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Foreign direct investment in services and manufacturing productivity growth: evidence for Chile

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  • Fernandes, Ana M.
  • Paunov, Caroline

Abstract

During the 1990s, foreign direct investment in producer service sectors in Latin America was massive. Such investment may increase the quality of services, reduce their cost, and offer opportunities for knowledge spillovers to downstream users of the services. This paper examines the effects of foreign direct investment in services on manufacturing productivity growth in Chile between 1992 and 2004. The authors estimate an extended production function where plant output growth depends on input growth and a weighted measure of foreign direct investment in services. The novelty of the approach is that the authors are able to assess the intensity of usage of various types of services at the plant level and use that information in the estimation of the importance of foreign direct investment in those services. The econometric results show a positive and significant effect of foreign direct investment in services on productivity growth of Chilean manufacturing plants which is robust to a multitude of tests. The economic impact of the estimates is that forward linkages from foreign direct investment in services account for almost 5 percent of the observed increase in Chilean manufacturing productivity growth during the sample period. This evidence therefore suggests that reducing the barriers restricting foreign direct investment in services in many developing economies may help accelerate productivity growth in their manufacturing sectors.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4730.

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Date of creation: 01 Sep 2008
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Handle: RePEc:wbk:wbrwps:4730

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Keywords: Banks&Banking Reform; ICT Policy and Strategies; E-Business; Knowledge Economy; Education for the Knowledge Economy;

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References

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Cited by:
  1. 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.
  2. Leonardo Iacovone & Ferdinand Rauch & L. Alan Winters, 2010. "Trade as an Engine of Creative Destruction Mexico experience with Chinese competition," Working Paper Series 0510, Department of Economics, University of Sussex.
  3. 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.
  4. Shepotylo, Oleksandr & Vakhitov, Volodymyr, 2012. "Services liberalization and productivity of manufacturing firms : evidence from Ukraine," Policy Research Working Paper Series 5944, The World Bank.
  5. 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.
  6. Kiyoyasu Tanaka, 2009. "Producer Services and Manufacturing Productivity: Evidence from Japan Industrial Productivity Database," Global COE Hi-Stat Discussion Paper Series gd09-076, Institute of Economic Research, Hitotsubashi University.
  7. Fernandes, Ana M. & Paunov, Caroline, 2009. "Does tougher import competition foster product quality upgrading ?," Policy Research Working Paper Series 4894, The World Bank.

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