Abstract
AbstractDeveloping countries are eager to host foreign direct investment to receive positive technology spillovers to their local firms. However, what types of foreign firms are desirable for the host country to achieve spillovers best? We address this question using firm‐level panel data from Vietnam to investigate whether foreign Asian investors in downstream sectors with different productivity affect the productivity of local Vietnamese firms in upstream sectors differently. Using endogenous structural breaks, we divide Asian investors into low‐, middle‐, and high‐productivity groups. The results suggest that the presence of the middle group has the strongest positive spillover effect. The differential spillover effects can be explained by a simple model with vertical linkages and productivity‐enhancing investment by local suppliers. The theoretical mechanism is also empirically confirmed.
Highlights
Hosting foreign direct investment (FDI) is essential for enhancing economic growth in developing countries
We examine how the productivity gap and vertical spillover are correlated in the context of Vietnam
We focus on Asian investors, which are most likely to induce vertical spillover to local suppliers, as shown in the previous literature
Summary
Hosting foreign direct investment (FDI) is essential for enhancing economic growth in developing countries. Recent studies show that the degree of vertical spillovers depends on both characteristics of local firms and those of foreign investors (Blalock and Gertler, 2009; Javorcik and Spatareanu, 2008, 2011; Ni et al, 2017). A similar theoretical result can be found in Rodrıguez-Clare (1996): hosting downstream FDI would increase the productivity of local suppliers if the number of locally produced input variety is close to the one produced in the origin country. The average productivity level of most Vietnamese local firms is lower than that of foreign investors entering Vietnam (Ni et al, 2017), which gives Vietnamese firms more potential to catch up How such a technology gap can be filled is one of the challenges that developing countries face. The data source is used in other recent studies on Vietnam, e.g., Ha et al (2016) on resource misallocation; Trinh and Ha (2018) on small and medium-sized firms; Nguyen et al (2020) for employment
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
