||Privatization<br>(threshold)||||||-14.396<br>(18.941)||-16.411<br>(18.299)|
|---|---|---|---|---|---|---|---|---|---|
|Manufacturing|FDI (share)||-0.038|||-0.34||-0.213||
|input linkages|||(0.489)|||(0.439)||(0.509)||
|||-0.153||-0.183|-0.424||-0.323||-0.272|
||FDI (threshold)|(0.428)||(0.415)|(0.420)||(0.418)||(0.432)|
||MFN Tariff|-0.136|-0.307**|-0.194|-0.037|-0.147|-0.042|-0.316**|-0.201|
|||(0.107)|(0.130)|(0.124)|(0.103)|(0.104)|(0.100)|(0.133)|(0.124)|
|Within sector|FDI (share)||-0.084|||0.131||0.033||
|effects|||(0.202)|||(0.189)||(0.215)||
|||0.146||0.132|0.319*||0.258||0.18|
||FDI (threshold)|(0.157)||(0.152)|(0.171)||(0.156)||(0.171)|
||MFN Tariff|0.093*|0.173***|0.118*|0.051|0.088*|0.049|0.174***|0.124**|
|||(0.054)|(0.064)|(0.061)|(0.052)|(0.052)|(0.051)|(0.066)|(0.061)|
||No. of obs.|7155|7155|7155|7155|7155|7155|7155|7155|
||R<sup>2</sup>|0.093|0.093|0.092|0.092|0.093|0.092|0.093|0.093|

The Inputs Linkage variables are weighted by the respective I/O coefficient. All regressors are lagged one year. All models include firm and year fixed effects. Robust standard errors clustered on industry-year combinations are presented in parentheses. *, **, *** indicate statistical significance at the 10, 5 and 1% level.

Moreover, our results suggest that other, albeit not all, aspects of openness affect firm performance. We find that high tariffs on foreign-produced material inputs are negatively correlated with firm productivity. The coefficient is statistically significant in 5 out of 8 cases. This result is in line with the findings by Amiti and Konings (2005) showing that trade liberalization benefits users of imported inputs. Consistent with the results of Javorcik (2004), we do not find evidence suggesting that access to material inputs produced by foreign investors affect the performance of domestic producers. Moving on to within industry effects, our results produce some weak evidence of positive spillovers from foreign presence in the same sector. The estimations also suggest that tariff protection in the same sector displays a positive correlation with firm performance. While this finding contrasts with the results on the effect of import competition on productivity in the existing literature, it is important to mention that our result is not directly comparable to those found in other analyses, due to the specific situation of the Czech Republic. Imports of manufacturing products from the European Union and its accession countries were entering the Czech Republic practically duty free throughout most of the period under study, and our tariff measure captures the residual competition offered by imports from non-EU countries.<sup>24</sup> In order to interpret the size of our estimated coefficients, we undertake the following hypothetical exercises on the basis of models I and III in table 2. Assume that the level of services liberalization in the Czech Republic at the end of our time frame, as measured by the EBRD indices, were to drop to the level of Romania, which has made considerably less progress in liberalizing its services sectors according to the EBRD. In this case, our model would predict an average decrease in the productivity of downstream manufacturing sectors of the order of 4.8%. With respect to foreign presence, simulating a one-standarddeviation increase in foreign presence in services industries would lead to a 3.8% increase in the productivity of downstream manufacturing firms.

In table 3, we present the same estimates based on TFP measures obtained using the Olley and Pakes method. These results lead to the same conclusions: We find a positive and significant relationship between the reform in services sectors, as reflected by the EBRD index, foreign presence and privatization, and the performance of Czech firms in downstream manufacturing. As before, the effect of privatization is statistically significant only when the capital share definition is used. The last result is not surprising as privatizing only a small share of an enterprise (10% is the threshold value in this case) is unlikely to have a

> 24 Imports from the European Union accounted on average for 62.5% of all Czech imports during the period under study. In Appendix G, we have estimated the same models as in table 2 using EU-preferential tariffs in addition to the MFN tariffs. While the preferential tariff measures are insignificant in these regressions, the results for services reform remain largely unchanged.

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