Domestic total factor productivity with trade and heterogenous foreign direct investment in developing countries: a case of Vietnamese manufacturing
International Journal of Emerging Markets
ISSN: 1746-8809
Article publication date: 1 September 2022
Issue publication date: 9 May 2024
Abstract
Purpose
This paper aims to examine spillover effects of heterogenous foreign direct investment (FDI) enterprises (domestic vs. export-oriented) through horizontal and vertical linkages and absorptive capacity effect on domestic firms' total factor productivity (TFP). It clarifies the spillover effect on domestic firms in accordance with industrial zones, business size, technology sector and geographical agglomeration, respectively.
Design/methodology/approach
The dataset used is based on Vietnamese manufacturing firms during 2011–2014, input–output (I–O) Table 2012. This paper is conducted in two steps: (1) TFP is estimated by using a semi-parametric approach developed by Levinsohn and Petrin (2003); (2) Regression with panel data for domestic firms, applying the fixed effect method.
Findings
In terms of domestic-oriented FDI (DFDI) enterprise group: TFP spillover through horizontal linkages is found negative for domestic firms but positive for those participating in export. Additionally, backward linkages have a negative impact on TFP for most domestic enterprises, except for those operating in the high-tech sector. In terms of export-oriented FDI (EFDI) enterprise group, horizontal linkages have a negative impact on domestic firms' TFP including domestic ones participating in export whereas backward linkage is an important channel with positive effects. Absorptive capacity enables firms to improve productivity through linkages with EFDI and DFDI enterprises. Exporters located in industrial zones or regions with numerous exporters can receive better impacts through backward linkages EFDI.
Originality/value
Comprehensively, this is the first paper to detect FDI heterogeneity in their behavior when entering a developing country like Vietnam. The added value in this study comes from the export ability of local firms which is in line with Melitz (2003) theory that they can excel in absorping the TFP spillover from competing with DFDI competitors or from supplying to EFDI enterprises. Moreover, the role of small and medium-sized enterprises (SMEs), low technology, high technology and learning by regions affecting the impact through both horizontal and vertical linkages are included for analysis.
Keywords
Acknowledgements
The authors would like to thank the anonymous reviewers for their valuable comments. This research is funded by Vietnam National Foundation for Science and Technology Development (NAFOSTED) under grant number 502.01–2019.19.
Citation
Ngoc, P.T.B., Vu, H.Q. and Dinh Long, P. (2024), "Domestic total factor productivity with trade and heterogenous foreign direct investment in developing countries: a case of Vietnamese manufacturing", International Journal of Emerging Markets, Vol. 19 No. 5, pp. 1196-1218. https://doi.org/10.1108/IJOEM-08-2021-1333
Publisher
:Emerald Publishing Limited
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