Prague Economic Papers 2014, 23(1):42-62 | DOI: 10.18267/j.pep.472

Mothers and Daughters: Heterogeneity of German Direct Investments in the Czech Republic

Daniel Münich1, Martin Srholec1, Michael Moritz2, Johannes Schäffler2
1 CERGE-EI, Economics Institute, Academy of Sciences of the Czech Republic, P.O. Box 882, Politických vìzòù 7, 111 21 Prague, Czech Republic (martin.srholec@cerge-ei.cz).
2 Institute for Employment Research (IAB), Germany.

Much has been written on the distinction between vertical and horizontal foreign direct investment. However, most of the empirical literature relies on indirect and aggregated measures only. The aim of this paper is to help fill this gap by examining the differences between German affiliates in the Czech Republic and their mother companies in Germany on the basis of direct evidence on factor requirements. Using a cluster analysis on firm-level data from the unique ReLOC survey, we identify four main groups of firms that partition the sample by broad sectoral lines and by technological, educational and skill intensity of their operations within each of them. More detailed analysis of the clustering reveals that the vertical model dominates in manufacturing, while the horizontal model of investment prevails in the service sector.

Keywords: Czech Republic, Germany, multinational enterprise, cluster analysis, foreign affiliate, vertical investment
JEL classification: D21, F23, L16, O23

Published: January 1, 2014  Show citation

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Münich, D., Srholec, M., Moritz, M., & Schäffler, J. (2014). Mothers and Daughters: Heterogeneity of German Direct Investments in the Czech Republic. Prague Economic Papers, 23(1), 42-62. doi: 10.18267/j.pep.472
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