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<p>This paper examines the impact of foreign direct investment (FDI) restrictions in the services sector on the comparative advantage of manufacturing industries. Using data from 71 countries and 22 manufacturing sectors, we assess whether liberalizing FDI policies in services enhances manufacturing export performance, particularly in industries that are highly dependent on service inputs. Our findings indicate that greater openness to service-sector FDI is positively associated with improved export outcomes in service-intensive manufacturing. Notably, the gains from liberalization are significantly larger in countries with less developed service sectors. Among various dimensions of FDI restrictiveness, equity limitations and operational restrictions exert the strongest effects on manufacturing competitiveness. The effectiveness of liberalization also depends on institutional quality, the availability of skilled labor, and broader economic conditions in the host country. These results highlight the importance of targeted service-sector FDI reforms and strong institutional frameworks in enhancing manufacturing performance through deeper service–manufacturing linkages.</p>

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Foreign Direct Investment Restrictions in Services and the Comparative Advantage of Manufacturing

  • 期刊论文

  • 发表日期：

    2026年1月30日

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  • Soonchan Park,
  • Innwon Park

摘要

This paper examines the impact of foreign direct investment (FDI) restrictions in the services sector on the comparative advantage of manufacturing industries. Using data from 71 countries and 22 manufacturing sectors, we assess whether liberalizing FDI policies in services enhances manufacturing export performance, particularly in industries that are highly dependent on service inputs. Our findings indicate that greater openness to service-sector FDI is positively associated with improved export outcomes in service-intensive manufacturing. Notably, the gains from liberalization are significantly larger in countries with less developed service sectors. Among various dimensions of FDI restrictiveness, equity limitations and operational restrictions exert the strongest effects on manufacturing competitiveness. The effectiveness of liberalization also depends on institutional quality, the availability of skilled labor, and broader economic conditions in the host country. These results highlight the importance of targeted service-sector FDI reforms and strong institutional frameworks in enhancing manufacturing performance through deeper service–manufacturing linkages.