How does the productivity of foreign-invested enterprises spill over to domestic firms in Vietnamese manufacturing?

Abstract

This paper investigates the evidence of productivity spillover from foreign-invested enterprises (FIEs) to local firms through horizontal, backward, and forward spillover channels, using establishment-level data from Vietnam in 2006–2017. The paper also considers the effects of foreign ownership types on the existence and magnitude of the productivity spillover. In addition, the paper examines whether the involvement of domestic firms in global production networks (GPNs) impacts on the nature of the spillover. The findings indicate that productivity from FIEs spills over to local firms through backward and forward channels, but not horizontal channels. Ownership structures of FIEs serve as an important determinant of productivity spillover: joint ventures tend to generate more significant positive productivity spillover to domestic firms than fully owned foreign firms. Lastly, local firms operating within GPNs benefit more from the presence of FIEs compared to those involved in horizontal specialization.

Keywords:

• Foreign-invested enterprises
• total factor productivity
• productivity spillover
• manufacturing
• Vietnam

Classification Codes:

• C23
• D24
• F14
• F23

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 An ideal data for this categorization is establishment-level data, which provides information on whether a firm participates or not in the GPNs. However, this information is not available in the VES for the studied period.

2 There are two types of IO tables, ‘competitive’ and ‘non-competitive’, which differ on their treatment of import data. In the competitive IO tables, both domestically produced and imported inputs are lumped together in a single interindustry IO matrix, assuming that these inputs are perfect substitutes. By contrast, non-competitive IO tables, inputs are clearly separated into two interindustry matrices: domestic input coefficients; and imported input coefficients. For most countries, including Vietnam, only competitive type IO tables are available.

3 The four-firm concentration ratio is the sum of total sales or the top four firms divided by the industry total.

4 Difference-GMM is employed because the coefficients for the lag dependent variable (L.Log TFP) lie well within the OLS upper bounds and FE lower bounds in all specifications (Bond, Hoeffler, and Temple 2001).

Additional information

Notes on contributors

Hai Thanh Nguyen

Nguyen Hai Thanh

Nationality: Vietnamese

Qualifications: PhD Candidate in Economics, Australian National University, Canberra, Australia. 2012–2013: Master of Economics, Australian National University, Canberra, Australia. 2008–2010: Master of Economics, Foreign Trade University, Hanoi, Vietnam. 2002–2006: Bachelor of Economics, Foreign Trade University, Hanoi, Vietnam.

Institutional affiliation: Crawford School of Public Policy, Australian National University, Canberra, Australia.

Research interests: Economic development: determinants of economic growth, total factor productivity. Trade and development: trade policy reforms, multinational enterprises and globalization of production, foreign direct investment.

Recent publication: Nguyen, H.T. Intersectoral linkages and imports of Vietnam: an input–output approach. IJEPS 15, 205–231 (2021). https://doi.org/10.1007/s42495-021-00057-2