The Productivity Effects of Services Liberalization Evidence from the Czech Republic

Jens Arnold · Beata Smarzynska Javorcik · Aaditya Mattoo

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Global trade and economics International Business and FDI Economic Growth and Productivity

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 service 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 may be 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.

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1999Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela 2017World Investment Report 1998Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco 2002Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages 2002Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants 2000Foreign Investment and Productivity Growth in Czech Enterprises 2001The effects of foreign direct investment on domestic firms 2002The Internet and International Trade in Services

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