The hare and the tortoise: A comparative study of Vietnam's and Kenya's pathways to local enterprise development through foreign direct investment

Abstract

ABSTRACT Almost simultaneously, two developing countries – Kenya and Vietnam – set out to promote industrial development through FDI. Vietnam embarked on a targeted strategy aimed at selecting FDI that could specifically aid the country’s strategic export sectors through linkages to local industry. In contrast, Kenya embarked on a cross-the-board FDI attraction policy with no specific sector orientation and with few specific linkage policies. This paper asks how FDI has contributed to local industry development in the two countries. Based on an analysis of firm level data from the World Bank Enterprise Survey, the paper compares the two countries’ ability to generate spillovers from FDI spillovers and discusses what explains differences and similarities. The paper finds that in spite of the obvious differences between the two countries in terms of local industrial development and policy, firm and industry factors appeared to be better predictors of variations in spillovers than country level factors. Among the policy implications drawn are that developing countries should focus their FDI policies on firms and industries that have high linkage and hence spillover potential rather than adopting cross-the-board policies.