Document Type

Honors Paper


Maria Cruz-Saco

Publication Date



This thesis investigates the impact of Foreign Direct Investment (FDI) on the Total Factor Productivity (TFP) in the Mining Sector of Chile. We use 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.



The views expressed in this paper are solely those of the author.