Foreign ownership without knowledge transfers: Evidence of processing exporter underperformance from firm-level data

We investigate the performance gap between processing exporters and nonexporters using the Vietnamese firm-level data from 2017 to 2019. Recently, processing exporters were found to be less productive than ordinary and nonexporters. We show that the existence of processing exporter underperformance crucially depends on foreign ownership. Specifically, the underperformance is observed only among foreign-owned firms but not among domestically owned firms. Moreover, the underperformance is more severe in technology-intensive industries, while it is absent among new firms in 2019, implying the influence of relocated firms from China to avoid the US–China trade war. Our theoretical model explains the findings using two mechanisms. First, the tasks processing exporters engage in are too simple to receive productivity spillovers from parent firms. Second, among foreign-owned firms, processing exporters face the least fixed entry costs. Our results suggest that a large presence of processing exporters limits productivity gains from trade.