Foreign Direct Investment in Services and the Domestic Market for Expertise

Markusen, James ; Rutherford, Thomas F. ; Tarr, David

World Bank, Washington, DC

关键词: AGGREGATE SUPPLY;    ASSETS;    AVERAGE COSTS;    BASE YEAR;    CD;   

DOI  :  10.1596/1813-9450-2413
RP-ID  :  WPS2413

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

A growing body of evidence suggests thatthe close availability of diverse business services isimportant for economic growth. Producer services such asmanagerial and engineering consulting can providespecialized knowledge to help domestic firms develop atlower unit cost. But these intermediate services are oftennontraded, or costly to trade, which may be one reason thatcities and industrial complexes form and economicperformance differs across regions. Because services arecostly to trade, foreign services are best transferredthrough foreign direct investment. This has importantimplications for public policy. Policies that affect foreigndirect investment differ considerably from those that affecttrade in goods. The authors develop a model of services,results from which show that: A) Liberalizing restraints oninward foreign direct investment has a powerful positiveimpact on the income and welfare of the importing country.The impact is much stronger than in traditional competitivemodels of trade in goods. B) Policies to protect domesticskilled labor against competition from imported services canhave the perverse effect of lowering returns to domesticskilled labor-because while imported services economize onthe use of domestic skilled labor (compared with domesticservice industries), the positive effects on scale andproductivity in the downstream industry can be powerfulenough that the real wages of domestic skilled labor riseafter the liberalization of foreign direct investment inservice industries. In other words, domestic skilled laborand foreign direct investment are partial-equilibriumsubstitutes in the model but are typicallygeneral-equilibrium complements. C)The increase in thevariety of imported services leads to increased total factorproductivity in downstream industries, but the relativeimpact on downstream industries depends on how intensivelythey use intermediate services. The differential in effectson productivity in the production of final goods can bestrong enough that permitting foreign direct investment canactually affect whether a good is exported rather than beingimported. Policymakers should be aware that protection of adomestic service industry affects different constituenciesdifferently. Although domestic capital owners may beadversely affected by foreign direct investment, domesticskilled workers in the industry are likely to see demand fortheir skills-and their real wages-rise. Moreover, downstreamindustries that use the service unambiguously benefit fromforeign direct investment and their expansion can besurprisingly strong.