We examine the effects of foreign entry on productive efficiency during the Polish investment liberalisation. The performance of foreign acquisitions is compared to foreign firms entering the market through greenfield entry, as well as domestic acquisitions of privatised firms, domestic greenfields and remaining state-owned (non-privatised) firms during the period 19952000. We find that foreign privatised firms have realised larger productivity gains than all types of domestic firms and that this is not due to higher price-cost margins, which is consistent with the idea that foreign firms bring in firm-specific knowledge. Foreign greenfields have the highest average labour productivity, while foreign privatisations show the largest productivity increase.

In a world with imperfectly integrated national capital markets the cost of funds is, in general, different across markets. If individual countries, by mutual agreement, or forced by factors outside their control, embark on a process of deregulation and financial integration, the spread in the cost of funds across markets will narrow. Some types of impediments, such as explicit capital controls, will be easily removed, while others such as informational problems, may prove harder to overcome. Sweden provides an example where national capital markets were highly regulated between 1939 and the mid-seventies, then a process of gradual liberalization began. This process increased in intensity during the first part of 1980s and culminated in 1989 then the last remnants of the formal exchange controls were removed.