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Inward foreign direct investment and productivity: evidence from Vietnamese microdata

Inward foreign direct investment and productivity: evidence from Vietnamese microdata

Pham, Pham, Thi My Hanh (2017) Inward foreign direct investment and productivity: evidence from Vietnamese microdata. PhD thesis, University of Greenwich.

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Drawing on a rich dataset of 166,697 firms from 2001-2010, this thesis investigates the direct, indirect and crowding-in/crowding-out effects of inward foreign direct investment (FDI) on firm productivity in Vietnam; and whether the effects are heterogeneous across firm and industry characteristics and geographic regions. Using a Cobb-Douglas production function and a Generalized Method of Moments (GMM) estimator that takes account of firm-specific fixed effects, endogeneity, and simultaneity, we report that, overall, the share of foreign capital in firm equity has a positive but small direct effect on firm productivity. However, the overall effect conceals a high degree of heterogeneity in that the direct effect: (i) diminishes and eventually becomes negative as intra-industry concentration increases; (ii) is larger in R&D-active and small firms relative to the reference categories; and (iii) is smaller in regions that are least successful in attracting FDI. Furthermore, we report that the crowding-out effect dominates at low FDI intensity industries and regions, indicating that domestic firms that operate in such industries and regions experience market-share loss triggered by the foreign presence. However, the effects are reversed in industries and regions with high FDI intensity, implying that domestic firms that withstand competition in such industries and regions benefit from crowding-in effects. Finally, we report that spillover effects are either insignificant or negative and small - with the exception of positive backward spillover-effects on small firms and positive backward and forward spillover-effects on R&D-inactive firms. We conjecture that the absence of spillover effects may be related to imperfect nature of the spillover measures commonly used in the literature and uncertainty about the lag structure of the spillovers. Overall, our findings contribute to existing knowledge by bridging the evidence gap with respect to an under-studied country (Vietnam) and making a strong case for investigating the extent of heterogeneity in the productivity effects of inward FDI. Our findings also have important policy implications in that they point out the need for the region- and industry-specific support policies and counter-measures that would ameliorate the divergence between FDI-poor and FDI-rich regions and industries.

Item Type: Thesis (PhD)
Uncontrolled Keywords: foreign direct investment (FDI); Vietnam; microdata; productivity;
Subjects: H Social Sciences > HC Economic History and Conditions
Faculty / School / Research Centre / Research Group: Faculty of Business
Faculty of Business > Department of International Business & Economics
Last Modified: 26 Apr 2019 15:49

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