Does Services Liberalization Benefit Manufacturing Firms?

42 Pages Posted: 29 Dec 2006

See all articles by Jens Matthias Arnold

Jens Matthias Arnold

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Beata Smarzynska Javorcik

University of Oxford - Department of Economics; World Bank - Development Research Group (DECRG); Centre for Economic Policy Research (CEPR)

Aaditya Mattoo

World Bank - Development Research Group (DECRG)

Date Written: October 2006

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. This study examines the link between services sector reforms and the productivity of manufacturing industries relying on services inputs. The results, based on firm-level data from the Czech Republic for the period 1998-2003, show a positive relationship between services sector reform and the performance of domestic firms in downstream manufacturing sectors. When several aspects of services liberalization are considered, namely, the presence of foreign providers, privatization and the level of competition, we find that allowing foreign entry into services industries is the key channel through which services liberalization contributes to improved performance of downstream manufacturing sectors. As most barriers to foreign investment today are not in goods but in services sectors, our findings may strengthen the argument for reform in this area.

Keywords: Services liberalization, productivity, foreign direct investment

JEL Classification: D24, F2, L8

Suggested Citation

Arnold, Jens Matthias and Javorcik, Beata Smarzynska and Mattoo, Aaditya, Does Services Liberalization Benefit Manufacturing Firms? (October 2006). CEPR Discussion Paper No. 5902. Available at SSRN: https://ssrn.com/abstract=954123

Jens Matthias Arnold (Contact Author)

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
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Beata Smarzynska Javorcik

University of Oxford - Department of Economics ( email )

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Oxford
United Kingdom

World Bank - Development Research Group (DECRG) ( email )

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202-522-1159 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/bjavorcik

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Aaditya Mattoo

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, N.W.
Room MC 3-327
Washington, DC 20433
United States
202-458-8047 (Phone)
202-676-9810 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/amattoo

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