(JOB MARKET PAPER) This paper presents new microeconomic evidence on the link between financial sector development, financial globalization and productivity. To this end, data of Mexican manufacturing firms operating in 1991, 1999 and 2001 were used. Results are based on firm level productivity estimates obtained by a semi-parametric estimation technique and an indicator of local financial development that varies across Mexican states. There is evidence that in general, larger firms benefit from FDI in their same region of activity. However, domestic firms only enjoy productivity increases from FDI if they are relatively large and located in financially developed regions. All the findings are robust to instrumenting for financial development using historical conditions
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