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Foreign direct investment in services and manufacturing productivity: Evidence for Chile

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  • Fernandes, Ana M.
  • Paunov, Caroline

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.

Suggested Citation

  • Fernandes, Ana M. & Paunov, Caroline, 2012. "Foreign direct investment in services and manufacturing productivity: Evidence for Chile," Journal of Development Economics, Elsevier, vol. 97(2), pages 305-321.
    • Handle: RePEc:eee:deveco:v:97:y:2012:i:2:p:305-321
    DOI: 10.1016/j.jdeveco.2011.02.004
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    More about this item

    Keywords

    Total factor productivity; Service liberalization; Foreign direct investment; Chile; Firm heterogeneity;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L8 - Industrial Organization - - Industry Studies: Services
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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