Do FDI in Business Services Affect Firms’ TFP? Evidence from Italian Provinces

This chapter studies the effect of FDI in business services on total factor productivity (TFP) of Italian manufacturing firms, over the period 2003–2008. More precisely, the chapter tests the presence of vertical linkages between foreign business professionals and domestic manufacturing firms. Our results, robust to different specifications, show that foreign capital inflows in business services improve the performance of domestic manufacturing firms. This relationship is particularly strong in the case of high-tech sectors, such as mechanics andmachinery. Traditional sectors, on the other hand, seem to be less sensitive to the availability of foreign business services in the same location.