Abstract

Services are the most relevant sector in developed economies, with respect to both absolute dimension and growth rates. Moreover, as suppliers to other sectors, their efficiency affects the competitiveness of the whole economy. Increasing efficiency and quality of services has become a key issue in policy makers' agenda and the debate on the channels to pursue this objective is still open. Specifically, foreign direct investment (FDI) in service sectors is held to be one of the main drivers for increasing competition, and due to recent privatization and deregulation policies new opportunities for foreign investors are growing in relevance. While the literature has mainly focused on horizontal or vertical spillovers between manufacturing firms, the role of vertical spillovers stemming from the presence of foreign multinational enterprises (MNEs) in service sectors to domestic manufacturing firms has been so far mainly neglected. The aim of the present paper is to contribute to fill this gap, focusing on Italy. The empirical analysis investigates the impact of the entrance of foreign MNEs in four sectors: Transportation, Telecommunications, Utilities and Consultancy over the period 1999-2005. We find evidence of positive vertical technological (knowledge spillovers) and pecuniary externalities. Moreover, we observe that these externalities, given the nature of the sectors considered, are localized.