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Does foreign investment crowd in domestic investment? Evidence from Vietnam

Author

Listed:
  • Van Ha
  • Mark J. Holmes
  • Tuyen Quang Tran

Abstract

This paper examines the linkages between foreign and domestic investment at sector level in a transitional economy. Using System Generalized Method of Moments estimation on a strong balanced dataset covering all sectors across the country, our results consistently suggest that foreign direct investment in Vietnam positively motivates domestic private investment in the same sector. Examination of the linkages finds evidence of crowding-in effects from foreign investment on domestic private investment in downstream sectors that have strong linkages with foreign investment in upstream sectors. No significant impact is found in upstream domestic investment that has linkages with foreign investment in downstream sectors. State-owned investment and joint-venture investment by foreign and domestic investors have a generally negative effect on the investment behavior of private investors. Domestic private investment in export-oriented sectors appears to be more responsive to the presence of foreign investment in both upstream and downstream sectors through vertical linkages.

Suggested Citation

  • Van Ha & Mark J. Holmes & Tuyen Quang Tran, 2022. "Does foreign investment crowd in domestic investment? Evidence from Vietnam," International Economics, CEPII research center, issue 171, pages 18-29.
    • Handle: RePEc:cii:cepiie:2022-q3-171-2
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    Cited by:

    1. Dandan Wu & Wei Dong, 2022. "Does Local Government’s Competitive Behavior to Attract Foreign Investment Affect Ecological Welfare Performance? Evidence from China," Sustainability, MDPI, vol. 14(19), pages 1-24, October.
    2. Othmani, Abdelhafidh & Ben Yedder, Nadia & Bakari, Sayef, 2023. "The Cointegration Relationship between Patent, Domestic Investment and Economic Growth in United States of America," MPRA Paper 118245, University Library of Munich, Germany.
    3. Cuong Viet Nguyen & Tuyen Quang Tran & Huong Van Vu, 2024. "Does foreign direct investment benefit local firms? Evidence from a natural experiment study," The World Economy, Wiley Blackwell, vol. 47(3), pages 1191-1246, March.
    4. Peterson K. Ozili, 2023. "Correlated lending to government and the private sector: what do we learn from the Great Recession?," Arab Gulf Journal of Scientific Research, Emerald Group Publishing Limited, vol. 42(1), pages 114-133, February.
    5. Pham, Huy & Ha, Van & Le, Hanh-Hong & Ramiah, Vikash & Frino, Alex, 2024. "The effects of polluting behaviour, dirty energy and electricity consumption on firm performance: Evidence from the recent crises," Energy Economics, Elsevier, vol. 129(C).

    More about this item

    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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