,MasaDecor,Malow,Recman,IdeaNord Stahlschmidt&Maiworm,Toora,Sanfarm,BTBB,EchoMedia,Poldec Toyota,Electrolux,Wrozamet,Polar,Bridgestone,WABCOPolska,CersanitIIISA MichelinPolskaSA,LGElectronics,BRUSSPolska,DFM,Synergis,WMGlass

Source:RatajczykAndrzej(06.04.2007)

30

http://www.paiz.gov.pl/index/?id=094bb65ef46d3eb4be0a87877ec333eb

25

MajorinvestorsinPoland
Almost 60% of the FDI comes from EU. Respectively Western European countries were the majorinvestorsinallyearsdue19902007andpredictionsaretobecapitolinvestorsinyearsafter31.

Graph3:FDIbycountry(in%)
Source:BankAustriaCreditanstalt.InvestmentGuidePoland.3 Edition,July2004.P.7
rd

PolandbecamethelargestrecipientofforeigncapitalinflowsinCentralandEasternEurope. The largest inflow of capital amounting to over euro 13.9 billion came from France, with France Telecom participation in TPSA playing a major role in this respect.France is followed bytheNetherlands with euro 9.9 billion, with United PanEurope Communications N.V. accounting for the bulk of the investments. Investments from the U.S also amount euro 8.7 billion. The most important investors from thiscountryareGeneralMotors,GeneralElectric andCitibank.GermanyisrankedfourthintermsofFDI with an investment volume of euro 8.4 billion, thanks in part to the activities of Bayerische Hypo und VereinsvabnkAGandtheMetroretailchain32.

31 32

Assumptionsbasedondeclarationsfrom(InvestmentGuide/Poland3thEditionJuly2004;CSOofPoland;www.paiz.gov.pl) BankAustriaCreditanstalt.InvestmentGuidePoland.3rdEdition,July2004.p.7

26

Multinationalcompanies(MNCs)andemployment
MaybethebiggestbenefitthatcamefromEUandMNCsisthattheyhadsignificantleveragein changing and improving the labor market of each country applicant and making it suitable to European standards. Transition process as mentioned before was a bit harmful that left thousands of workers on streets.ButmaybeitwasanewstartingpointforthePolisheconomy,wherebyusingtheforeigncapital presence they accomplish to make the national economy more competitive and persistent on external changes and threats. Foreign capital was necessity in terms of helping people to keep their working places. After communist collapse the expectations for high unemployment were becoming reality. But the strong tendency to bring upon foreign investors as well as using the EU accession funds gave them goodbasistoovercomethisproblem. Duringthelastdecadeforeigncapitalaccumulationseemstohaverespectableplacebothfor technologicaldevelopmentanddecreaseinunemployment33. Mergers and acquisitions are expected to be the most popular form of FDI in the CEE countries. The immediate effect on employment may be to reduce employment as the MNE tries to restructure the operations and work more efficiently. Studies of the OECD found that foreign firms create new jobs faster than domestic enterprises. A period of downsizing was often followed by new investmentsandemploymentincreasedagain34. MNCs seem to have crucial role in hiring workers all over the world. Employment within MNCshasincreasedfrom45million(inmiddle70s)upto70million(beginningof1990s)35. Countries are recognizing the potential value of FDI and have liberalized investment policy and start promoting their country attractiveness for foreign investment. Many of them are engaged in international and bilateral agreements which are step further to globalization and open market economy36. As basic prerequisite to globalize engagement was reforming the private sector that in case of developedcountrieswasandstilliscapitolforceforeconomicgrowth. In the case of Poland MNCs were the major investors in the competitive sectors (services, manufacturingandetc)andbythatinfluencetomorejobcreationbutalsotojoblosses. Many new jobs can be expected from export oriented corporations that mainly outburst as Greenfield investment or company take over after privatization. Greenfield investments are more
TomaszMickiewicz,SlavoRadosevic,UrmasVarblane.TheValueofDiversity:ForeignDirectInvestmentandEmploymentinCentralEurope duringeconomicrecoveryp.4 34 KristianstadUniversity.Authors:NielsEimers,JanToorman,JorisNouwens.TheeffectsofForeignDirectInvestmentonlocalcompanies. Case:ThePolishconstructionsector.p.17 35 TomaszMickiewicz,SlavoRadosevic,UrmasVarblane.TheValueofDiversity.ForeignDirectInvestmentandEmploymentinCentralEurope duringeconomicrecoveryp.5 36 P.P.AWasanthaAthukorala.TheImpactofForeignDirectInvestmentforEconomicGrowth:ACaseStudyinSriLanka.p.4
33

27 prevailed in trade, real estate as well as in medium and hightech industries. Domestic oriented companies that particularly outbursts through acquisition of domestic company is situated and hold the financialsectorandtelecommunicationswhilelowerpresenceinmanufacturingdivision37. FromthestatisticsderivedfromCSOofPoland,foreigninvestmentsespeciallythoseoutbursts in Greenfield had contrive to number of job created. But contrary some MNCs interacted in service sectorcanbenefitbyreducingthenumberofemployeethatcanexertasnegativefortheeconomy. Most of them enter by type of acquisition so in order to adjust on the market conditions and reanimate fastprofitabilitystartedwithreducingthenumberofemployee.SomeofthebeneficiariesthatMNCsare responsibleforareasfollows: Makingpressuretodomesticcompaniestoincreasetheproductivity Enablesdomesticcompaniestouseforeigntechnologyandequipment Improvesandenlargethecompetitionintheeconomy Poland is still facing high unemployment rate and MNCs can help in that respect. In further analyses it is directlyemphasizedtheforeigncapitaleffectonemployment/unemployment.

GborHunyaandIngoGeishecker.EmploymentEffectsofForeignDirectInvestmentinCentralandEasternEuropep.7 MNCsMultinationalCompanies.Isacorporationorenterprisethatmanagesproductionestablishmentsordeliversservicesinatleasttwo countries(www.wikipedia.com).

37

28

CHAPTER3

his chapter consist both theoretical and empirical models. The empirical approach was used in the firstheadlinewhileothersgiveassertionthroughtheory,graphsandtables.

FDIonnationallevel
When conducting this stage we start with the hypothesis that B1 as coefficient of bow that implies the correlation between FDI and unemployment should be negative. This means while FDI amount is increasing the unemployment should decrease. In evaluating the correlation between foreign capital inflows and number of unemployed people the Least Squares Method from the book (Vesna BucevskaZbirkazadaci poekonometrijaSkopje:Ekonomskifakultet,2003)wasusedassupporttomy demonstration.Asmethod used inregression analysis, this model will help inobservationof parameters to get optimal fir of the data. Datas and informations are used in numbers as well as x and y like unknown and known quantities is rendered in numbers. In this case FDI is substantive unit (X) and unemployment is dependent unit (Y). Only units (both in FDI and unemployed persons) from the period from1997to2001wereobserved. Table6 Year 1997 1998 1999 2000 2001 Table7 period FDI(inmln) 1997 4343 1998 5676 1999 6824 2000 10334 2001 6372 Numberof unemployed(in000s) 1.826,4 1.831,4 2.349,8 2.702,6 3.115,1 Unemployment rate(in%) 10,3 9,6 12 14 16,1

Source:Thedynamicsofunemploymentfrom1990to2002.JuliuszGardawski

Source: one part from the Table A1 from Gabor Hunya and Ingo Geishecker. Employment Effects of Foreign Direct InvestmentinCentralandEasternEuropep.31

DatasusedintheLeastSquareMethodcanbefindinthetable8.

29 Table8:ComparisonbetweenFDI/unemployedpersons n period FDI(inmln) unemployedpersons(in000s) 1 1997 4343 1826,40 2 1998 5676 1831,40 3 1999 6824 2349,80 4 2000 10334 2702,60 5 2001 6372 3115,10
Source:CSOofPoland

B1 is coefficient of bow (B1=0,14), and evaluate the increase of Y for one unit of X. B1
expressthemarginalchangebetweenthevariables.Inparticularitshowsthecorrelationbetweenthese twovariablesXandY,meaningthatifXincreasesbyoneunitthenYshouldincreasefor0,14units. From the calculation made we found that B1=0,14 this means that B1 is positive and it is opposite of our expectation. This result disproves our hypothesis which relies on the disproportional correlation between FDI and unemployment where we expected the unemployment rate to decline whileFDIwereincreasing.InsteadtheresultshowsFDIgrowthandunemploymentgrowthinsametime.

B0 is free subpart (or segment) and shows the level of Y if X=0. From the calculations it
shows that Bo=1425, 688 which means that if FDI=0 then the number of unemployed person will be 1425,688 (for 5 years period). This may emphasize the correlation between FDI and unemployment leadingastoperceptionthatunemploymentcantdeclinewithoutFDI. As additional definition the explicit Coefficient of Determination (R) is used to explain the fluctuationsintheunemployment.

R shows in what dimension the fluctuations in Y are stipulate from the fluctuations in X.
FromthecalculationsR=0,3122thecorrelationis0R1. This tells that the variation in unemployment is not sufficientlydependent from the variation in FDI. But whenR=0,3122,(0,3122x100=31,22%)or31,22%unemploymentrate,thenshouldbeunderstoodthat unemploymentisdependablefromFDIamountaccumulated(fortheperiodobserving).

RxyisameasureforevaluatingtheleveloflinearconnectionbetweenXandYintherange
ofNobservations(CoefficientofCorrelation).

FromthecalculationsRxy=0,56expressthelinearcorrelationbetweenFDIandunemployment fortheperiodof5years. From the investigation and comparison made in this stage the foundation is that there is slightly relationshipbetween FDI andunemployment in years observe. Howeverthiscouldnotbe strong evidencefortheircorrelation,somoreanalyseshavebeenmadeinthenextstages.

30

Employment/unemploymentfluctuations
From the statistics available we can see that unemployment rate was somewhat unstable and rising from year to year, estimating almost 20% in year 2002 and 2003. But what is notable is that in all theseyearsforeigncapitalinflowswerepoorandinsufficienttosubsidizeforthenumberofjoblosses. Forinstancejustinyear2002theforeigninvestmentinvestmentsreachthelowestlevelandwereonly US 6064 million compared to US 7116 million in 2001. In year 2003 the foreign inflows stay on a same level estimating US 6420 million making no changes in unemployment rate that stayed in same range of 20%forthewholeyear38. Realizingthatinyearswhentheunemploymentwasveryhigh,theFDIwasonthelowestlevel that gives some doubts about the correlation between these two variables. From Table 4 we can truly witness the FDI impact on productivity that directly demonstrates the low level of GDP when FDI were pooraswell. Table9:Unemploymentratefluctuationsthroughyears year 1997 1998 1999 2000 2001 2002 2003 Unemployment(in%) 10,3 10,4 13,1 15,1 17,4 20 20
Source:CSOofPoland

2004 2005 2006 2007 19 17,6 14,8 11,4

In the big Polish cities there is almost full employment, and according to CSO of Poland, it is under 4% that can be count as normal unemployment. The lowest rate of unemployment is in City of Sopot(3,5%)and under4% unemploymentcan befound in Warsaw, Poznan, Gdynia. In othercitiesthat are crucial for the Polish economyKatowice, Krakow and Gdansk the unemployment rate drop under 5%. In the big cities we accomplished economic balance, there is no real unemployment, 4% unemploymentiscountasnatural,meaningthatunemployedarejustthosethatdoesntwanttowork. MichaelBonyfromtheCenterforsocialeconomyanalyses39. In actions to reduce the unemployment from 20% in 2003 to 10,5% in 2007, the most significant help came from EU funds and support loans. According to calculations of the Ministry for regional development, from 853.000 working places opened in the period from 20042006, almost 320.000wereopenedthankfullytodonationsfromEUfunds40. EU funds did play a crucial role in reducing unemployment but FDI tempt to have the same effect. Starting from the assumptions that foreign capital was crucial cradle for GDP growth, export or economic growth in overall, the employment effects cannot be suppressed. Despite EU support in upgradingemployment,FDIrolewasalsoremarkableinthesamesense. There is a positive dependence between the number of foreign companies and number of personsemployedasitwasbetweenforeigncapitalinflowsandemploymentasshowninpreviousstage.
38 39

AssumptionsaremadeontheexcogitationsfromCSOofPolandsection:Labor,Incomesofpopulation. http://www.panoptikum.com.mk/index.php?option=com_content&task=view&id=6628&Itemid=124 40 http://www.panoptikum.com.mk/index.php?option=com_content&task=view&id=6628&Itemid=124

31 The table presented below shows direct correlation between foreign enterprises established and numberofjobstheycreated.Nextgraphshowsthenumberofpersonsemployedinentitieswithforeign capital(thehorizontalabscissapresentthenumberofentities).

Graph4:Numberofforeignestablishments/numberofpersonsemployed
Source:CSO.Economicactivityofentitieswithforeigncapitalin2006

FDI also produce a variety of qualitative effects. Foreign companies usually work more productively. Therefore, and in order to prevent undesirable labor migrations, they offer higher wages. Indirectpositive effects include spreadof goodmodels of work organization and management.Negative impactcanbefeltinthefieldoflaborprotectionorexistingwagelevels41.

41

MatyldaBojar.OffshoringEmergingOpportunitiesforPolandandtheLublinRegionp.9 CSOCentralStatisticalOffice(inthiscaseCSOofPoland)

32

CHAPTER4

his chapter gives overview of the private sector in Poland and involves synopsis of the number of private establishments by regions, as well as private sector share in employment. The amount of FDI, employment/unemployment, private establishments was taken into account whenmakingdistinctionbetweenregions.

PrivatesectorinPoland
Transition from communist to open market economy required numerous reforms and improvements to be made. One was to uphold the private sector that was viewed as potential driving forces to better economic improvement. In fact the private sector was and still is the basic clipper for economic growth in developed countries. Sustainable development of the private sector by stimulating small and medium enterprises to expand can just assist Poland to catch up with other developed countries. With encouraging competition among different business areas and supporting companies to higher presence could be significant progress in transforming and creating extensive private sector. Like other excommunist countries, Poland has experienced risk of economic bribery in some economy divisionsthatmayaffectonproperfunctioningoftheprivatesector.Belatedoperatinganddetractionof corruptionmayaffectbadlyonentrepreneurialaspectofthedomesticcompanies.Anotherproblemcan arise if having slow and inefficient public administration that occurs to be major obstacle in contriving betterinvestmentenvironment. High public spending, slow and unreformed tribunal mechanism, complex procedures for establishing business are yet another problems that influence on real economic outcome in one host economy.HoweverinmyfurtherdescriptionofthePolisheconomyIwillillustratetheimprovementthat Polandmadeinthatsense. Polands leadership in the region in terms of private sector expansion and public sector contractionwasbeingsubtlyundermined.WiththesecondLawofEconomicActivity,passedin1999,the parliament has now sharply reduced the number of activities subject to licensing and created a comprehensiveapproachtolicensingandpermitrequirements42. Entrepreneurship more often is considered as the main condition of socialeconomic development and as key factor to achieve competitiveness in scale of the entire economy. Rapid development ofentrepreneurship inPoland,inthesimplest way understood asinclination to create and runowncompanies,wasaphenomenoncharacteristicforinitialperiodoftransformation43. The involvement of the private sector in the Polish employment structure was yet another part that needsmoreattention.FromprimaryanalysesIcansuggestthatprivatesectorrepresentedbothbysmall and medium enterprises have contributed to more jobs created, and FDI influence as part of this is
42

http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPUBLICSECTORANDGOVERNANCE/EXTANTICORRUPTION/0,,contentMDK:20222036 ~menuPK:384461~pagePK:148956~piPK:216618~theSitePK:384455,00.html 43 EntrepreneurshipinPoland2007.MinistryofEconomy.AdoptedbytheCouncilofMinisterson27July2007Warsaw,p.5

33 indispensable. FIEs together with domestic companies (small or medium) assist in job creation in all CE andEEcountries(Graph5).

Graph5:RisingShareofPrivateSectorEmployment
Source:http://www.galbithink.org/topics/unemp/unemp.htm

In Poland by the end of 2005, over 3.6 million economic entities were registered of which 96.2% were enterprises from private sector. Major group among registered enterprises were micro undertakings, i.e. approximately 95.1% of the total number of enterprises. Small enterprises had a 4.0% share, mediumsized ones0.8% and big enterprises0.1% ofthetotalnumberofenterprises operating in Poland44. About 3.2 to 3.5 million people are employed in this Sector, i.e. approximately 20% of the total number of employed in the economy (on average 2 people in one enterprise). In the year 2003

private enterprises generated 79% of GDP and approximately 55% of employment in the nationaleconomy45.
Despite from the progress in employment, private sector along with FDI accumulations contributetohigherGDPgrowththatsustainonsamelevelwithnovastfluctuations(seeTable10).
44

PolishFederationofEngineeringAssociationsFSNTNOTInnovationCentreNot.Polishexperienceinsupportofemploymentgrowththrough innovation.EuropeanProgramERANET.ProjectWorkinNetp.9 45 PolishFederationofEngineeringAssociationsFSNTNOTInnovationCentreNot.Polishexperienceinsupportofemploymentgrowththrough innovation.EuropeanProgramERANET.ProjectWorkinNetp.9 CEreferstoCentralEuropeancountriesEEreferstoEastEuropeancountries

34 Table10:ForeignDirectInvestmentinPoland(annualinflowsandtheirshareinGDP) Period FDIinbn USD in%GDP 1995 1996 1997 1998 1999 2000 3.66 2.63 4.50 2.87 4.91 6.37 3.12 3.70 2001 2002 2003 2004 2005 2006 12.68 9.65 5.02 3.19 13.92 4.10

7.27 9.34 5.71 4.33 5.45 3.00

4.13 4.59 2.09 2.12

Source:Table3fromEntrepreneurshipinPoland2007.MinistryofEconomy.p.12

Privateenterpriseshad remarkable results in revenues as well, designating the highest growth sincecommunistindependence. In 2006 all groups of enterprises small, mediumsized and big noted significant growth of revenuesagainstthepreviousyear.Similarlylikein2005,in2006thehighestdynamicsofrevenueswere observedinthegroupofbigcompanies(employingmorethan249persons)46.

Privatesectorandemployment
The privatization process in Poland started just after communist independence and was recognized as slower and inefficient since major part of enterprises were in state ownership. Privatization first start with liquidation of state owned enterprises. This process made domestic companies more efficient and less vulnerable to foreign competition as well making them more suitable for foreign capital penetration. In some distance this process was support to encourage domestic investors to take place in upgrading the private sector in the national economy. Just in years after independencewecanwitnesscontinuousgrowthofsmallandmediumsizeenterpriseseachyear. The privatization process has almost been completed, with the exceptions of few large enterprises.Some70%oftheindustrialoutputisgeneratedbytheprivatesector47. At the end of 2006 there were 3,636.0 thousand business entities registered in the National Official Business Register (REGON) and it was 20 thousand more than at the end of 2005. From among the registered entities, 138.7 thousand were from the public sector (0.9% more than in 2005) and 3,497.3thousandwerefromtheprivatesector(increaseby0.6%)48. It is an irrevocable fact that this insistent process had remarkable impact on employment structure and employmentrateinoverall. Table11:Numberofregisteredsmallandmediumsizedenterprisesbyemploymentvolume total 3.643.992 244.436 0 09 3.463.245 1049 144.618 049 3.607.863 50249 30.106 249 6.023

Source:PolishAgencyforEnterpriseDevelopment.SmallandMediumSizedEnterprisesectorp.2

46 47

EntrepreneurshipinPoland2007.MinistryofEconomy.AdoptedbytheCouncilofMinisterson27July2007Warsaw,July2007p.35 BankAustriaCreditanstalt.InvestmentGuidePoland.3rdEdition,July2004.P.4 48 EntrepreneurshipinPoland2007.MinistryofEconomy.AdoptedbytheCouncilofMinisterson27July2007Warsaw,July2007p.29

35

From assumptions made, we can come up with conclusion that domestic along with foreign capital presence were major force to number of private establishments that as consequence had influencetoahigheremploymentrateamongworkablepopulation. Different Voivodships (districts) have various numbers of private enterprises and we can disport few of them as most successful in the number of private establishments and persons employed. In years after independence especially after 2000, the private sector had remarkable share in national employment, producing almost three times more job placements than the public sector. As we can see from the next diagram, in all these years private sector share in employment is increasing and public sectorshareinemploymentisdeclining(seeTable12). Table12:PublicandPrivatesectoremployment(thousands) Publicsector Privatesector 2003 3780,2 8860,5 2004 3695,6 9024,6 2005 3660,4 9230,3 2006 3635,3 9584,7

Source:CSO

However compared to statistics before 2000 the declining in public employment is diminutive cause the majority of state owned enterprises were already privatized or either liquidated. In 2006 the share of employment in private sector in overall employment reached 72,5% and gives signals that will rise in future. In Table 13 comparative analyze have been made about the number of enterprises by Voivodshipsandtheirshareinemployment. Table13:Numberofenterprisesandtheiremploymentvolume No.enterprises TOTAL dolnoslaksie kujawskopomorskie lubelskie lubeskie lodzkie malopolskie mazowieckie opolskie podkarpackie podlaskie pomorskie slaskie swietokrzyskie warminsko mazurskie wielkopolskie zachodniopomorskie 0 244.436 38.387 6.198 11.910 9.312 13.623 13.781 28.677 10.009 9.472 6.857 14.075 27.061 7.149 11.651 18.901 17.373 09 3.463.245 298.518 183.138 147.324 92.891 239.689 278.290 561.236 83.290 134.947 91.824 221.313 415.044 100.185 103.988 318.683 192.885 1049 144.618 9.810 6.893 5.929 3.797 10.640 12.465 23.258 3.161 6.141 3.330 9.130 20.083 4.052 4.929 14.565 6.435 049 3.607.863 308.328 190.031 153.253 96.688 250.329 290.755 584.494 86.451 141.088 95.154 230.443 435.127 104.237 108.917 333.248 199.320 50249 30.106 2.215 1.582 1.270 848.0 2.087 2.385 5.003 739.0 1.193 756.0 1.822 3.788 872.0 1.073 3.044 1.429 249 6.023 469.0 294.0 237.0 150.0 359.0 471.0 1.284 127.0 259.0 138.0 318.0 843.0 165.0 176.0 505.0 228.0

Total 3.643.992 311.012 191.907 154.760 97.686 252.775 293.611 590.781 87.317 142.540 96.048 232.583 439.758 105.274 110.166 336.797 200.977

Source:PolishAgencyforEnterpriseDevelopment.SmallandMediumSizedEnterprisesectorp.2

36 From the table it is visible that few districts distinguish from others by the number of employee as well as number of small and medium sized enterprises. Same regions are designating highestamountofFDIaccumulatedaswellashighGDPgrowth.Graph6givesmorepreciseimageabout foreigncapitalpenetrationineachdistrictobserved.

Graph6:Foreigncapitalstructurebydistricts(year2006)
Source:CSO

As shown almost 50% of the foreign capital has ended in Mazowieckie as largest district with capitol Warszawa. Construction (Warszawa), food industry and some others were main sectors for foreign capital accumulation. 36% of all foreign capital ends up in four districts: Dolnoslaskie, Malopolskie, Wielkopolskie, and Slaskie. Automotive industry, construction, food processing are sectors thatweremoresuitableforforeignpenetrationintheseregions.

FDIandemploymentbydistricts
There were some obstacles that influence to disproportional distribution of FDI by different regionsinPoland.MostoftheGreenfieldandacquisitionswereestablishedinCentralPolandornearthe border with Germany (as old EU state), Czech Republic and Slovakia (where FDI were booming as well). As districts with lowest amplitude of foreign capital were districts in NorthEast (Podlaskie, near to borderwithBelarus)andWesternPoland(Lubelskie,neartoborderwithUkraine). Podlaskie is predominately agricultural in character. This voivodhsip is characterized with clean environment and nature preserves, but has little to offer to foreign investors. Lubelskie is a region whereagricultureremainsamajorpartofeconomy.Lublinthecapitalismoderatelyattractivetoforeign

37 investors.Ingeneral,however,theregionsuffersfromapoorinfrastructure.Thetransportationnetwork isinadequatelydeveloped,andthereisnointernationalairport49. TheregionalforeigncapitaldistributionisshowninTable14. Table14: Period(year2006) Dolnoslaskie KujawskoPomorskie Lubelskie Lubuskie Lodzkie Malopolskie Mazowieckie Opolskie Podkarpackie Podlaskie Pomorskie Slaskie Swietokrzyskie Warminskomazurskie Wielkopolskie Zachodniopomorskie
Source:CSO2006

Investments(inmln.Zloty) total foreign 12.179,1 11.384,2 2.098 1.676,2 823,9 653,5 1.991,8 1.334,7 3.207,8 2.930,1 12.001,4 11.510,5 74.335,3 61.198,7 1.481,0 1.269,9 1.853,7 1.568,1 276,9 213,2 4.824,3 3.118,5 11.660,8 9.745,7 3.155,6 2.960,2 1.609,7 1.440,6 11.317,5 10.488,6 3.035,3 1.703,7

numberofpersonsemployed 116.119 34.254 15.076 34.850 55.295 84.818 460.058 22.416 39.303 7.735 63.174 128.629 18.099 20.641 167.187 45.705

As shown above Mazowieckie is region that distinguishes from others by FDI accumulated as well as number of persons employed. Warszawa as capital has the highest living standard and unemployment rate that stays at low level. Mazowieckie as district has the highest number of private establishmentandlowestunemploymentratearound15.4%50. Wielkopolskie, Slaskie, Dolnoslaskie, Malopolskie are few other districts that secedes by the number of employees, number of private sector establishments as well as foreign capital inflows. All other districts are recognizing low investment amplitude as well as small number of enterprise established. Therefore they have particularly high unemployment rate, low employment rate and small capacity for new jobs created. This was one crucial indicator that supports the previous claims when provingthecorrelationbetweenFDIandemployment.Fromtheargumentspresentedinthissectionthe proven standpoint emphasize the strong foreign capital penetration in just few districts that happens to be districts with lowunemployment rate and high employmentrate. This canupgrade our doubts about any correlation between FDI and employment and can gives us clear image where obviously FIEs as well asprivateestablishmentsdirectlycontributedtomorejobscreated.

49 50

BankAustriaCreditanstalt.InvestmentGuidePoland.3rdEdition,July2004.P.8,9
BankAustriaCreditanstalt.InvestmentGuidePoland.3rdEdition,July2004p.10

38

CHAPTER5
his chapter gives overview of the foreign penetration in each economic sector. When investigating the FDI configuration in economic sectors I have implemented the model used in The Value of Diversity: Foreign Direct Investment and employment in Central Europe during economic recoveryconductedby T.Mickiewicz, SlavoRadosevic, Urmas Varblane. An overview ofthePolishlabormarkethasbeenmadeaswellbeforemakingthefinalconclusion.

FDIcomposition
Analyzing the composition of foreign investment in Poland it is visible that many investmentprojectsoutburstinGreenfieldratherthanacquisitions. Meyer (1998) surprisingly finds that entry into fastgrowing industries in CEE countries takes place via totallyowned Greenfield investments, but not via acquisition. This is in contrast to the wellknownargumentthataspeedyentry,whichisassumedimportantinfastgrowingindustries,canbe achieved by acquisition and not via Greenfield investment. It also contrasts the empirical findings by CavesandMehra(1986)forUSentry51. Table15:FDIcompositiononthePolishmarket sector mining manufacturing construction trade&repair transport finance
Source:CSO

total 5 342 192 382 102 25

greenfield 5 305 179 350 92 21

acquisition 0 37 13 32 10 4

In the case of Poland it is remarkable that foreign investors have chosen Greenfield projects as way of marketingress. Job creation through Greenfield investment has been the main hope of new EU states and mostoftheFDIpolicyhasactuallytargetedsuchinvestmentsinthemanufacturingsector52. When observing the global theory, one conclusion is that Greenfield projects are directly correlatedtohigheremployment,whileacquisitionsinsomeoccasionsmayleadtojoblosses.53
51 52 53

ThomasMuller.AnalyzingModesofForeignEntry:GreenfieldInvestmentversusAcquisition.p.94

GborHunyaandIngoGeishecker.EmploymentEffectsofForeignDirectInvestmentinCentralandEasternEuropep.7 AssumptionsbasedondeclarationsfromBoleslawDomanskiForeignmanufacturinginvestmentinruralPoland:regularitiesandconditions andThomasMullerAnalyzingModesofForeignEntry:GreenfieldInvestmentversusAcquisition

39 Companies acquired by acquisition or mergers may start with reducing personnel in order to achieve fast revenue or adjustment on new market conditions. This type of capital entrance is primary specific to finance sector, where in recent analyses a small variation in terms of employment have been recognized. In the Polish case main Greenfield investments are registered in regions of Dolnoslaskie, Mazowieckie (with capital Warszawa), Wielkopolskie, and Lubelskie. Those are the same districts were previouslyobservedwefoundlowunemploymentrateandhighemploymentrate54.


FDIconfigurationineconomicsectors
In this final stage there is short classification among different economic branches. Every branches expose relevant datas concerning employment and capital invested that were necessary in getting the final image of FDI fulcrum in job creation. This classification is done by subordinating every sectorinfourdifferenttypes;TypeI,TypeII,TypeIIIandTypeIV(modelusedinTheValueofDiversity: Foreign Direct Investment and employment in Central Europe during economic recovery conducted by T.Mickiewicz,SlavoRadosevic,UrmasVarblanewasimplementedinthisstage). Type I involves economic divisions where the overall employment is declining and FIEs employment is decliningaswell. Type II involves economic divisions where the employment in the national economy is declining, but FIEsemploymentisincreasing. Type III consist of branches where the overall employment is increasing, but FIEs are reducing employment. TypeIVincludessectorswherebothoverallandFIEsemploymentisincreasing.
AssumptionsbasedondeclarationsfromForeignmanufacturinginvestmentinruralPoland:regularitiesandconditions.BoleslawDomanski. p.4,5
54

40 Table16:OverallemploymentandFIEsemploymentbydifferenteconomicsector ECONOMICSECTOR Agriculture(forestry& fishery) Mining&quarrying Manufacturing Construction Trade&Repair Hotels&Restaurants Transport Financialservices RealEstate Innationaleconomy 2004 2145100 189800 2515400 588800 1983100 216300 704800 274700 780329 2005 2143800 185100 2508700 622900 2058800 219400 699900 295400 807663 2006 2145200 181400 2605500 690900 2082900 228700 738700 308500 858480 2004 4861 23060 665645 41034 225801 27634 74073 98319 73433 InFIEs 2005 5528 22223 685103 42153 247155 27558 77871 100011 81270 2006 5863 22773 732060 49147 265280 29138 86151 112179 95442

Source:OwncalculationsandCSOofPoland,LaborMarket

Results are presented in Table 17, where all branches are assorted according to all four types of employmentchanges. Table17: ECONOMICSECTOR Agriculture(forestry&fishery) Mining&quarrying Manufacturing Construction Trade&Repair Hotels&Restaurants Transport Financialservices RealEstate
Source:OwncalculationsbasedonTable16

Type TypeIV TypeI TypeIV TypeIV TypeIV TypeIV TypeIV TypeIV TypeIV

From foundations we can realize that one type has been predominantly in most of the branches observed. Only in the branch of mining and quarrying has been founded declining in both overallandFIEsemployment.ThissuggeststhatFIEshadremarkablecontributionincreationofnewjobs and wasplaying as substitute when overall employment was fluctuatingor declining. When analyzing all divisions some of them are recognizing decrease in overall employment (especially in 2005), but FIEs

41 employment have stayed consistent for all years observed. Major reason because the mining & quarrying sector recognizes downfall in FIEs employment is because of the insufficient foreign capital presence in that division. When summarizing the foreign capital inflows by economic sectors for 2006, this division has adopted least foreign capital from all others. Most of the capital has ended in divisions like; manufacturing, construction, trade & repair, transport and finance. All of them designate employmentgrowthintheyearswhenFDIwasboomingsuchas2004,2005and2006. When analyzing overall employment and employment in foreign enterprises, the capability of the economy in employment preservation seems weaker when comparing to FIEs employment. Especially when presenting facts in 2005, overall employment has recognized decline (in agriculture, mining, manufacturing,andtransport)whenFIEsstillremainsgrowing.

Polishlabormarket
WhenmakingoverviewofthePolishlabormarket,oneconclusionisthatworkerswithtertiary education or medium skilled workers consist 2/3rd of the total labor force leaving low skilled and high skilled workers to partake with small percentage in overall employment. The share of the agricultural employment in the overall employment lies on 19,2% which puts Poland afore from Lithuania, Latvia, Hungary, Slovakia, Slovenia. More than half of the agricultural workers are self employed which signals about their low qualification background and makes the totally uncompetitive for other economic sectors55. A euro stat publication of labor force in Central Europe strictly identifies Poland as country with high level of youth unemployment that indicates the low degree of performance of the national labor market56. Compare between labor market qualifications in each CE country has been made in the nextparagraph.

AssumptionsbasedondeclarationsfromEuropeanCommission.EmploymentandlabormarketinCentralEuropeancountries3/2001and EuropeanCommission.EmploymentandlabormarketinCentralEuropeancountriesNo.1June2002 56 AssumptionsbasedondeclarationsfromEuropeanCommission.EmploymentandlabormarketinCentralEuropeancountries3/2001and EuropeanCommission.EmploymentandlabormarketinCentralEuropeancountriesNo.1June2002

55

42

Graph7:QualificationlevelofthelabormarketinCentralEurope,2000
Source:EuropeanCommission.EmploymentandlabormarketinCentralEuropeancountries3/2001

ThecompositionofthePolishlaborforceismostlypresentbymiddlequalifiedworkers(upper secondary education), while the share of high qualified goes in range with Czech Rep. and Slovakian labor market. However when perceiving low qualified labor force, Poland is behind Hungary, Slovenia but still above all others mentioned. When making confrontation with other CE countries, Polish labor market cannot be undervalued but it is visible that is still below Estonia, Latvia, Lithuania, Hungary that have high share of middle and high qualified workers. Good labor market conjunction in those countries securedlowunemploymentratethatinnovadayscannotbedenotedasbad. Infact,labormarketperformanceinPolandisarguablytheworstintheOECD57. The effect of FDI on economicgrowthis dependent onthelevelof humancapitalavailable in the host economy. There is a strong positive interaction between FDI and the level of educational attainment(ourproxyforhumancapital)58. When comparing to other Central European countries one becomes clear that the percentage of high qualified workers in Poland is way below from other countries like Estonia, Lithuania, Latvia, Hungary and Slovenia. Those countries are ranked in the category of countries with low unemployment rateinCentralEuropeandEU. Recentanalysissuggeststhatforeignfirmstendtohireyoungerthanaverage,relativelywell educatedworkers,andtopaythemmore.Moreover,foreignownersnotonlyusemoreproductivelabor andcapitalbutarealsomuchbetteratincreasingcapitalskillcomplementarilythroughaclosermatchof moderntechnologyandyoungskilledlabor59.

57 58 59

EconomicSurveyofPoland,2006p.3

E.Borenszteina,J.DeGregoriob,JW.LeecHowdoesforeigndirectinvestmentaffecteconomic1growth?p.134 KarolyFazekas.TheimpactofforeigndirectinvestmentinflowsonregionallabormarketinHungary.p.6

43 How is this related to Poland? The percentage of the highskilled workers (above tertiary education) is only 12,3% in the overall labor market qualification, that puts Poland on the bottom when comparedtoothercountries(Lithuania,Estonia,Latviaareonthetop).60 Intheyearsbeforeandafter2000,agriculturalsectorshowsthesametendencyofgrowthlike themanufacturingsectorsdoes,whichisnotparticularforthedevelopedeconomies(seeTable16). Polish Government should put more effort in reducing agricultural employment in favor of manufacturingemploymentinordertogetclosertoWesternEuropeaneconomies.

60

EuropeanCommission.(2001).EmploymentandlabormarketinCentralEuropeancountries.p.34

44

Chapter6

Conclusion
The analysis present high FDI influence on the performance of the Polish economy measured by GDP, export, import as well as job creation. When analyzing employment, the overall conclusion is that FDI were highly influential in increasing employment and job preservation. Foreign capital can be beneficial for the technological, labor and industrial development of one country, and it was such case when investigating the Polish economy. One explicit evaluation is that reducing unemployment and favoring employment couldnt be accomplished without consistence FDI influence and presence. In all years observed there was visible cohesion between those two variables leading to proportional growth orfallthroughyears. However when comparing with other CE countries, Poland still remains as country with high unemployment rate with estimated unemployment rate of 10,3% in 2007. This outcome leaves doubts abouthowmuchPolandsucceedtoutilizetheFDIpresenceincontrivingbettereconomicgrowth.While analyzingthehighunemploymentratethroughyears,oneconclusionisthatFDIinfluencewasdeficiently usedintermsofemployment. When we made an overview of the Polish labor market, we came up with conclusion that the percentageofhighskilledlaborforceisincomparablelowandthepercentageoflowskilledlaborforceis above the average of other countries in Central Europe. When we observed the investment tendency of foreign companies, we assume that they look towards educated and skilled labor force that can fulfill theirexpectationonwork.Theyarewillingtopaymorethandomesticcompanies,buttheyseekforwell skilled workers as well. Alongside with their request Polish labor market will not be terrified as most desirable. Yet another conclusion is that foreign investment enterprise couldnt accomplish their investment projects, because the Polish labor market is inefficient to satisfy their needs for human capital. There is more to be done to improve the Polish labor market in order to satisfy the needs of foreign companies for skilled and well educated labor force. One propound is that Polish Government should lend oneself on upgrading the labor market condition by investment in education, training programs, courses for under skilled workers and this could be of some value for the Polish labor market sincethisresearchaswellasmanyotherssignalsforitspoorcompetence. TheoverallperceptionisthatFDIareonlyonefactorthatcontributeinjobcreationbutcannot be considered as ultimate solution in decreasing unemployment. In order to decrease the unemploymentamongworkablepopulationmoremeasuresshouldbeundertaken. However,theoverallconclusionisthatthisresearchrepresentbasisforfurtheranalysestobe conductedinthesameresearcharea.ThisareaiswidelyunexploredandIhopethatthisthesisworkwill initiatemanyresearcherstopartakewiththeireffortsinprovingsomethingnewinthesameareaof interest.

45

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