Foreign Capital and Labor Productivity Growth in Chile: An Empirical Anaysis

This paper examines the impact of foreign direct investment (FDI) on labor productivity growth in Chile during the 1960-2001 period. Using co-integration analysis, the paper estimates an error correction model (ECM) that suggests that increases in FDI flows had a positive and significant effect on labor productivity growth. The lagged public investment variable, as well as outward-oriented policies and economic crises (captured by dummies) were also found to have the expected sign and to be statistically significant. The error correction terms are negative and statistically significant, suggesting that contemporaneous shocks to the longrun labor productivity relationship are corrected in subsequent periods