Departmental Bulletin Paper Absorptive capacity and foreign direct investment spillover effect: the case of Vietnam

Phan, Thi Van

21 ( 4・5 )  , pp.71 - 87 , 2017-01-20 , 横浜国際社会科学学会
Many developing countries attract FDI with the hope that this capital will increase the productivity of domestic firms and improves the local manufacturing industries. At the same time, a lot of papers investigate the impact of FDI inflows on the performance of local firms in developing countries such as China, Mexico, Venezuela, Romania, and Lithuania using Cobb-Douglas production functions with the significant role of FDI intra-and-inter industries linkages and show the mixed results. Is there any evidence of that having one or some factors makes the impacts change their signs? This paper deals with Foreign Direct Investment inflows impact on domestic firms? productivity through horizontal and vertical linkages and the factors that affect this relationship with panel data at firm-level of manufacturing industry in Vietnam from 2004 to 2010. The research finds that forward and backward linkages of FDI firms with local enterprises increase the productivity of domestic firms but the horizontal linkage only has positive impact on these firms if the neighbor countries also attract FDI in the same industries, otherwise this impact is negative. Absorptive capacity of local firms also impacts on their performance, and the linkages between FDI and domestic firms have non-linear relationship with their productivity.

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