We implement a method to estimate the direct effects of foreign-ownership on foreign firms' productivity and the indirect effects (or spillovers) from the presence of foreign-owned firms on other foreign and domestic firms' productivity in a unifying framework, taking interactions between firms into account. To do so, we relax a fundamental assumption made in empirical studies examining a direct causal effect of foreign ownership on firm productivity, namely that of no interactions between firms. Based on our approach, we are able to combine direct and indirect effects of foreign ownership and calculate the total effect of foreign firms on local productivity. Our results show that all these effects vary with the level of foreign presence within a cluster, an important finding for the academic literature and policy debate on the benefits of attracting foreign owned firms.2

INTRODUCTIONT RADE in services has shown a sharp global growth over the last three decades and now spans a wide spectrum from travel, tourism and recreational activities to education, training, financial and professional services. Yet, despite the growing magnitude and importance of trade in commercial services, we know remarkably little about the underlying forces that stimulate service firms' ability to export. With the exception of some recent studies that analyse the characteristics and performance of service exporters (Breinlichy and Criscuolo, 2009;and Vogel and Wagner, 2009 amongst others), the service sector remains underexplored in the international trade literature. 1 We aim to contribute to this emerging field of research by studying the role of finance in exporting for service firms, an issue that has not been previously explored. We study the exporting behaviour of Indian service firms between 1999 and 2007 and evaluate whether long-and short-term borrowing matters for the decision to export and the volume exported. To this end, we employ non-linear dynamic panel data techniques where we control for unobserved heterogeneity and the potential endogeneity in the initial conditions problem.The importance of finance for exporting goods is well understood in the international trade literature. At the macroeconomic level, theoretical and empirical studies reveal that countries with well-developed financial systems tend to export goods produced in industries that use external finance effectively (i.e. Beck, 2002Beck, , 2003. At the firm level, the literature suggests that the main The authors are grateful to two anonymous referees and the editor for helpful comments on an earlier draft. 1 We refer to Francois and Hoekman (2010) for a revision of the literature on services trade.

Abstract:Before and after its accession to the WTO in 2001, China has undergone a far-reaching investment liberalisation. As part of this, existing restrictions on foreign ownership structure and mandatory export and technology transfer requirements imposed on foreign firms have been lifted in a number of industries. Against this background we identify the causal effects of foreign acquisitions on export market entry and technology take-off and evaluate whether the level of foreign ownership plays a role in stimulating these changes. Using doubly robust propensity score reweighted bivariate probit regressions to control for the selection bias associated with firm level foreign acquisition incidences, we uncover strong but heterogeneous positive effects on export activity for all types of foreign ownership structure. We also find that minority foreign owned acquisition targets experience higher likelihood of R&D, providing evidence that joint ventures can contribute positively to China's "science and technology take-off".

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This paper highlights an inherent contradiction that exists within investment promotion activities in rich countries. Since the financial crisis, many inward investment agencies have shifted their activities from job creation per se to seeking to attract investment in high-tech activities. Such knowledge-intensive sectors are engaged in what has become referred to as ''the war for talent'', so locations need to understand their value proposition to firms, especially where labour is tight. This paper explores the implications of this, in terms of the impact on employment and earnings of high skilled labour. We show that, because skill shortages already exist in many of these sectors, seeking to attract inward investment in these sectors simply causes the earnings of such workers to be bid up, and employment in the incumbent sector to fall. We highlight the overriding importance that firms place on the availability of skilled labour when determining locations, and how policies which promote labour market flexibility, particularly through investment in skills to address skill shortages, can significantly mitigate the adverse effects, which tend to be more keenly felt in poorer regions of Europe where skilled labour is in even shorter supply.