Polish industrial plants that attracted foreign investment had certain apparent similarities. According to our data, following transition, plants with foreign direct investment (FDI) – meaning those with majority shareholders from abroad – were larger and more productive, both in terms of capital and labor, than those privatized by domestic investment. The selective entry of foreign investors into the Polish market appears to have been beneficial for both sides. Based on our dataset, plants where foreign investors bought out majority of the shares following denationalization were more likely to survive than those that were majority owned by Polish investors, thus debunking the myth that the west was only interested in the Polish market for the sake of asset stripping.
The 330 plant-level observations we gathered in which FDI was the primary method of privatization (whether immediate or following treasury-ownership restructuring), confirm a key detail in the story of Polish post-socialist economic transformation: foreign investors entered the market more selectively than their domestic counterparts. First, investors from abroad invested in relative large plants, both with a substantial amount of capital and labor. Naturally, they also entered the market by investing in plants with considerably above average revenues. In fact, the most significant factor identifying between those plants with foreign investors and domestic ones is sales (followed closely by capital). All of the six variables are significant, thus directly confirming the notion foreigners entering the Polish market after 1989 were interested in a specific type of plants – the larger and more profitable ones.
In terms of sector differences, we find an upward trend between the share of plants with FDI in a given sector and the productivity of those plants relative to others. In every remaining industrial sector except machinery equipment, foreign companies were more likely to invest in more productive firms than domestic investors. Furthermore, the higher the share of FDI in the sector, the wider the gap between the productivity of foreign and domestic-owned plants. This confirms our hypothesis that in almost every sector, foreign investors followed the trend of investing in larger and more productive plants. With that, the sectors with more plants of such a profile saw a higher rate of FDI. Insight into the choice of investment by foreign companies is vital in understanding the nature of economic transition and industrial restructuring in Poland. Plants with foreign investors were not likely to go bankrupt than those privatized by Polish investors. In fact, of the 127 plants identified in our dataset where foreign investors became majority shareholders after privatization, only 15 have been liquidated (12%), while of the 263 plants who were privatized by domestic investors, 45 have been liquidated (17%). The 5% differences can be viewed as a counterargument to the often claimed fallacy that foreign investors entered the market with an intention to acquire the “best parts” of Polish industry and then flee.
The transport and energy sectors were removed from line of best fit since they were seen as outliers in our data.