An Empirical Analysis of Foreign Direct Investment in the Service Industries

Services play an increasingly important role in modern economies (Bhagwati, 1984; Francois, 1990), leading not only to intensified international competition, but also to growing concern over the nature and extent of government intervention in service trade and investment. Recognition of the impact of government restrictions on market access, as well as other trade barriers, have led to proposals for services liberalization (Sampson and Snape, 1985; Hoekman, 1992a, b; Rivera-Batiz and Rivera-Batiz, 1992). However, these proposals have been countered by some protectionist sources in the United States, who are concerned that the influx of foreign capital will lead to a decline in U.S. competitiveness. This paper represents a contribution to the debate on the liberalization of international service trade and investment.