Productivity Spillovers from Foreign Direct Investment: Evidence from Vietnamese Firm Data

Abstract

The paper examines the effects of foreign direct investment (FDI) on a domestic firm's productivity in Vietnamese manufacturing industries. In contrast with most previous studies, the paper focuses on the FDI spillover effects taking place through both horizontal and vertical linkages and studies the variance of FDI spillovers across regions of Vietnam. Our findings are: FDI generates strong and positive spillover effects on a domestic firm's productivity through both horizontal and backward linkages; the Vietnamese regions benefit from the FDI spillovers but the spillover effects are very different from region to region; private firms have strong linkages through technical assistance and technology transfer with foreign invested firms while linkages of state owned enterprises (SOEs) with foreign invested firms are very weak; domestic firms with higher human capital stock, better financial development and lower technology gap will get more benefits from FDI spillovers and therefore they will have higher productivity.