Journal number 4 ∘ Agnieszka Rzepka ∘
FDI AND INTERNATIONAL TRADE IN GLOBALISATION ASPECTS IN ECONOMY. THE CASE OF POLAND

Summary

Economic globalization changes the external environment in which national entities operate. On the one hand, it opens new opportunities, but on the other, it imposes a serious threat. That is why both governments and businesses must take appropriate measures and strategies to meet new challenges.

In the article the economic globalisation aspects of international trade and foreign direct investments (FDI) are studied. The case of the Polish economy is considered in this context.

Keywords: Globalization, Poland, economy, Trade, International

Introduction

In today's global economy, there are developing various types of economic and political relationships. The most important include: the exchange of goods and services, trade in the foreign exchange markets, the flow of capital and labour, international cooperation in production, and international political cooperation. Fast development of economic relations between different countries, and the creation and development of international associations and institutions are all processes which characterize the modern world.

 Polish economy becomes an open economy and it will be more and more influenced by the world economic, technical, scientific and demographic processes. The factors that will have a decisive impact in the long term perspective, with great probability will include the transition of developed societies to the era of civilization of information and globalisation and integration of economies. The dominant global process is the transition of the developed societies to the era of information civilization. Its main determinants are [GW Kolodko, 2002: 92]:

- the increase of the role of science and education,

- the transformation of knowledge into a production resource,

- the development of information technology,

- the fundamental transformation of activity of all sectors,

- the occurrence of new professions that require the skill of collecting, processing and using the information.

 International trade

For centuries the economy to the greatest extent has been bound together by international trade. After the great economic collapse, the role of trade and its rate have changed. International trade in goods was characterized by high expansiveness and relative independence from economic fluctuations. After the World War II geographical structure of trade in goods did not change. Developed countries definitely prevailed in the trade flows. Their share in world trade ranged from 60% to 70%. The share of developing countries remained at about 20% level, and the contribution of the former socialist countries  oscillated in a range of more or less 10% of the global trade exchange [Marszałek A., 1991: 58-62].

Between 1950 and 1980 world's import and export increased. The average annual growth rate of world's export in the period 1960-1970 amounted to 8.5% [C. Grece, M. Greffrath, H. Schumann, 2004:47-51]. This increase, however, was not steady. Until 1980 the trade exchange steadily expanded.

 Table 1

The increase in world trade (in million USD)

Source: Own study based on data from the UNCTAD database: Handbook of Statistics On-line.

The fastest growth was recorded in the 70s of the twentieth century when its rate was almost four times higher than in the 60s (see Table 1). In the  70s of the twentieth century total upswing in sales amounted to more than 3 trillion US dollars. It was, however, solely the result of intensification of exchange, but also the result of an increase in prices caused by the growth in commodity prices (especially oil). After 1980, the dynamics of rate of exchange weakened [Czarny E., Śledziewska K., 2007: 71-73] .

FDI

The process of opening economies and expanding the idea of free trade have increased the possibilities international business activities, providing them with almost unlimited access to the resources and factors of production. Increase in the position and strength of international companies on the international scene was the result of the so-called global presence of increasing independence towards nations, and also the growth of potentials and expansion of interactions.

Therefore, an important manifestation of globalisation is the international flow of capital, especially the expansion of transnational corporations (TNCs)^[1]. They appear as factors which co-create the process of globalisation, and constitute one of its main driving forces. The importance of both foreign investments and corporations and their important role in the global economy tend to regard them as one of the main manifestations of globalisation.

The internationalization of economic activity, that is keeping it abroad, is a complex process and indicates a growing geographic scope of this activity, performed in a sequential  or complementary manner with the use of three forms: trade, contractual cooperation and foreign investments which aim at creating foreign subsidiaries and joint ventures. Foreign direct investments (FDI) were (and still are) considered as a determinant of an international expansiveness of enterprises, their wealth (in capital, including human resources, technology and other supremacies), managerial skills, knowledge of foreign markets and other important attributes. The growing volume of global FDI and the growing involvement of transnational corporations in international trade have become for researchers the evidence of the ongoing expansion of the companies abroad, and indirectly changes taking place in them.

Corporations affect the progress of the process of globalisation through an influence on the global economy. Their presence can manifest itself in two ways: indirect and direct [Jarczewska – Romaniuk A., 2003:140]. The indirect form is based on the presence of corporate goods and services outside the borders of home country. This form of the presence is seen as a transitional stage, followed by a further process of transition to a more complex phase of foreign activity that is investments. The direct form of global presence of corporations are direct foreign investments (FDI).

 Transnational corporations are formed and evolve through foreign direct investment (FDI) [Goldin I., Reinert K., 2006:78]. Direct foreign investments are based on locating the capital abroad by the parent company in order to obtain a direct impact on the activity of companies injected with capital with an the intention of financially support the entity in which the investor has significant share, or in order to create a new economic entity. Direct investment include investment transactions undertaken by the investor abroad in order to exert a direct impact on the production of the company in which the money are invested, or to provide finances, goods, technology, in which the market investor has ownership interests. Therefore, one shall not treat investments only as an international transfer of capital, but as a specific type of transaction which connects the capital, experience and enterpreneurship [J.H.Dunning., 1970:27].

In today's global economy, there has been no harmonization of conditions of activities of foreign investors. There are still differences in this respect between the different countries, but all countries continue to restrict the flow of FDI to sectors of strategic importance. Foreign capital investments allow to reduce international imbalances in capital equipment and promote new technologies [Czarny B., 2004:138].

For Poland, the total value of foreign direct investment (ang. FDI stock) amounted to 160.5 billion EUR at the end of 2013. They comprised of liabilities from capital share participations and reinvested profits (125.3 billion EUR) and remaining capital liabilities (35.2 billion). In contrast, the highest investment values were in the following countries: Germany (27.5 billion), the Netherlands (25.9 billion), France (19.1 billion).

 

Chart 1. 20 main investors at the end of 2013

Source: own study based on NBP data [NBP-National Bank of Poland]

On the basis of data^[2], it should be noted that the balance of foreign direct investments in Poland amounted to 2.2 billion euros in 2013. During this period, the main investors were companies from the following countries:

United Kingdom (3.3 billion EUR),

Germany (1.9 billion EUR),

Switzerland (1.0 billion EUR).

Meanwhile, the largest outflow of investments (withdrawal of capital from Poland) took place in Jersey (-3.4 billion EUR), Luxembourg (-1.8 billion EUR ), Sweden (-0.5 billion EUR). 

Chart 2. Main countries of the inflow and outflow of investments in 2013

Source: own study based on NBP data [NBP-National Bank of Poland]

Another sector are entities with foreign capital. According to surveys of the Central Statistical Office, the population of these entities amounted to 26 128 units in 2013. In the same year, 1 489 entities with foreign capital were established compared to 1 712 of such entities in 2012. Among the entities set up in 2013 there were 1 214 new units, so called "Green field investors". The highest number of new entities was observed in activities related to culture, entertainment and recreation – 9.0%, in mining and extractive industry - 8.5%, in production and supply of electricity, gas and water – 8.2%. Foreign capital in entities which its value exceeded 1 million USD constitute 96.8% of total foreign capital in Poland. The highest share of foreign capital of these entities was recorded in enterprises operating in the field of manufacturing & trade (36.3%), and the repair of motor vehicles (21.1%). Generally, foreign capital allocated in Poland at the end of 2013 came from 125 countries. From the European Union countries 89.5% of the foreign capital came, and from OECD countries  94.3%. Countries that allocated capital in Poland in the greatest extent include: the Netherlands (17.1% of total foreign capital), France (16.6%), Germany (16.4%).  At the end of 2013, entities with foreign capital employed 1 628.5 thousand people, 3.6% more in comparison with 2012. Most people worked in entities engaged in the processing industry - 46.3% of the total number of people working in entities with foreign capital- and in trade and repair of motor vehicles - 23.9%. Almost 70% of the total number of employed in companies with foreign capital were employed in entities established in four voivodeships: Mazowieckie (33.7%), Wielkopolskie (14.3%), Slaskie (11.1%) and Dolnoslaskie (9.5% ).

Since the introduction of the free market in Poland and the international opening of the Polish economy that followed the collapse of communism, our country has made a tremendous progress towards global economic integration.

The 27th place of Poland in Globalisation Index 2012 – ranking of most globalized world economies prepared each year by Ernst & Young - is the confirmation of this progress. Poland precedes in the ranking, among other countries, Italy (which is at 30th place), South Korea (33rd), Japan (43rd), but also the BRIC countries - Brazil (45th), Russia (48th), India (54th) and China (44th ).

Compared with the previous edition of the Globalisation Index 2011, Poland has improved its overall score by 0.06 points to 4.23 points, which was enough to defend its position in the ranking. In the first edition of the ranking of Ernst & Young in 1995, Poland was at the 40th place, while the highest, 25th position in the Index, Poland has achieved in 2012.

Ernst & Young prepared globalisation Index based on interviews with 750 managers from international companies from the 60 largest economies in the world (by GDP). It is designed to measure the links between these economies. The value of the Index for individual countries consists of grades in five categories, respectively, openness to trade, capital flow, mobility of labour, exchange of technology and knowledge, and cultural integration.

Globalisation Index allows to identify areas that are the strengths of Poland compared to other countries of the world, as well as sides that should be improved. The report shows that in the category of openness to trade, Poland comes out best. The weakest side of Poland is rated in terms of technology and knowledge. Small investments in research and development and related to it low level of trade exchange shows a direction in which Polish economy and enterprises should evolve. According to the report, another possible direction of development is to increase export, both by entering new markets and expanding the range of exported goods. Another challenge for the Poland is to increase, in the context of increasing globalisation, competitive advantage in Central and Eastern Europe as an attractive country for foreign investment. An activity that certainly would contribute to the increase of the inflow of foreign direct investments to Poland is an extension of operation of special economic zones that offer investors preferential conditions, that cover, among other things, tax credits. In the light of current legal regulations, these zones would cease to operate in 2020 what is, unfortunately, not an optimistic sign in a long-term perspective.

Competitiveness of Poland in Central and Eastern Europe, confirmed by the report of Ernst & Young 2012, in which Poland was considered the second most attractive country for investment in Europe (behind Germany) can not be taken for granted, it should, however, be consistently reinforced. Special economic zones is one of the key factors that attract foreign investors to Poland – therefore, their future must be decided as quickly as possible. The attractiveness of Poland is largely dependent on the development of the economic zones. Another way to increase the attractiveness of Poland to consider is a more flexible labour law. 

Investment attractiveness may be a subjective term, but the inflow of investments is hard data. These data show that in 2012, Poland has attracted significantly less foreign investment than a year earlier. According to preliminary data of the National Bank of Poland, the inflow of foreign direct investment to Poland last year amounted to 2.9 billion euros, while in 2011 reached 13.6 billion euros. These data seem to be confirmed by the estimated calculations presented at the United Nations Conference on Trade and Development (UNCTAD), which show that in 2012 inflow of FDI of amounted to 4.1 billion USD and a year earlier to 18.9 billion dollars.

Conclusion

In conclusion, the size of the global foreign direct investments are growing much more rapidly than world trade or production, which in turn causes a rapid increase in the role of FDI as a “binding agent” of global economy. With increasing globalisation, FDI are increasingly used to minimize the possible adverse effects of globalisation and enhance its positive effects. Over the course of liberalization of restrictions on FDI it is important not to cause a situation where national regulations and restrictions could be replaced by a restrictions put forward by private companies. Those countries that fail to attract foreign investors and use them as a catalyst in the process of modernization of the domestic industry, are at greater risk of being on the verge of globalisation of the world economy.

The processes of economic globalization – increase of the flow of goods, services, capital and technology that lead to the integration and merging of markets, extension of the range and scope of the international business and the deepening of interdependence among countries - have a significant impact on the conditions for success of economic policy. Globalization changes the external environment in which national entities operate. On the one hand, it opens new opportunities, but on the other, it imposes a serious threat. That is why both governments and businesses must take appropriate measures and strategies to meet new challenges.

Domestic companies that undertake investments abroad may also bring benefits from participation in the processes of globalization. The government policy in Poland has been focused on attracting foreign investors to Poland for a dozen of years. It supports investing domestic resources abroad in a small extent. Other countries use many instruments to support such action. In an era of globalization the investments should flow in both directions. The investors are looking for suitable locations for business and its forms worldwide. The possibility to expand contacts for Polish companies and access global markets, to a large extent, depends on the level of globalisation infrastructure.

REFERENCES

1. G.W. Kołodko, Rozwójpolskiejgospodarki. Perspektywyiuwarunkowania, Wydawnictwo Wyższej Szkoły Zarządzaniai Przedsiębiorczości, Warszawa, 2002, s. 92.

2. A. Marszałek (red), Gospodarkaświatowa (zaryswykładu). Łódź 1991, p.58 - 62.

3. E. Czarny, K. Śledziewska,Zmianyw światowymhandlu w latach 1950 -2004, [w:] Bank iKredyt, April, 2007, p.71 – 73.

4. A. Jarczewska-Romaniuk, Korporacje w procesieglobalizacji, SprawyMiędzynarodowe, no 1, 2003 p.140.

5. I. Goldin, K. Reinert, Globalization for development: trade, finance, aid, migration, and policy, New York 2006, p.78.

6. J. H. Dunning, Studies in International Investment, London 1970, p.27.

7. B. Czarny, Gospodarkaotwarta[w:] Globalizacja od A do Z, pod red. E. Czarny, Warszawa 2004, p.138

8. K. Ohmae, The Borderless World: Power and Strategy in the Inter – Linked Economy, New York  1995.

9. J. Stiglitz, Future of Globalization. Explorations in light of recent turbulence, (ed.) E. Zedillo, London – New York 2007, p. 81.

10. M. Castells, Materials for an exploratory theory of the network society, “British Journal of Sociology”2000, Vol. 51, Issue 1, pp. 10-11.

11. D.B. Shaw, Technoculture, Oxford – New York 2008, p. 26.                

12. Z. Bauman, Globalization, what results from it for people, Warsaw 2000, p.7 C. Grece, M. Greffrath, H. Schumann, Czegochcąkrytycyglobalizacji - ATTAC, Kraków 2004, p. 47-51.

13. A. Zorska, Ku globalizacji. Przemiany w korporacjachtransnarodowychigospodarceświatowej,  Warszawa 1998, s.9.

---