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Does services liberalization benefit manufacturing firms ? Evidence from the Czech Republic

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  • Arnold, Jens
  • Javorcik, Beata S.
  • Mattoo, Aaditya

Abstract

While there is considerable empirical evidence on the impact of liberalizing trade in goods, the effects of services liberalization have not been empirically established. Using firm-level data from the Czech Republic for the period 1998-2003, this study examines the link between services sector reforms and the productivity of domestic firms in downstream manufacturing. Several aspects of services reform are considered and measured, namely, the increased presence of foreign providers, privatization, and enhanced competition. The manufacturing-services linkage is measured using information on the degree to which manufacturing firms in a particular industry rely on intermediate inputs from specific services sectors. The econometric results lead to two conclusions. First, the study finds that services policy matters for the productivity of manufacturing firms relying on services inputs. This finding is robust to several econometric specifications, including controlling for unobservable firm heterogeneity and for other aspects of openness. Second, it finds evidence that opening services sectors to foreign providers is a key channel through which services liberalization contributes to improved performance of downstream manufacturing sectors. This finding is robust to instrumenting for the extent of foreign presence in services industries. As most barriers to foreign investment today are not in goods but in services sectors, the findings may strengthen the argument for reform in this area.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4109.

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Date of creation: 01 Jan 2007
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Handle: RePEc:wbk:wbrwps:4109

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Keywords: Banks&Banking Reform; Knowledge Economy; Education for the Knowledge Economy; Economic Theory&Research; Commodities;

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Citations

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Cited by:
  1. ITO Keiko, 2011. "Entry of Foreign Multinational Firms and Productivity Growth of Domestic Firms: The case of Japanese firms," Discussion papers 11063, Research Institute of Economy, Trade and Industry (RIETI).
  2. Duggan, Victor & Rahardja, Sjamsu & Varela, Gonzalo, 2013. "Service sector reform and manufacturing productivity : evidence from Indonesia," Policy Research Working Paper Series 6349, The World Bank.
  3. Patricia Prüfer & Gabriele Tondl, 2009. "The FDI-Growth Nexus in Latin America: The Role of Source Countries and Local Conditions," DEGIT Conference Papers c014_025, DEGIT, Dynamics, Economic Growth, and International Trade.
  4. Bruce A. Blonigen & Anca D. Cristea, 2012. "Airports and Urban Growth: Evidence from a Quasi-Natural Policy Experiment," NBER Working Papers 18278, National Bureau of Economic Research, Inc.
  5. Alexander Knobel, 2012. "The Influence Of Services Trade Liberalization On Service Flows And Industry Productivity In Cis Countries And Russia," Working Papers 0013, Gaidar Institute for Economic Policy, revised 2012.
  6. Shepotylo Oleksandr & Vakhitov Volodymyr, 2012. "Impact of services liberalization on productivity of manufacturing firms: evidence from Ukrainian firm-level data," EERC Working Paper Series 12/01e, EERC Research Network, Russia and CIS.
  7. Massimo Armenise & Giorgia Giovannetti & Gianluca Santoni, 2011. "FDI in Business Services has general TFP effects : evidence from Italy," Working Papers Series wp2011_12.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze dell'Economia e Dell'Impresa.
  8. Shepotylo, Oleksandr & Vakhitov, Volodymyr, 2012. "Services liberalization and productivity of manufacturing firms : evidence from Ukraine," Policy Research Working Paper Series 5944, The World Bank.
  9. Duggan, Victor & Rahardja, Sjamsu & Varela, Gonzalo, 2013. "Can Open Service Sector FDI Policy Enhance Manufacturing Productivity? Evidence from Indonesia," World Bank - Economic Premise, The World Bank, issue 106, pages 1-7, February.
  10. Balistreri, Edward J. & Rutherford, Thomas F. & Tarr, David G., 2009. "Modeling services liberalization: The case of Kenya," Economic Modelling, Elsevier, vol. 26(3), pages 668-679, May.
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  12. Fernandes, Ana M. & Paunov, Caroline, 2008. "Foreign direct investment in services and manufacturing productivity growth: evidence for Chile," Policy Research Working Paper Series 4730, The World Bank.
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