Does Services Liberalization Benefit Manufacturing Firms? Evidence from the Czech Republic

By Jens Matthias Arnold, B. Javorcik, Aaditya Mattoo. 2011

497 citations recorded by the source corpus.

While there is considerable empirical evidence on the impact of liberalizing trade in goods, the effects of services liberalization have not been empirically established. Using firm-level data from the Czech Republic for the period 1998-2003, this study examines the link between services sector reforms and the productivity of domestic firms in downstream manufacturing. Several aspects of services reform are considered and measured, namely, the increased presence of foreign providers, privatization, and enhanced competition. The manufacturing-services linkage is measured using information on the degree to which manufacturing firms in a particular industry rely on intermediate inputs from specific services sectors. The econometric results lead to two conclusions. First, the study finds that services policy matters for the productivity of manufacturing firms relying on services inputs. This finding is robust to several econometric specifications, including controlling for unobservable firm heterogeneity and for other aspects of openness. Second, it finds evidence that opening services sectors to foreign providers is a key channel through which services liberalization contributes to improved performance of downstream manufacturing sectors. This finding is robust to instrumenting for the extent of foreign presence in services industries. As most barriers to foreign investment today are not in goods but in services sectors, the findings may strengthen the argument for reform in this area.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/74a12dce0d077c49d76c0974eb972302b46451a4

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Citations in the corpus

• Tough Love: Do Czech Suppliers Learn from Their Relationships with Multinationals? (2009, unknown): “As tariff level may also affect the level of competition in the sector and hence firm productivity (though Arnold et al. (2007) rep s is not the case in the Czech Republic), we will use tariffs lagged two periods.”
• Do Product Market Regulations in Upstream Sectors Curb Productivity Growth? Panel Data Evidence For OECD Countries (2013, unknown): “(2006) and the firm-level analyses of Arnold et al. (2006) and Forlani (2009). However, Conway et al.”
• Does FDI Bring Good Jobs to Host Countries? (2012, unknown): “A study by Arnold, Javorcik, and Mattoo (2011) finds that the foreign acquisitions of Czech service providers resulted in large changes in the labor productivity and sales of the acquired firms.”
• Services trade policy and manufacturing productivity: The role of institutions (2017, unknown): “In the spirit of Arnold et al. (2011, 2016), we propose an instrumental variable approach that exploits information on services trade policy adopted by other countries.”
• Services productivity, trade policy and manufacturing exports (2017, unknown): “5 Other country-specific papers that come to similar conclusions as Arnold et al. include Fernandes and Paunov (2012) and Duggan, Raharda and Varela (2103), who focus on Chile and Indonesia, respectively.”