Foreign Direct Investment and Total Factor Productivity in the Mining Sector: the Case of Chile

By: Prince Stanislas Ilboudo '14

Advising Faculty: Maria Cruz-Saco

This thesis investigates the impact of Foreign Direct Investment (FDI) on the Total Factor Productivity (TFP) in the mining sector of Chile. We used the Solow model and developed a Cobb-Douglas production function to estimate total output as a function of labor, capital and productivity. Hence, TFP is the portion of output that is not attributed to labor or capital and it is derived as the Solow "residual." We estimate the capital variable as a function of capital stock corrected for depreciation and utilization rate. We derive the labor variable as a function of hours worked corrected for quality (education premium). We find that FDI is positively correlated with TFP and it is statistically significant in most cases. The relation is more significant when the variations in the price of copper are included in the regression.

This honors thesis may be viewed in its entirety at Digital Commons @ Connecticut College.

Related Fields: Economics, Global/International, CISLA