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

Ana Fernandes and Caroline Paunov ()

Journal of Development Economics, 2012, vol. 97, issue 2, 305-321

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 (search for similar items in EconPapers)
JEL-codes: D24 L8 L9 F21 F23 (search for similar items in EconPapers)
Date: 2012
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