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Does foreign investment improve domestic firm productivity? Evidence from a developing country

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  • Van T. C Ha
  • Mark J Holmes
  • Gazi Hassan

Abstract

This study examines the linkages between foreign investment and the total factor productivity of local enterprises within manufacturing industry in Vietnam. The Wooldridge GMM estimation approach is applied to panel data to estimate production function, which allows us to obtain total factor productivity of local firms. We then investigate how foreign investment influences local enterprise productivity through different spillover channels using two-step system GMM, FE and RE estimations. Our consistent findings show that foreign investment has a negative impact on the total factor productivity of domestic enterprises through the competition channel within an industry. There are strong positive spillovers associated with backward rather than forward linkages. Further insights relate to firm ownership, location, and the state of technology in which the different spillovers occur.

Suggested Citation

  • Van T. C Ha & Mark J Holmes & Gazi Hassan, 2023. "Does foreign investment improve domestic firm productivity? Evidence from a developing country," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 28(2), pages 527-557, April.
    • Handle: RePEc:taf:rjapxx:v:28:y:2023:i:2:p:527-557
    DOI: 10.1080/13547860.2021.1951430
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