Working Paper: NBER ID: w2307
Authors: Magnus Blomström; Robert E. Lipsey
Abstract: The participation of U.S. service industry firms in Latin American markets for services consists mainly of the activities of U.S.-owned affiliates operating in Latin America and very little of direct exports of ser- vices from the U.S. The important policy issues thus involve barriers to the establishment and operation of affiliates in host countries rather than trade barriers. Since direct investment rather than trade is at issue, the comparative advantages that are important are those of U.S. multinational firms rather than those of the U.S. as a country. The characteristics we observe in U.S. multinationals in these industries, particularly their low R & D intensity, are not those usually associated with the comparative advantages of U.S. multinationals. However, their skill intensity is relatively high. A more detailed breakdown of the sector does show at least some industries, particularly in finance, in which skill levels are very high, and these are the most likely candidates for major gains for U.S. multinationals. Nevertheless, U.S. shares in the Latin American service sector are very small overall and not likely to reach the levels in manufacturing or petroleum in the foreseeable future.
Keywords: Foreign Direct Investment; Service Industries; Multinational Firms; Latin America
JEL Codes: F21; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US multinational firms in service industries exhibit higher skill intensity (F23) | comparative advantage in service sectors (L89) |
| US FDI in Latin America is primarily through the establishment of affiliates (F23) | barriers to affiliate establishment are more significant than trade barriers (F13) |
| US firms may have advantages in certain high-skill service industries (L84) | overall impact on Latin American markets is limited (F69) |
| US affiliates account for a small proportion of service production (L84) | overall share of US firms in Latin American service sectors remains low (L89) |