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Do vertical spillovers differ by investors' productivity?Theory and evidence from Vietnam

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  • Bin Ni

    (Faculty of Economics, Hosei University,)

  • Hayato Kato

    (Graduate School of Economics, Osaka University)

Abstract

Developing countries are eager to host foreign direct investment to receive positive technology spillovers to their local firms. However, what types of foreign firms are desirable for the host country to achieve spillovers best? We address this question using firm-level panel data from Vietnam to investigate whether foreign Asian investors in downstream sectors with different productivity affects the productivity of local Vietnamese firms in upstream sectors differently. Using endogenous structural breaks, we divide Asian investors into low-, middle-, and high-productivity groups. The results suggest that the presence of the middle group has the strongest positive spillover effect. The differential spillover effects can be explained by a simple model with vertical linkages and productivity-enhancing investment by local suppliers. The theoretical mechanism is also empirically confirmed.

Suggested Citation

  • Bin Ni & Hayato Kato, 2020. "Do vertical spillovers differ by investors' productivity?Theory and evidence from Vietnam," Discussion Papers in Economics and Business 20-05, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:2005
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    1. Miao Zhang & Rui Yang, 2022. "FDI and spillovers: New evidence from Malaysia’s manufacturing sector," Review of Development Economics, Wiley Blackwell, vol. 26(2), pages 847-877, May.

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    More about this item

    Keywords

    FDI spillovers; Heterogeneous productivity; Firm-level data; Endogenous struc-tural break; Vertical Cournot model;
    All these keywords.

    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
    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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