FDI spillovers in vietnam, the overall view of transferring channels, and internal characteristics and international trade policies of domestic firms

Nguyen Van Phuong et.
al. | 285

FDI spillovers in Vietnam: The overall
view of transferring channels, and
internal characteristics and
international trade policies of domestic
firms
NGUYEN VAN PHUONG
International University, Vietnam National University HCMC –


TRIEU DOAN XUAN HOA
International University, Vietnam National University HCMC

HUYNH THI NGOC HIEN
International University, Vietnam National University HCMC

NGUYEN DINH KHOI
International University, Vietnam National University HCMC

Abstract
The study used a panel data of unlisted Vietnam manufacturing
enterprises over the period 2011-2015 surveyed by General Statistic
Office (GSO) to investigate the channels by which foreign direct
investment firms help raise the productivity of domestic firms in
Vietnam. We estimate spillovers that occur within an industry and
between different industries, whether a technology gap between
foreign and domestic firms is a limiting or facilitating factor for
technology spillovers. The heterogeneity of domestic firms, namely
absorptive capacity, technology level related to foreign firms, market

share, financial development and international trading policies of
domestic firms, has been examined.

Keywords: FDI spillovers; TFP; technology gap; international
trade.


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Acknowledgements
We would like to express our deep gratitude for the financial support
from Vietnam National University – Ho Chi Minh City within the framework
of Agreement No. C2016-28- 06/HĐ-KHCN.

1. Introduction
Attracting foreign direct investment (FDI) has become an
integral part of development strategies among developing
countries. Many offer special incentives to foreign investors,
including tax holidays, tariff reductions or exemptions, and
subsidies for infrastructure. While these policies rest on the
premise that foreign investment facilitates technology spillovers
from foreign to domestic firms, the empirical evidence is
ambiguous. FDI has been considered as one of the major sources
of economic growth of Vietnam since the introduction of economic
reform and renovation in 1986. However, there is a little study on
whether FDI has facilitated technology transfers, which benefit
domestic firms in Vietnam.
In this study, we will use a panel data of unlisted Vietnam
manufacturing enterprises over the period 2011-2015 conducted by
General Statistic Office (GSO) to investigate whether the presence of

foreign direct investment helps to raise the productivity of domestic
firms in Vietnam. We estimate spillovers that occur within an industry
and between different industries, whether a technology gap between
foreign and domestic firms is a limiting or facilitating factor for
technology spillovers. We also assess to the roles of absorptive
capacity of domestic firms in the context of technology spillovers. We
differ significantly from much of the empirical literature in that we
recognize that the adoption of better technology or managerial
know-how is a costly learning process. The firm’s productivity may
suffer initially because some resources must be devoted to learning.
However, once the firm successfully adopts the new technology, its
productivity will raise at a higher rate, which propels the firm to a
steeper growth path and raises the productivity level in the long run.
In this study, by employing a large panel of Vietnamese
manufacturing industries, we seek fresh evidence on three empirical
questions.

First, we explore whether horizontal and vertical FDI spillovers
influence the productivity level and the rate of productivity growth
of indigenous firms (Liu, 2008). As previous studies showed the
presence of FDI in the industry may generate negative spillovers


on the productivity level of domestic firms in the short term
(Haddad &


Nguyen Van Phuong et.
al. | 287

Harrison, 1993; Aitken & Harrison, 1999; and Liu, 2008). However,
when considered in the long term, FDI spillovers are more likely to
have a positive effect on the rate of productivity growth of
domestic firms because FDI spillovers help enhance future
productivity capacity (firm-specific capital) of domestic firms,
which determines the long-term growth rate of productivity.
Consequently, our goal is to determine whether the positive rate
effect of horizontal spillovers is driven by FDI spillovers in the lowtech or high-tech industries.
Second, we investigate whether the levels of the technology
gap affect the FDI spillovers. In previous studies, Findlay (1978)
and Wang and Blomstrom (1992) demonstrate that the greater
the technology gap between FDI and domestic firms, the more
opportunities the domestic firms achieve better levels of
efficiency via the imitation of foreign technologies and
innovations. However, the gap must not be too large. Finally, we
go to one step further to investigate whether the technology
spillovers from FDI firms relate to foreign trading activities of
domestic firms.
2. Literature review
FDI spillover including knowledge and technology spillover from
foreign direct investment companies have attracted attention of
researchers and policy makers. Productivity spillovers from FDI
occur when the entry or presence of foreign firms leads to the
enhancement of the productivity of domestic. While technology
can be transferred directly to MNCs’ subsidiaries and locally
vertical-linkage firms of the host country, domestic firms can only
adopt new and more advanced technology from spillover effect,
which will take times and require certain resources (Jude and
Levieuge, 2015). Among the most prevalent form of spillover is
the imitation of technologies through observation or the mobility

of former workers in the multinational enterprises. Thus, the
companies in the host country will be benefited from the flow of
knowledge, and enhance their efficiency.
Alternatively, fierce competition caused by the foreign firms
encourage domestic ones to stay up-to-date to survive in the
market. They have to either utilize their current resources or seek
for more cutting-edge and efficient technology to remain
competitiveness (Blomstrom and Kokko, 1998). Consequently, the


technological gap is reduced and productivity is enhanced, in turn,
force the multinational affiliates to


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innovate newer technologies (even one that has not been existed
before in their host countries) to win the competition. In summary,
Damijan et al. (2013) pointed out four main channels that how FDI
inflows generate spillovers from a very beginning form as
(1)
demonstration/imitation and (2) competition to a wellprepared (3) vertical/ inter-industry linkage and (4) training:
- The domestic firms could take advantage of demonstration and
imitation effects that improved institutional, managerial, and
technological practices. Prior literatures reported that technological
transfer would rise with the existence of FDI. More particularly, by
observing and imitating operating procedures of foreign enterprises,
local ones will be beneficial in several aspects, including advance
technologies, essential marketing skills, efficient inventory
management, quality control, etc. Further, connections and alliances

with FDI corporations facilitate the knowledge flows to the domestic
ones.

- The competition effects that FDI firms bring to domestic
market pushes domestic firms updating skills and technologies to
raise productivity. However, Damijan et al. (2013) also found risky
for the competitive advantages of domestic firms as upstream or
downstream partners with FDI firms because the capacity and
productivity level of each individual firm will determine whether
they can absorb the technology spillover from foreign investors;
otherwise, these firms would be failed in a fiercer competition.
With respect to competition, a framework is constructed by Wang
and Blomstrom (1992) to describe the correlation between the
level of competition and spillover. As competition in the host
country increases, FDI corporations have to improve their
technologies to gain more market shares. As a result, local firms
will have to utilize their resources or upgrade their technologies to
stay in competitiveness.
- Foreign linkage effects occur through the strictly demand
quality for domestic firms exporting to MNCs or the higher input
imported from MNCs. Findlay (1978), as a pioneer for this
contribution, stated that the larger the technological gaps
between the two country, the greater the remaining chances for
the less developed countries. Yet, the pressure increases as local
firms might lose in the harsh competition. Therefore, the
improvement in the technology will be faster under such
circumstances.
- The speed of technology transfer will be faster if the
multinational affiliate is willing to establish upstream and

downstream networks, because this helps local firms involved in
supply and distribution chains to achieve exposure to advanced
technology and


Nguyen Van Phuong et.
al. | 289

subsequently to promote technology improvement. It is admitted
that being a part of the network through upstream and downstream
activities enables the domestic suppliers and domestic customers to
benefit from the inherited technical and commercial know-how as
well as technology spillovers, which lead to a process improvement
in the short run and a productivity improvement in the long run
(Hamida, 2013).

-

The moving of employees from MNCs to domestic firms and
complementary workers creates training effect of FDI
spillovers. Wang (1990) extends Findlay’s model by
establishing a dynamic two-country model to analyze the
interaction between FDI and the growth of domestic human
capital. With capital moving globally, the model predicts
that an increase in the growth rate of human capital and the
technology diffusion rate in the less developed country
leads to a narrowing of the steady-state income gap. The
important result from the analysis shows that a greater
opening to FDI from more advanced countries leads to

facilitating technology spillovers in the host country, and
hence increasing its rate of income growth. Another
potential channel for technology spillovers from FDI to take
place is through the acquisition of human capital.

-

The availability of relatively skilled labor is an essential
magnet as well as a key driver of agglomeration, helping to
increase productivity through adoption of new technology. It
has been argued that host countries are more likely to benefit
from spillovers if they have a large supply of skilled labors
(Keller, 1996). Additionally, the labor turnover as the
movement of labor from FDI firms to domestic firms can also
generate productivity improvements through either a direct
spillover to complementary workers or knowledge carried by
workers who move to another firm. Fosfuri et al. (2004) and
Glass and Saggi (2002) argue that the knowledge that workers
bring with them is the most essential channel for spillovers.
Providing an overall review of FDI spillover, Wang et al. (2013)
also found a significantly positive impact of FDI on domestic
human capital and economic growth through building capacity
for local workers and encouraging innovations.

Literatures on technological gap emphasized the quality of
technological transfer. Inconsistent with Findlay, Glass and Saggi
(1999) proposed that great distance between the host and home


country deteriorated the quality of technological transfer and the

effect of spillover due to insufficient human resources, infrastructure
and networks. They formulated that absorptive capacity and
technology gap, thus, are important determinants of technology
spillover. From a different perspective, Walz (1997) suggested


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that knowledge spillover is the facilitator of innovative activities in
backward countries. From an analysis of the endogenous model
where FDI is crucial for economic growth and specialization
pattern, the author confirmed that imitation of technological and
operational aspects in the less developed countries improves R&D
behavior, and indirectly stimulates the economic growth.
Perri and Peruffo (2016) have organized the related theoretical
and empirical studies by developing a framework to analyze this
phenomenon. Three main attributes of spillover, including
magnitude, scope and speed are determined by firms’
heterogeneity and the host business environment such as
learning efforts and resources, competitive and absorptive
capacity, technology gap, financial market, network and
regulations. In this way, the spillover effect is differed between
micro (MNC’s subsidiaries, local firms) and macro level (countries,
economies, industries) and between short term and long term.
Although theoretical research of FDI spillover remained
underdeveloped, empirical studies on the issues continue to
increase. In the very beginning, Caves (1974) investigated and
confirmed the positive effect of spillover in Australian
manufacturing industry. Following this pioneer, numerous scholars
have investigated the FDI spillovers. Mostly, the framework is

constructed using labor productivity or total factor productivity,
the presence of FDI, as well as other potential determinants of
productivity. Measurement of presence of FDI is implemented by
calculation of multinational’s share of employment, sales, and
output in a particular industry. The results of presence of FDI
companies and spillover, however, are mixed. While some studies
confirmed the negative relationship of spillover and the presence
of FDI (Haddad & Harrison, 1993; Aitken and Harrison, 1999;
Djankov and Heokman, 2000, Jeon et al. 2013), positive
correlation between the constructed is found in other studies (Liu
et al., 2000; Haskel et al., 2007; Liu, 2002; Javorcik, 2004).
Possible explanation for the negative impacts might be the
increased competition. For example, Aitken and Harrison (1999)
discovered that FDI enterprises not only stimulate technological
transfers, but also cause a competition level to be higher in a given
sector. Some local companies, not catching up to this higher
demand, are eliminated from the market. Consequently, the total
productivity of domestic organization is reduced to the existence of
FDI. This is also known as “market-stealing” effect.


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Another explanation for the inconsistency is that some studies
cannot differentiate between the short-term and long-term effects
of FDI spillovers (Liu, 2008). Adoption of a new technology is
resource-consuming, and local firms might have to leverage their
current resource and reduce some in the production. Thus,
productivity will be reduced at first sight, and correlations might

be found negative. In the long run, when domestic firms have
already exploited new technologies, they will gain efficiency, and
enjoys the higher rate of production growth. At this stage, higher
efficiency will make up for the initial loss in productivity. In brief,
the results are heavily dependent on the length of the period of
time the study attempted to cover.
Other researches considered the vertical effects as the potential
channel of technological transfer. In other words, domestic firms
might become suppliers and customers of international
organizations, called backward linkages and forward linkages
respectively. Through these connections, foreign enterprises will
provide technical support to local ones to improve it efficiency. As
an example, local firms have to upgrade their technology and
enhance their management skills in order for their intermediate
products to meet international standards, and their customers
might provide assistance. In a similar vein, they might enjoy
higher productivity thanks to the high quality inputs from the
foreign suppliers.
This issue received empirical support from recent literatures of
vertical spillovers. More specifically, backward linkages between
local companies and their foreign partners significantly enhance
efficient of firms in different geographical contexts such as
Lithuania (1996-2000 panel data, Javorcik, 2004), China (19951999 panel data, Liu, 2008), and Indonesia (Blalock and Gertler,
2008).
Another stream of research focusing on the scope of FDI spillover
employed constructs such as domestic firm size, ownership structure
of FDI firms, liberalization of trade, and geographic aspects.
Regarding domestic firm size, Aitken and Harrison (1999) suggested
that small firms would not be able to compete with FDI affiliates
because of their small production scales that do not facilitate

technological development. On the other hand, large firms will
capture these opportunities given their potential capability.

The effect of international trade on domestic firm productivity
and technological spillovers have been extensively discussed on


the both theoretical
international trade is
productivity and

and practical level. Theoretically,
proposed to manifest impacts on


292 | ICUEH2017

international spillover. In contrast, empirical studies focused on
the influence of international trade on productivity and economic
growth. For instance, advanced technology imports are
considered as a major driving force for innovation, imitation, and
economic growth, and then impacts positively on technology
transfers (Connolly, 2003). Furthermore, international trade has
been studied and reported that they exert a significant impact of
efficiency. On the one hand, some of these studies have
considered learning through export as a driving force of
productivity growth (Bernard & Jensen, 1999; and Blalock &
Gertler, 2004). Moreover, Javorcik & Spatareanu, 2008, and Girma
et al., 2008 investigates vertical and horizontal spillovers from FDI
enterprises to domestic ones and extends their investigation to

trade orientation in terms of exports. In conclusion, the results are
mixed and subject to an important variable related to market
structure.
Although many studies have investigated the relationship
between exports and technology spillovers through backward and
forward linkages, there are a few studies examining the impact of
imports on downstream and upstream spillovers. Blalock and
Veloso (2007), using panel data of Indonesian manufacturers,
show that downstream imports are associated with productivity
achievements and consider imports as one of the key elements to
promote economic growth.
To our knowledge, this is the first study on FDI spillovers using a
large, unbalanced firm-level panel data from Vietnam.
3. Methodology
3.1. Data
This study will use the Vietnamese annual enterprise surveys
conducted during the period 2011–2015 by the GSO (data
collection of 2015 was completed in 2016). The dataset covers a
great number of enterprises operating across industries and
throughout the country, with the number of firms in the annual
survey sharply increasing yearly. With the suggestions of Rojec
and Knell (2017), using firm level panel data analysis of FDI
spillovers could eliminate several failures to find unambiguously
positive effects in econometric work that be alarmed by Gorg and
Greenaway ( 2004).


Nguyen Van Phuong et.
al. | 293

We verify the creditable value and reliability of each
observation to delete the observations that did not satisfy the
minimum criteria, such as negative sales, negative output,
negative input, negative capital stock, and missing information of
key variables.
3.2. Quantitative methodology
3.2.1. Estimate Total Factor productivity:
To begin with identify the impact of technology spillovers from
FDI enterprises on indigenous ones, we assume the firm’s
production function is of the Cobb-Douglas type:
!"# = %"#(', ), *, +)-."#/0"#.1

where Yit represents the value-added output of firm i at time t; L it
and Kit are labor and capital inputs, respectively; and FDI is
denoted by f; common technical factors are denoted by a; stock of
firm specific capital including human capital and managerial
ability is denoted by m; and external sources of knowledge are
denoted by g. Similar to many previous studies, for instance, Liu
(2008) and Javorcik and Spatareanu (2008) which relate
productivity to FDI spillovers. We first estimate the firm-level total
factor productivity (TFP). We then regress from the TFP on proxies
for FDI spillovers, and their interactive terms associated with
other control variables.
Taking the natural logs of Equation (1), which is denoted by
small letters, we estimate the logarithm function of production
function:
2"# = 4 + 678"# + 69:"# + ;"# + <"#

where y, l, k are the natural logarithm of output, labor and capital
inputs, respectively; ω is total factor productivity which is known

to the firm but not to the researcher, ε stands for random
productivity shocks, and subscripts i and t index firm and time.
The concern about the estimated TFP resulting from Equation (2) is
that it may be biased because TFP can be influenced by the choice of
factor input combinations in the same period. Therefore, there may
be a correlation between TFP and contemporaneous covariates. In
other words, since labor and other inputs are endogenously
determined, the use of OLS from Equation (2) is susceptible to bias
the estimated coefficients (Liu, 2008). To overcome this simultaneous
problem, we obtain consistent elasticity estimates of Equation (2) by


employing the Olley-Pakes (OP) methodology (the semiparametric
estimation procedure), which allows for firm specific productivity
difference exhibiting


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idiosyncratic changes over time. According to Keller (2004), the
OP estimation method leads to a substantially greater role of FDI
spillovers, which comes to results in a better estimate of insample productivity growth.
3.2.2. Estimate FDI Spillovers:
FDI spillovers can occur through both horizontal and vertical
linkages between domestic and foreign firms. Vertical linkages can
be divided into forward or backward categories. Based on the
existing literature (for example, see Liu, 2008; Grima et al., 2008),
several FDI linked spillover variables are constructed and used in
this paper. The degree of horizontal spillovers in industry j at time
t, H_FDIjt is measured as follows:

=_?@AB# =

The vertical spillover effect can be divided into two categories:
vertical backward and vertical forward. The degree of backward
spillovers in industry j at time t is computed as follows, where Y kj
is the output of industry k supplied to industry j.
QR@_?@A

B#

=
∀9TB
49B =

49B#=_?@AB#

! 9B

!9

In other words, the greater the proportion of output provided to
an industry with foreign presence and the greater the activities of
the foreign firms receiving the intermediate inputs from industry
k, the greater the value of the spillover effect (see Girma et al.,
2008). This measure captures the extent of backward linkages
between local firms in upstream sectors and foreign firms in
downstream sectors. The output of some foreign firms in Vietnam
is used as input by some domestic firms. An increase in FDI leads
to an increase in the output of foreign firms which leads to an

increase in the supply of inputs to domestic firms. The vertical
forward spillover effect in industry j at time t is calculated as
follows:
?R@_?@A

B#

=

∀UTB

6UB#=_?@AB#


6

!
= UB

Nguyen Van Phuong et.
al. | 295
UB

where βhj represents the proportion of sector h’s output supplied to industry j.

!B

This measure captures the extent of forward linkages between
local firms in downstream sectors and foreign firms in upstream
sectors. Some foreign firms in Vietnam use the output of domestic

firms as input. An increase in FDI leads to an increase in demand
for inputs produced by domestic firms. The existing literature
views this as a forward linkage between foreign and domestic
firms.
The values of α and β are obtained from the Input-Output Tables
of Vietnam estimated by the General Statistic Office of Vietnam
2012. The dataset includes sectoral classification of firms at
Two-digit level of Vietnamese Standard Industrial Classification
(VSIC).
3.2.3. Estimate Firm specific variable:
SCALEijt is measured by sales of firm i relative to the average
firm sales in the same sector; TECH_GAP ijt is the percentage
difference between the average productivity of foreign firm and
that of domestic firms in the same industry; FINAN ijt of firm i in
industry j at time t is measured by current assets over liability of
the firm. MSijt is measured the market share of the firm i within
industry j at time t. The export intensity EXPORT_INT ijt of the firm i
at time t measured by the exporting value over firm total sales,
The export intensity IMPORT_INTijt of the firm i at time t measured
by the importing value over firm total assets.
3.3. Research model:
We investigate FDI spillovers by estimating the following
equation:
TFPijt = β0 + β1H_FDIjt + β2FWD_FDIjt + β3BWD_FDIjt + β4SCALEijt
+ β5TECH_GAPijt

+ β6FINANijt + β7MSijt + β8EXPORT_INTijt + β9IMPORT_INTijt +

μi + εijt

4. Empirical analysis
The sample data has 836,466 observations taken from 322,526
unlisted domestic firms, and 9,215 foreign direct investment
firms, which accounted for 2.53% of total in


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Vietnam over the period from 2011 and 2015. All the firms have
operated in manufacturing and service industries. The average value
added generated by FDI firms in 2011 to 2015 is 35,948 million VND
with 659,371 million VND in standard deviation. In average, an FDI
firm had 431,304 million VND in total capital stock, and 408 working
employees per year. The operation figures of domestic firms are
much lower compared to these figures of FDI firms. With the average
832 million VND input into capital, and 24 employees working per
year, domestic firms generated only 832 million VND. The wage in
domestic firms in the observed period was lower than that in FDI
firms (21.74%).
TFP variable is estimated by applying method developed by OlleyPakes, with inputs, including natural logarithms of value added,
capital stock, number of labor and total labor wage. The average
natural logarithm TFP of domestic firms is 0.453 and this figure of FDI
firms is 3.38. The mean of horizontal FDI spillovers across industries
is 0.155, the backward and forward spillovers FDI has averages of
0.263 and 0.259. For international trade, import intensive in
domestic firms is around 0.234 and 0.513 for export intensive. The
correlation among variables is conducted to check the validity of
independence of variables. The result will be included in Appendix.
The correlation among variables is below 0.37, which could be
confident in the validity of independence of the proxies.

Table 1
Descriptive Statistics
Variable
Value Added (million VND)
Capital (million VND)
Number of labor
Total Wage (million VND)
Value Added (million VND)
Capital (million VND)
Number of labor
Total Wage (million VND)
LN_TFP

815,268

0.453

2.283

-10.215

13.841


Nguyen Van Phuong et.
al. | 297

Variable
H_FDI

FWD_FDI
BWD_FDI
SCALE
TECH_GAP
MS
FINAN
IMPORT_INT
EXPORT_INT

The empirical analysis for FDI spillovers and others related factors
is illustrated in Table 2. In overall, the study performs the estimation
for equation (3), and the impact of internal characteristics of the firm
could be summarized as follows. The positive and significant
correlations of SCALE (relative to the firm size to the average
revenue of the industry) and MS (market share) suggests that the
more revenue benefits in terms of productivity. The significantly
positive impact of FINAN could be implied that the working capital or
high organizational slack could benefit for domestic firm productivity.

The study adopts sub-sample approach by splitting the sample
into 4 groups to explore the sensitivity of FDI spillovers to the
different ranges of the technology gap. The high technology level
group consists of firms having productivity higher than average
productivity of foreign firms in the same industry. The low
technology gap group consist of firms with the technology gap
below 25th percentile of the technology gap distribution of all
examined domestic firms, medium and high technology gap
groups consist of the firm with technology gap lying between 25 th
to 75th percentile and over 75th percentile respectively.

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Table 2
Overall and Sub-grouping regression results

Dependent
variable

H_FDI
FWD_FDI
BWD_FDI
SCALE
TECH_GAP
MS
FINAN

IMPORT_INT
EXPORT_INT
Control firm
size
_cons
N
R-sq


Notes: All regressions are restricted to domestic firms. Robust standard errors
in brackets. Standard errors in parentheses * p<.10, ** p<.05, *** p<0.01

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As presented in Table 2, foreign firms outperform domestic
firms in terms of productivity level. This study finds significant
relationship of horizontal and vertical, including both backward
and forward spillovers to productivity of domestic firms in Vietnam
of period 2011-2015. This result consistent with Nicolini and
Resmini (2010) examine data of Bulgaria, Poland, and Romania.
This positive spillover is consistent with firms having the medium
and high technology gap. However, the empirical analysis also
shows that horizontal spillovers has negative effect on
productivity of domestic firms with the low technology gap. It
could be explained by the hypothesis of FDI spillovers has been
offset by the increase in competitiveness. The higher penetration
of foreign firms in the industry, the higher market share is
controlled by foreign firms. Domestic firms have to compete with
foreign firms having larger capital stock, which is a considerable
advantage among firms with the similar productivity level. Aitken
and Harrison (1999), and Jeon et al. (2013) predict negative
horizontal spillovers could occur in low technology or high fixed
cost sectors.
In general, the technology gap has been proven empirically that
it could prevent the FDI spillover. However, the negative impact of
the technology gap is just significant for domestic firms having
the high technology gap, or we could say firms with the low and
medium technology gap could overcome the drawback of the gap.
In the context of international trading policies, we find a
positive relationship between import intensity and productivity of
domestic firms. Import is the channel of knowledge spillovers. This

finding consistent with the result of Dmijan and Knell (2005)’s
studying the case of Slovenia and Estonia. However, our
investigation shows the negative relationship of export intensity
and firm productivity among the firms with the medium and high
technology gap. This phenomenon could be explained that these
Vietnamese firms have the low level of technology and they
export products required low technology application.
5. Conclusion
The relationship between FDI and firm productivity still attracts
concern to many researchers. While this topic has been provided
rich insight into the impacts of FDI spillovers, few empirical
researches have investigated for the case of Vietnam. In this


study, we examine the effects of FDI spillovers on the productivity
of domestic firms.


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Based on the sample of 331,741 service and manufacturing firms
operation in Vietnam in the period from 2011 to 2015, we
illustrate how the spillovers from FDI occurs for the domestic
firms. Horizontal and vertical spillovers impact positively on
productivity of domestic firms. The technology gap is considered
as a vital condition for technology spillovers. Among firms having
the low technology gap, horizontal spillovers are offset by
pressure in competitiveness that FDI firm bring to. The technology
gap also prevents the development of productivity of the
domestic firms with the high technology gap. International trade

strategies are discussed via firms’ import intensity and export
intensity. The empirical results showed the positive impact of
importing activities on productivity of domestic firms, while
exporting activities related negatively to the level of technology of
domestic firms. Several specific characteristics of domestics firms
are examined, and the high organizational slack appears to relate
positively to firm productivity.

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