Mothers and daughters: Heterogeneity of German direct investments in the Czech Republic. Evidence from the IAB-ReLOC survey

The aim of the paper is to assess the heterogeneity of German affiliates in the Czech Republic and their mother companies in Germany. Applying cluster analysis to firm-level data from the unique IAB-ReLOC survey, we identify four main groups of firms that partition the sample by broad sectoral lines and technological intensity of their operation. More specifically, the principal clusters can be interpreted as: i) High-tech industrial firms; ii) Low-tech industrial firms; iii) High-tech service provid-ers; and iv) Low-tech service providers. The classification is examined more closely by location, ownership and industry of the firms and in the framework of a probit model. The main result is that there is a significant technological gap between the mothers and their cross-border daughters in industry that cannot be found in the service sector. From this follow implications for technological upgrading on both sides of the border, which are discussed in the concluding section of the paper.