Foreign Direct Investment in Services and Manufacturing Productivity Growth : Evidence for Chile

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.

Bibliographic Details

Main Authors:	Paunov, Caroline, Fernandes, Ana M.
Language:	English
Published:	World Bank, Washington, DC 2008-09
Subjects:	ACCOUNTING, ACCOUNTING SERVICES, ADVERTISING, AFFILIATES, BANKING INDUSTRY, BANKING SECTOR, BEST PRACTICE, BEST PRACTICES, BOOK VALUE, BUSINESS ENVIRONMENT, BUSINESS SERVICES, BUYER, BUYERS, CAPABILITIES, CAPABILITY, CAPITALIZATION, COMMUNICATION COSTS, CONSULTING SERVICES, CURRENCY UNITS, DEMONSTRATION EFFECTS, DISPUTE RESOLUTION, ECONOMIC DEVELOPMENT, ECONOMICS, ELECTRICITY, ELECTRONIC BANKING, EMERGING MARKET ECONOMIES, EMPLOYMENT, EQUILIBRIUM MODELS, FINANCIAL PRODUCTS, FINANCIAL SERVICES, FOREIGN BANKS, FOREIGN DIRECT INVESTMENT, FOREIGN ENTRY, FOREIGN INVESTMENT, GLOBAL ECONOMY, INDUSTRIAL ECONOMICS, INFORMATION TECHNOLOGY, INNOVATION, INNOVATION POLICY, INNOVATION SYSTEMS, INSTITUTION, INSURANCE, INTANGIBLE ASSETS, INTERNATIONAL TRADE, INVENTORY, INVESTMENTS IN INFORMATION TECHNOLOGY, KNOW-HOW, LEARNING, LICENSES, MANUFACTURING, MANUFACTURING INDUSTRIES, MANUFACTURING INDUSTRY, MARKET ENTRY, MARKET SHARE, MARKET SHARES, MARKETING, NATURAL RESOURCES, NETWORKS, OUTSOURCING, PRIVATIZATION, PRODUCTION FUNCTIONS, PRODUCTION PROCESS, PRODUCTION PROCESSES, PRODUCTIVITY, PUBLISHING, QUALITY OF SERVICES, R&D, REGULATORY SYSTEM, RELIABILITY, RELIABILITY OF SERVICE, RELIABILITY OF SERVICES, RESULT, RESULTS, SEARCH, SUBSIDIARIES, TACIT KNOWLEDGE, TECHNICAL ASSISTANCE, TECHNICAL SKILLS, TECHNOLOGY TRANSFER, TELECOM, TELECOM SECTOR, TELECOMMUNICATIONS, TELECOMMUNICATIONS EQUIPMENT, TELECOMMUNICATIONS POLICY, TELEPHONE, TELEPHONE LINES, TEXT, TIME PERIODS, TRANSITION ECONOMIES, TRANSPORT, UNIQUE IDENTIFIER, USER, USERS, USES, WEB, WORLD TRADE,
Online Access:	http://documents.worldbank.org/curated/en/2008/09/9891604/foreign-direct-investment-services-manufacturing-productivity-growth-evidence-chile https://hdl.handle.net/10986/6947
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