Abstract
This paper examines the linkages between foreign and domestic investment at sector level in a transitional economy. Using System Generalized Method of Moments estimation on a strong balanced dataset covering all sectors across the country, our results consistently suggest that foreign direct investment in Vietnam positively motivates domestic private investment in the same sector. Examination of the linkages finds evidence of crowding-in effects from foreign investment on domestic private investment in downstream sectors that have strong linkages with foreign investment in upstream sectors. No significant impact is found in upstream domestic investment that has linkages with foreign investment in downstream sectors. State-owned investment and joint-venture investment by foreign and domestic investors have a generally negative effect on the investment behavior of private investors. Domestic private investment in export-oriented sectors appears to be more responsive to the presence of foreign investment in both upstream and downstream sectors through vertical linkages. • This paper examines the linkages between foreign and domestic investment at sector level in Vietnam over the period 2010–2015. • Our results consistently suggest that foreign direct investment in Vietnam positively motivates domestic private investment in the same sector. • In particularly, we find evidence of crowding-in effects from foreign investment to domestic private investment in the downstream sectors that have strong linkages with foreign investment in upstream sectors. • There is no significant impact found in terms of upstream domestic investment that has linkages with foreign investment in downstream sectors. State-owned investment and joint-venture investment involving foreign and domestic investors have a generally negative impact on the investing behavior of private investors. • Domestic private investment in export-oriented sectors appears to be more responsive to the presence of foreign investment in both upstream and downstream sectors through vertical linkages.
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