Foreign Direct Investment in Services and Manufacturing Productivity: Evidence for Chile
Foreign Direct Investment in Services and Manufacturing Productivity: Evidence for Chile
Ana M. Fernandes a The World Bank
Caroline Paunov b OECD
March 2011 Journal of Development Economics forthcoming
Abstract This paper examines the impact of substantial foreign direct investment (FDI) inflows in producer service sectors on the total factor productivity (TFP) of Chilean manufacturing firms. Positive effects are obtained in firm fixed effects instrumental variables regressions and show that forward linkages from FDI in services explain 7% of the observed increase in Chile’s manufacturing users’ TFP. Our findings also suggest that service FDI fosters innovation activities in manufacturing. Moreover, we show that service FDI offers opportunities for laggard firms to catch up with industry leaders.
Keywords: Total Factor Productivity, Service Liberalization, Foreign Direct Investment, Chile, Firm Heterogeneity. JEL Classification codes: D24, L8, L9, F21, F23.
a
Ana Margarida Fernandes (corresponding author). The World Bank. Development Research Group. 1818 H Street NW, Washington DC, 20433, U.S.A. Email: afernandes@worldbank.org. b Caroline Paunov. OECD. Directorate for Science, Technology and Industry. 2, rue André Pascal, 75 775 Paris Cedex 16, France. Email: caroline.paunov@oecd.org and caroline.paunov@gmail.com. This paper is a modified version of the World Bank Policy Research Working Paper 4730. The authors would like to thank Eric Verhoogen (the co-editor) and two anonymous referees as well as Richard Disney, Ana Paula Fernandes, Jonathan Haskel, Beata Javorcik, Raimundo Soto, Peter-Paul Walsh, and seminar participants at Indiana University, the Chilean Central Bank, the University of Chile, Queen Mary University of London, the 6th International Industrial Organization Conference, the OECD Development Centre, the 2008 Empirical Investigations in International Economics Conference in Slovenia, the 2008 North American Summer Meetings of the
Ana M. Fernandes a The World Bank
Caroline Paunov b OECD
March 2011 Journal of Development Economics forthcoming
Abstract This paper examines the impact of substantial foreign direct investment (FDI) inflows in producer service sectors on the total factor productivity (TFP) of Chilean manufacturing firms. Positive effects are obtained in firm fixed effects instrumental variables regressions and show that forward linkages from FDI in services explain 7% of the observed increase in Chile’s manufacturing users’ TFP. Our findings also suggest that service FDI fosters innovation activities in manufacturing. Moreover, we show that service FDI offers opportunities for laggard firms to catch up with industry leaders.
Keywords: Total Factor Productivity, Service Liberalization, Foreign Direct Investment, Chile, Firm Heterogeneity. JEL Classification codes: D24, L8, L9, F21, F23.
a
Ana Margarida Fernandes (corresponding author). The World Bank. Development Research Group. 1818 H Street NW, Washington DC, 20433, U.S.A. Email: afernandes@worldbank.org. b Caroline Paunov. OECD. Directorate for Science, Technology and Industry. 2, rue André Pascal, 75 775 Paris Cedex 16, France. Email: caroline.paunov@oecd.org and caroline.paunov@gmail.com. This paper is a modified version of the World Bank Policy Research Working Paper 4730. The authors would like to thank Eric Verhoogen (the co-editor) and two anonymous referees as well as Richard Disney, Ana Paula Fernandes, Jonathan Haskel, Beata Javorcik, Raimundo Soto, Peter-Paul Walsh, and seminar participants at Indiana University, the Chilean Central Bank, the University of Chile, Queen Mary University of London, the 6th International Industrial Organization Conference, the OECD Development Centre, the 2008 Empirical Investigations in International Economics Conference in Slovenia, the 2008 North American Summer Meetings of the
References: 30 Kugler, M., Verhoogen, E., 2008