FDI To Productivity in Vietnam

Journal of Business Research 67 (2014) 13761387
Contents lists available at ScienceDirect
Journal of Business Research
Is foreign direct investment productive? A case study of the regions

of Vietnam
Sajid Anwar a,c,, Lan Phi Nguyen b,1
a
b
c
School of Business, University of the Sunshine Coast, Maroochydore, QLD 4558, Australia
Monetary Statistics and Forecasting, State Bank of Vietnam, Hanoi, Viet Nam
IGSB, University of South Australia, Adelaide, SA 5001, Australia
a r t i c l e
i n f o
Article history:
Received 1 February 2013
Received in revised form 1 July 2013
Accepted 1 August 2013
Available online 27 September 2013
Keywords:
Foreign direct investment
Total factor productivity
Technological progress
Panel data analysis
Vietnam
a b s t r a c t
By making use of a recently released dataset that covers a large number of manufacturing rms over the period
20002005, this paper examines the impact of foreign direct investment (FDI) and FDI generated spillovers on
total factor productivity (TFP) in eight regions of Vietnam. Unlike most existing studies, this paper focuses on
the impact of spillovers that take place through both horizontal and vertical linkages. The results presented in
this paper suggest that the impact of FDI spillovers on TFP varies considerably across regions. FDI spillovers generate
a strong positive impact on TFP through backward linkages only in Red River Delta, South Central Coast, South East
and Mekong River Delta while in other regions the impact is negative and mostly insignicant. The paper also
examines the impact of the absorptive capacity on TFP growth in each of the eight geographical regions.
2013 Elsevier Inc. All rights reserved.
1. Introduction
Economic reforms create international business opportunities. Due to
the rising cost of doing business in China, Vietnam has become a popular
destination for foreign investment. A number of existing studies have
examined the impact of foreign direct investment (FDI) and FDI-related
spillover effects on rm productivity and export behavior in developed
as well as developing countries. This paper focuses on Vietnam, a country
that due to the rising cost of doing business in China is now attracting
signicant FDI. However, due to lack of appropriate data, so far, relatively
few studies have considered the case of Vietnam.
In recent years, the government of Vietnam has started releasing rm
level data, including data on FDI inows that could be used to examine the
impact of FDI-related spillover effects on rm performance. Most existing
studies, for example Anwar and Nguyen (2010a) and Athukorala and Tien
(2012), focus only on the direct effect of FDI on rm performance in
Vietnam. In addition, the existing studies (such as Anwar and Nguyen,
2010b) are highly aggregated and hence do not present a clear picture
of the impact of FDI on different regions of Vietnam. An important role
of the government is to take steps to reduce regional economic disparity.
A region by region analysis of the impact of FDI-related spillover effects
(i.e., the indirect effect) on rm productivity can provide useful information to domestic policy makers.
Corresponding author. Tel.: +61 7 5430 1222.

E-mail addresses: SAnwar@usc.edu.au (S. Anwar), nplan_dbtk@sbv.gov.vn
(L.P. Nguyen).
1
Tel.: +84 91 775 1123.
0148-2963/$ see front matter 2013 Elsevier Inc. All rights reserved.
http://dx.doi.org/10.1016/j.jbusres.2013.08.015
By making use of a rm level panel dataset, this paper empirically

examines the impact of FDI generated horizontal and vertical spillovers
on total factor productivity (TFP) of manufacturing rms located in all
eight regions of Vietnam.
The rest of this paper is structured as follows. Section 2 contains a
review of related studies. Section 3 includes a brief description of the
methodology. The empirical results are presented and discussed in
Section 4. Section 5 contains some concluding remarks.
2. Review of related studies

While a number of studies have examined the impact of FDI on rm
productivity and GDP growth, relatively few studies have explicitly
considered the impact of FDI-related spillover effects on productivity.
Liu (2002) and Liu and Wang (2003) consider the effect of FDI on technology transfer in China but they do not consider the impact of spillover
effects. Pan (2003) outlines source and host country factors that can
affect foreign direct investment in China. Bwalya (2006) examines the
nature of spillover from foreign to domestic rms by using rm level
data on Zambian manufacturing rms for the period 19931995.
Bwalya nds little evidence in support of technology spillovers from
foreign rms to local rms through horizontal channels, suggesting
that the productivity of local rms is negatively affected by the scale of
operation of foreign rms.
Stancik (2007) considers the effect of FDI on the growth rate of
sales of domestic rms in the Czech Republic by using rm level panel
data from 1995 to 2003. Stancik focuses on the impact of FDI spillovers.
The empirical results suggest that the presence of foreign rms has
S. Anwar, L.P. Nguyen / Journal of Business Research 67 (2014) 13761387
adversely affected most domestic rms in the Czech Republic, especially

in upstream sectors.
Bitzer, Geishecker, and Grg (2008) use industry level data for 17 Organisation for Economic Cooperation and Development (OECD) countries
to investigate the importance of horizontal and vertical spillovers. Their
empirical work shows that spillovers through vertical backward linkages
between multinationals and domestic rms exist in all 17 countries. They
also found evidence to support the existence of positive spillover effects
from horizontal FDI. Using annual data on 44 host countries over the period 19832003, Beugelsdijk, Smeets, and Zwinkels (2008) argue that FDI
generated horizontal and vertical effects have a signicant positive impact
on host developed countries but those benets to host developing countries are insignicant. Liu (2008) examines the effect of technology transfer arising from FDI in the Chinese manufacturing sector, nding that
spillovers through backward and forward linkages have a positive effect
on productivity of domestic rms and backward linkages are the most important channel through which technology spills over from foreign to domestic rms. Using an event history technique, Lin (2010), focuses on the
determinants of Taiwanese investment in Chinas IT industry. Du,
Harrison, and Jefferson (2012) examine the impact of FDI-related horizontal and vertical spillovers on the productivity of Chinese manufacturing rms. They nd that horizontal spillovers have a weak effect on
productivity but the impact of vertical spillovers is statistically signicant.
In summary, the empirical evidence regarding the impact of FDI generated spillovers on host economies is mixed (see Table 1, which includes
only some of the recent studies). A review of earlier studies can be found
in Meyer and Sinani (2009), Table 1. Some existing studies suggest that
the impact of FDI generated spillover effects also depends on the absorptive capacity of host countries. This means that the impact of FDI spillovers
on host countries can vary from country to country and from industry to
industry.
2.1. FDI in Vietnam
Due to lack of data, only a few studies attempt to investigate the
impact of FDI on Vietnam. These studies consider a number of issues.
For example, Jenkins (2006) considers the direct effect of FDI on employment growth in Vietnam (especially in early years), nding only a limited
positive effect. Athukorala and Tien (2012) suggest that, in recent years,
FDI inows have played an important role, not only in providing investment capital but also in stimulating export growth. Le (2005) examines
the effect of FDI on labor productivity of 29 Vietnamese manufacturing
industries over the period 19952002. Le found FDI's effect on productivity to be positive. Nguyen and Nguyen (2007) used rm-level data to investigate the effect of FDI spillovers. They conclude that FDI has resulted
in improved labor productivity. Nguyen et al. (2008) used rm level
1377
Table 2
FDI in regions of Vietnam (1988 to 2005).
Source: GSO (2013).
Regions of Vietnam
Number of
FDI projects
FDI in million
US dollars at
constant prices
FDI projects
in percentage
of the total
Red River Delta

North East
North West
North Central Coast
South Central Coast
Central Highlands
South East
Mekong River Delta
1239
291
23
90
280
94
3831
268
14884.3
1945.5
100.6
1368.8
3476.3
1001.1
32380.5
1812.9
20.10
4.72
0.37
1.46
4.54
1.52
62.15
4.34
data to investigate the effect of FDI-related horizontal, backward and

forward spillover effects in Vietnam's manufacturing and services sectors. However, they do not consider the effect of FDI-related spillovers
on TFP growth. The same applies to the work of Athukorala and Tien
(2012). Anwar and Nguyen (2010a) found that a two-way mutually
reinforcing relationship between output growth and FDI growth
exists in Vietnam. However, TFP is a better measure of productivity
(Lipsey & Carlaw, 2004). Other studies on Vietnam include Binh and
Haughton (2002), Giroud (2007), Anwar and Nguyen (2010b, 2011a,
2011b), and Nguyen and Sun (2012). These studies have focused on
the impact of FDI on trade and export performance. Unlike the existing
studies, this paper focuses on the impact of indirect effect of FDI on all
eight regions of Vietnam and TFP is used as a measure of productivity.
FDI in Vietnam concentrates mostly in the key economic regions,
namely Red River Delta, North East, South East, and Mekong River Delta,
while remote regions receive only a small fraction of FDI (see Table 2).
Table 2 shows that differences between regional economic growth
rates and per-capita income across regions are signicant. In 2005, the
per-capita income in South East was more than twice the national average. The per-capita income in Red River Delta was the same as the national average, but income in North West was approximately 40% of
the national average (see Table 2). These differences can inuence the
magnitude of FDI-related horizontal and vertical spillovers. Accordingly,
a region-wise analysis can present a better picture of the benets from
FDI (Table 3).
The broad hypotheses tested in the following section include (1) the
impact of FDI and FDI-related spillovers on productivity of domestic
rms varies across the regions of Vietnam and (2) absorptive capacity
(as measured by human capital, technology gap with foreign rms and
the level of nancial development) enhances the FDI spillover effects
across the regions of Vietnam.
Table 1
FDI and economic performance A summary of some recent studies.
Bwalya (2006)
Abu-Bader and Abu-Qarn
(2008)
Alvarez and Lopez (2008)
Beugelsdijk et al. (2008)
Bitzer et al. (2008)
Liu (2008)
19931995
19602001
Zambia
Egypt
Panel data
Time series
FDI spillovers through horizontal channels have a positive impact on rm output.

There is a bi-directional relationship between nancial development and economic growth.
19901999
19942003
19892003
China
Chile
44 countries
17 OECD Countries
19951999
Panel data
Panel data
Panel data
Panel data
Barbosa and Eiriz (2009)

Suyanto et al. (2009)
Anwar and Nguyen (2010)
Wang (2010)
Anwar and Nguyen (2011a)
Anwar and Nguyen (2011b)
Nguyen and Sun (2012)
Athukorala and Tien (2012)
Du et al. (2012)
Fernandes and Paunov (2012)
Portugal
Indonesia
19902007
19731991
2004
20002007
20032004
20002005
19982007
19922004
19941999
19882000
Vietnam
Canada
Vietnam
Vietnam
Vietnam
Vietnam
China
Chile
Panel data
Panel data
Panel data
Panel data
Cross section data
Panel data
Panel data
Time series data
Panel data
Panel data
Exporting leads to positive spillover effects.

Vertical FDI has a stronger positive impact on productivity.
FDI linked backward spillovers have a positive impact on productivity.
FDI can have a negative impact on productivity in the short term but its impact on long term
productivity is positive.
FDI spillovers do not have a signicant impact on rm productivity.
FDI and FDI-related spillovers have a positive impact on productivity.
There is a bi-directional relationship between FDI and economic growth.
FDI generates strong positive impact on productivity.
FDI has contributed to increase in net exports in the post Asian crisis period.
FDI spillovers can have positive impact on export performance of domestic rms.
FDI spillovers improve rm export performance.
FDI has a positive impact on real output.
FDI benets local rms through both vertical and horizontal linkages.
FDI has a positive impact on productivity of rms in both manufacturing and services sectors.
1378
Table 3
Gross regional product per capita in US dollars.
Source: GSO (2013); and authors estimates.
Red River Delta

North East
North West
North Central Coast
South Central Coast
Central Highlands
South East
Mekong River Delta
National Average
2000
2001
2002
2003
2004
2005
342
201
155
200
275
197
866
309
363
361
214
162
208
289
193
902
316
379
399
234
177
228
321
211
963
355
414
453
264
191
252
355
235
1156
393
477
531
309
226
293
418
276
1388
452
563
615
352
262
336
501
332
1632
517
657
development within industry j, which is measured by working capital

as a percentage of total assets; H _ FDIjt,B _ FDIjt and F _ FDIjt respectively are measures of horizontal, backward-vertical and forward-vertical
FDI spillovers.
By making use of the existing literature, (for example Grima, Grg &
Pisu, 2008 and Wang, 2010), FDI spillovers are measured as follows:
The horizontal spillover in industry i at time t, say H_FDIit, is calculated as the proportion of output accounted for by foreign rms in that
industry.
The vertical backward spillover in industry i at time t is computed as
follows:
B FDI it
The empirical model used in this paper is developed in two stages.

Stage one species a standard CobbDouglas model that can be used
to estimate TFP of each region. TFP is the dependent variable, whereas
FDI-related spillovers are the independent variables. While the focus
of the empirical exercise is on the impact of FDI-related spillovers on
TFP, in stage two, we also identify a number of control variables that
can affect TFP. The inclusion of the control variables in our regression
equation serves to reduce the severity of omitted variable bias, which
can reduce the reliability of the estimated results.
Accordingly, stage two, in order to correctly estimate the impact
of FDI-related spillovers on TFP, species an empirical model where
FDI-related spillovers and other variables appear as independent
variables. As all identied independent variables cannot be directly
measured, following the existing literature, we use several proxies.
Similar proxies are widely used in the existing literature (for example
see Wang, 2010).
In order to focus on the impact of FDI-related spillover effects on
productivity and economic growth, in stage one, we remove the impact
of growth in capital and labor on regional production growth, which involves calculation of TFP. In stage one, TFP of Vietnamese rms in
manufacturing industries in all eight regions of Vietnam is estimated
by means of the following production function.
where Yijt is the real output of domestic rm i in industry j in period t; Kijt

is the real book value of xed assets of rm i (following Blomstrm and
Sjoholm, 1999, the book value is used as a proxy for capital stock); Lijt is
the number of workers employed by rm i; Aijt is TFP of rm i in industry
j in period t; and and respectively are the production elasticities of
capital and labor.
TFP (in log form) can be calculated by rewriting Eq. (1) as follows:

ln Aijt ln Y ijt ln K ijt ln Lijt :
In stage two, the impact of FDI spillovers and other control variables
(i.e., absorptive capacity) on TFP is evaluated by estimating Eq. (3) as
follows:

ln Aijt a0 a1 ln H ijt a2 Sijt a3 C jt a4 T ijt a5 F ijt a6 H FDI jt
a7 B FDI jt a8 F FDI jt cijt
ki H FDI ki
ki
3. The model and data
Y ijt Aijt K ijt Lijt
where ki is the proportion of industry i's output supplied to industry k. It is assumed that the greater the proportion of output
supplied to an industry with foreign multinational presence, the
greater the degree of linkages between foreign and domestic
rms.
The vertical forward spillover in industry i at time t is calculated
as follows:
F FDI it
ki H FDI ki
where ki represents the proportion of industry k's output supplied to industry i. This measure captures the extent of forward
linkages between domestic rms in downstream and foreign
rms in upstream industries. The values of and are obtained
from the Inputoutput Tables of Vietnam published by the General Statistic Ofce of Vietnam (GSO).
The Herndahl index, which is a measure of concentration in an industry j, is dened as follows:
HERF jt
n
X
xijt
X jt
i1
!2
i 1; 2; ; n
where xijt is the sales of rm i in industry j; Xjt denotes the total sales of
industry j at time t.
An increase in the Herndahl index reects a decline in competition, which negatively affects TFP growth. An increase in technology gap is expected to decrease TFP growth, whereas the effect of
nancial development on TFP growth is likely to be positive. TFP
growth is expected to be positively related to the stock of human
capital. An increase in sales is expected to increase TFP. Finally,
the impact of FDI-related spillovers on TFP growth can be either
positive or negative.
The empirical analysis is conducted by means of rm level panel data
for 23 manufacturing industries over the period 20002005. Most of the
data are collected from GSO. The number of rms per year varies from
Table 4
Number of manufacturing rms in regions of Vietnam (20002005).
Source: GSO (2013).
where H is human capital of rm i in industry j in period t, which is

approximated by real expenditure on education and training; Sijt is
sales of each of the domestic rms relative to the total industry sales
in period t; Cjt is the Herndahl index, which is a measure of the size
of rms within industry j; Tijt is the technology gap which is measured
by the difference in average productivity of domestic and foreign rms
in percentage terms in the same industry; Fijt is the level of nancial
ki
Red River Delta

North East
North West
North Central Coast
South Central Coast
Central Highlands
South East
Mekong River Delta
Total
2000
2001
2002
2003
2004
2005
2425
534
66
444
616
232
3672
3672
11,661
2894
636
73
541
756
259
4456
4456
14,071
3855
848
94
710
907
309
5792
5792
18,307
4071
980
137
775
1032
361
6487
6487
20,330
4584
1469
170
806
1057
408
7965
6965
23,424
5280
1890
210
938
1757
496
9457
7450
27,478
approximately 11,661 rms in 2000 to 27,478 rms in 2005 (see

Table 4). This paper utilizes this dataset as it provides all information
needed for the study. Due to condentiality considerations, rm level
data is released with a lag. All nominal variables are measured in 1994
prices.
4. Empirical results and analysis
In stage one, using rm level panel data, we estimate TFP for each of
the eight geographical regions of Vietnam. These regions are Red River
Delta, North East, North West, North Central Coast, South Central Coast,
Central Highlands, South East, and Mekong River Delta. Calculation of
TFP involves estimation of a log-linear version of Eq. (1) by means of
OLS with a correction for heteroskedasticity.
The estimated coefcients are reported in Table 5. The results in
Table 5 suggest that both capital and labor make a statistically signicant contribution to regional output. Using the estimated coefcients
reported in Table 5 in Eq. (2), the logarithm of TFP of each region is
calculated, which is the dependent variable in the rest of this paper.
In stage two, making use of the estimated values of the dependent variable for each region, Eq. (3) is estimated. This involves the use of the twostage least squares (2SLS) with a correction for heteroskedasticity. In
order to avoid the endogeneity that results from the presence of FDI
and industrial characteristics, dummy variables were added to the right
hand side of Eq. (3). The inclusion of dummy variables tends to reduce
the severity of the endogeneity problem. This problem arises from the
fact that industries that are known to be highly productive, in relative
terms, are likely to attract more foreign and domestic rms. The industry
capital and human capital stocks of foreign and domestic rms may be
correlated with the error term. Accordingly, this paper includes industry
dummies as regressors. This helps to remove the error term's industryspecic unobservable effect that may be correlated with the industry
stock variables. Inclusion of the dummy variables also allows one to reduce the effect of omitted time-varying industry-specic shocks that
may be correlated with the FDI variables and the error term in the regression. In addition, lagged values of relevant variables were used as instruments to account for the potential endogeneity problem. As indicated by
Nowak-Lehmann, Dreher, Herzer, Klasen, and Martinez-Zarzoso (2012),
in general, lagged variables are not good instruments when persistent autocorrelation is present. In the case of this paper, panel data is used where
the sample period covers only 6 years and hence autocorrelation is not a
serious problem.
The DurbinWuHausman test is used to test for endogeneity. The
null hypothesis is rejected, suggesting that OLS estimates might be biased
and inconsistent and hence OLS is not an appropriate estimation technique. As a result, Hansen's J-test is used to test for over-identication of
2SLS (i.e., the null hypothesis of correct model specication and valid
over-identifying restrictions is tested and the results are found to be
satisfactory).
Table 6 shows that both the horizontal and the backward linkage
effects on the TFP level of domestic rms vary across regions. The backward linkage effects are positive and statistically signicant only in
Red River Delta, South Central Coast, South East and Mekong River
1379
Delta whereas, in other regions, these effects are either negative

and signicant or positive but insignicant. This reects the fact
that the regions that attract higher volumes of FDI and where most
of Vietnam's exportables are produced will benet more from backward linkages. As a result, the backward linkages impact positively
on TFP level of local rms. Local rms located in relatively developed
regions of Vietnam, where FDI is more productive, experience a relatively rapid technology spillover from foreign to domestic rms as
compared to local rms that are located in remote regions. This
may also result in greater backward linkages for rms that are located
in relatively developed regions. The impact of FDI spillovers on TFP
varies across regions.
Table 6 shows that the impact of the horizontal spillover effect is positive and signicant only in North East, Central Highland, and Mekong
River Delta regions. The backward spillover effect is positive and statistically signicant only in Red River Delta, South Central Coast, South East,
and Mekong River Delta, whereas the forward spillover effect is positive
and signicant only in North West and North Central Coast regions. It is
interesting to note that backward linkages are signicant in those areas
that tend to receive a very big proportion of the total FDI. These are also
the areas where most of the exportable goods are produced. The introduction of domestic content requirements has contributed to stronger backward linkages. For example, rms that export less than 30% of their
production were offered concessionary import duties only if these
rms satised the 30% local content requirement. This policy helped develop stronger backward linkages in automotive, electronics and engineering (Truong & Gates, 1996; Athukorala & Tien, 2012).
The empirical results presented in Table 7 suggest that local rms
located in relatively more developed regions, where FDI is concentrated,
are in general more efcient and thus possess greater ability to benet
from advanced technologies that are introduced in the region by foreign
rms. These regions are in the second stage of Dunning's investment development path (IDP).
The presence of FDI-generated technology spillover effects also
depends on absorptive capability (as measured by the technology gap,
human capital, and nancial development) of domestic rms in host
economies (See Wang, 2010 and references therein). In order to examine
this hypothesis, this paper considers the impact of the interaction between (i) the technology gap and FDI spillovers, (ii) the stock of
human capital and FDI spillovers, and (iii) the level of nancial development and FDI spillovers on TFP of manufacturing rms in
each of the eight regions of Vietnam. The main results of empirical
estimation are summarized in Table 7, whereas detailed results
appear in Appendices 18.
Table 7 shows that the interaction of human capital and horizontal
spillovers has a strong positive effect on TFP of Red River Delta. This is
also true for North East and the Central Highlands. The impact of the interaction between human capital and backward spillovers is positive
and signicant in all regions except South Central Coast and South
East. The interaction of human capital and forward spillovers is positive
and signicant only in South Central Coast. The impact of technology
gap and horizontal spillovers is negative and signicant in Red River
Delta, North Central Coast, South East, and Mekong River Delta regions.
Table 5
Estimated production functions for Vietnamese regions.
Independent variables
Red River Delta
North East
North West
North Central Coast
South Central Coast
Central Highlands
South East
Mekong River Delta
log (K)
0.6641
(67.05)*
0.4843
(36.46)*
0.63127
(14.75)*
0.68
15,843
0.5403
(32.90)*
0.7434
(34.53)*
0.2301
(3.60)*
0.77
4436
0.5174
(13.30)*
0.6403
(10.96)*
0.7193
(4.13)*
0.72
465
0.6051
(37.84)*
0.5081
(21.64)*
0.8432
(12.71)*
0.75
2987
0.6882
(51.18)*
0.4576
(28.12)*
0.5869
(8.87)*
0.77
3885
0.5038
(19.51)*
0.6207
(18.57)*
1.202
(9.24)*
0.71
1354
0.7008
(58.97)*
0.4165
(50.01)*
0.7275
(21.80)*
0.73
24,286
0.8546
(77.45)*
0.3056
(22.13)*
0.3234
(6.59)*
0.64
11,922
log (L)
Constant
Adjusted R2 number
of observations
Notes: (i) Robust t-statistics in parentheses; (ii) ***signicant at 10%, **signicant at 5%, and *signicant at 1%.
1380
Table 6
The impact of FDI on TFP of domestic rms in Vietnam's regions.
Human capital [log(H)]

Scale (S)
Concentration (C)
Technology gap (T)
Horizontal FDI spillovers
Backward FDI spillovers
Forward FDI spillovers
Financial development (F)
Time dummies
Industry dummies
Hansen test (p-value)
DurbinWuHausman (p-value)
Number of observations
R-squared
Dependent variable: log (TFP)

Red River Delta
North East
North West
North Central Coast
South Central Coast
Central Highlands
South East
Mekong River Delta
1.1017
(7.20)*
6.7832
(2.66)*
0.2600
(1.92)*
0.0003
(26.51)*
0.0029
(5.43)*
0.0003
(2.18)**
0.0041
(2.55)*
0.7444
(8.95)*
Yes
Yes
0.21
0.00
15,843
0.30
1.2744
(5.17)*
16.2509
(3.69)*
0.3224
(2.42)*
0.0002
(0.92)
0.0044
(3.59)*
0.0001
(0.14)
0.0086
(2.87)
1.0106
(9.95)*
Yes
Yes
0.22
0.00
4436
0.27
0.4105
(8.04)*
3.1745
(0.53)
0.6395
(1.67)***
0.0046
(7.12)*
0.0008
(0.33)
0.0028
(1.36)
0.0165
(2.93)*
0.8286
(5.00)*
Yes
Yes
0.45
0.00
465
0.38
0.4797
(21.34)*
0.1383
(0.13)
0.3367
(2.67)*
0.0021
(11.53)*
0.0018
(1.91)**
0.0060
(7.70)*
0.0043
(2.04)**
0.9349
(11.99)*
Yes
Yes
0.55
0.00
2987
0.43
1.3199
(5.01)*
19.2282
(3.32)*
0.4171
(1.91)**
0.0008
(4.54)*
0.0019
(1.78)***
0.0021
(2.12)**
0.0087
(3.57)**
0.8172
(10.65)*
Yes
Yes
0.18
0.00
3885
0.25
0.7480
(2.35)*
5.0855
(0.31)
0.1886
(0.39)
0.0060
(3.94)*
0.0037
(1.84)***
0.0010
(0.54)
0.0051
(1.10)
1.0561
(9.38)*
Yes
Yes
0.22
0.00
1354
0.34
0.6994
(5.71)*
1.2087
(1.85)***
0.1723
(1.30)
0.0003
(11.54)*
0.0051
(10.79)*
0.0022
(5.54)*
0.0078
(9.01)*
1.0828
(39.24)*
Yes
Yes
0.28
0.00
24,286
0.43
1.8812
(16.48)*
9.9852
(6.17)*
0.3275
(1.70)***
0.0004
(1.15)
0.0115
(8.14)*
0.0019
(1.83)***
0.0411
(15.45)*
0.7001
(10.95)*
Yes
Yes
0.68
0.00
11,922
0.27
The interaction of technology gap and backward spillovers is negative

and signicant in Red River Delta, North East, North Central Coast, and
South East regions. The interaction of technology gap and forward spillovers is negative and signicant in all regions except Red River Delta,
North East, and North Central Coast regions. The interaction of the
level of nancial development and horizontal spillovers is positive and
signicant only in Red River Delta, North Central Coast, and South
East regions. The interaction of the level of nancial development
and backward spillovers is positive and signicant only in Red
River Delta and North East regions. Finally, the interaction of the
level of nancial development and forward spillovers is positive and
signicant only in South East region. It is clear that, as far as the level
of nancial development is concerned, Vietnam has a long way to go.
In others words, steps need to be taken to improve the level of nancial
development in Vietnam.
5. Conclusion
This paper focuses on the impact of FDI and FDI-generated spillovers
on total factor productivity (TFP) growth of manufacturing rms located
in all eight regions of Vietnam. An increase in TFP can be attributed to
technological advancement. The empirical analysis presented in this
paper is based on panel data that covers a large number of manufacturing

rms over the period 20002005. Unlike the existing studies, this paper
considers the impact of FDI spillovers on TFP growth via both horizontal
and vertical linkages in different regions of Vietnam. The paper also considers the role of absorptive capacity.
The results presented in this paper suggest that impact of FDI and
FDI spillovers on TFP of Vietnam's manufacturing rms varies across
regions. In other words, the presence of foreign rms is contributing
to technological advancement in Vietnam but the rate of such advancement varies considerably across regions of Vietnam. Backward
linkages with foreign rms are an important channel of technology
transfer from foreign to domestic rms in Red River Delta, South
Central Coast, South East, and Mekong River Delta. These regions are
well known for (i) better quality infrastructure, (ii) higher level of
human capital stock, and (iii) relatively more advanced technology.
The empirical analysis presented in this paper also suggests that the
effect of horizontal and vertical linkages with foreign rms on TFP
of local rms also depends on Vietnamese regions' absorptive capacity. Regions with better technology, stock of human capital and a relatively higher level of nancial development gain more benets from
FDI spillovers. It appears that North East, North West, North Central
Coast, and Central Highlands regions have not signicantly beneted
Table 7
Absorptive capacity and TFP growth in Vietnamese regions.
Interaction of H and horizontal spillovers

Interaction of H and backward spillovers
Interaction of H and forward spillovers
Interaction of T and horizontal spillovers
Interaction of T and backward spillovers
Interaction of T and forward spillovers
Interaction of F and horizontal spillovers
Interaction of F and backward spillovers
Interaction of F and forward spillovers
Red River Delta
North
East
North
West
North Central
Coast
South Central
Coast
Central
Highlands
South
East
Mekong River
Delta
P&S
P&S
N&S
N&S
N&S
N & IS
P&S
P&S
P & IS
P&S
P&S
N&S
N & IS
N&S
P & IS
N & IS
P&S
N&S
N & IS
P & IS
P & IS
P & IS
P&S
N&S
N & IS
P & IS
N & IS
N & IS
P&S
N & IS
P&S
N&S
P & IS
P&S
P & IS
N & IS
N&S
N&S
P&S
N&S
P & IS
N&S
N & IS
N&S
P & IS
P&S
P&S
N&S
N & IS
P & IS
N&S
N & IS
P & IS
N & IS
P & IS
N&S
P & IS
N&S
N&S
N&S
P&S
N&S
P&S
N & IS
P&S
P & IS
N&S
N & IS
N&S
N & IS
N&S
N & IS
Notes: H stock of human capital; T technology gap; F the level of nancial development; P positive effect on TFP; N negative effect on TFP; S signicant and IS insignicant.
from backward linkages but these regions have beneted from horizontal or forward linkages. It seems that government policy that encourages foreign rms to invest in outer regions of Vietnam has so far
not worked.
Based on the empirical analysis presented in this paper, Vietnam
can gain more benets from FDI by improving its absorptive capacity.
At the central level, Vietnam needs to further develop its nancial
system. Increased transparency is the rst step in this direction
followed by further liberalization. Increase in real spending on advanced education and training may help to reduce the technology
gap between foreign and local rms and increase the stock of
human capital. This combined with infrastructure improvement can
help to boost manufacturing sector productivity.
1381
Empirical analysis of more recent data when available would allow

one to assess the impact FDI-related spillovers in the post global
nancial crisis period. In addition to the impact of FDI on productivity in Vietnam, one can also examine the impact of FDI on product
quality. Recent studies such as Chang, Kao, Kuo, and Chiu (2012)
have highlighted the importance of governance quality in the context of rm entry choices. It would be useful to examine the interaction of governance quality and FDI on industrial growth in Vietnam.
Finally, one can also examine the impact of FDI on entrepreneurship
in Vietnam; specically, the impact of FDI on entry and exit of domestic
rms.
Acknowledgments
5.1. Limitations and areas for further research
The quality of Vietnamese data is questioned in some prior studies. The General Statistics Ofce of Vietnam has taken steps to improve reliability of the data collection process. More recent data,
when it becomes available, is likely to be relatively more reliable.
This paper has greatly beneted from extremely useful comments and suggestions received from two anonymous reviewers.
The authors are also grateful to Dr Robert Alexander and participants
of seminar at Grifth University (QLD, Australia) and Flinders University (SA, Australia). However, the authors are solely responsible
for all remaining errors and imperfections.
Appendix 1. The effect of FDI on TFP in Red River Delta

Scale (S)
Concentration (C)
Technology gap (T)

Estimation without
interaction
Estimation with interaction

between FDI spillover and H

between FDI spillover and T

between FDI spillover and F
1.1017
(7.20)*
6.7832
(2.66)*
0.2600
(1.92)*
0.0003
(26.51)*
0.0029
(5.43)*
0.0003
(2.18)**
0.0041
(2.55)*
0.7444
(8.95)*
1.1975
(5.58)*
8.3485
(2.36)**
0.2069
(1.15)
0.0001
(1.79)***
0.3163
(5.24)*
0.0002
(0.40)
0.0037
(1.92)**
0.6946
(6.44)*
0.00001
(1.92)**
0.00001
(2.62)*
0.00005
(3.21)*
2.3708
(2.36)**
2.5549
(2.31)**
0.9492
(1.15)
0.0003
(5.28)*
2.9881
(1.75)***
0.0099
(3.36)*
0.0543
(1.52)
0.7977
(6.17)*
1.0868
(5.39)*
6.5548
(1.90)***
0.2536
(1.48)
0.0002
(5.60)*
0.5786
(4.38)*
0.0023
(1.99)**
0.0001
(1.20)
0.6102
(4.41)*
Technology gap horizontal

Technology gap backward
Technology gap forward
Human capital horizontal
0.0169
(1.94)**
0.0055
(3.60)*
0.0316
(1.53)
Human capital backward

Human capital forward
Financial development horizontal
Financial development backward
Financial development forward
Time dummies
Industry dummies
R-squared
Yes
Yes
0.21
0.00
15,843
0.30
Yes
Yes
0.12
0.00
15,843
0.27
Yes
Yes
0.14
0.00
15,843
0.20
0.0052
(2.20)**
0.0049
(2.48)*
0.0075
(1.56)
Yes
Yes
0.57
0.00
15,843
0.31
1382
Appendix 2. The effect of FDI on TFP in North East


Scale (S)
Concentration (C)
Technology gap (T)

Estimation without
interaction



1.2744
(5.17)*
16.2509
(3.69)*
0.3224
(2.42)*
0.0002
(0.92)
0.0044
(3.59)*
0.0001
(0.14)
0.0086
(2.87)
1.0106
(9.95)*
0.4035
(1.10)
2.9655
(0.49)
0.1418
(0.73)
0.0034
(2.71)*
0.3061
(1.98)**
0.0025
(2.08)**
0.0039
(0.69)
1.2495
(10.25)*
0.00002
(0.36)
0.00018
(2.62)*
0.00045
(2.20)**
0.3194
(0.76)
2.8065
(0.91)
0.2266
(0.85)
0.0009
(3.52)*
0.2457
(0.41)
0.0088
(3.99)*
0.0200
(0.93)
1.2794
(17.76)*
0.6056
(1.83)***
5.6267
(0.96)
0.1542
(0.87)
0.0006
(2.48)**
0.5952
(2.06)**
0.0071
(3.62)*
0.0072
(1.30)
1.3992
(11.59)*

0.0027
(0.94)
0.0052
(4.51)*
0.0101
(0.76)

Yes
Yes
0.19
0.00
4436
0.47
0.0064
(1.36)
0.0141
(3.79)*
0.0209
(2.56)*
Yes
Yes
0.18
0.00
4436
0.46

Time dummies
Industry dummies
R-squared
Yes
Yes
0.22
0.00
4436
0.27
Yes
Yes
0.52
0.00
4436
0.31
Appendix 3. The effect of FDI on TFP in North West


Scale (S)
Concentration (C)
Technology gap (T)

Estimation without
interaction



0.4105
(8.04)*
3.1745
(0.53)
0.6395
(1.67)***
0.0046
(7.12)*
0.0008
(0.33)
0.0028
(1.36)
0.0165
(2.93)*
0.8286
(5.00)*
0.7991
(3.19)*
1.4416
(0.51)
0.6292
(1.64)***
0.0041
(3.20)*
0.3213
(1.00)
0.0048
(2.16)**
0.0160
(2.67)*
0.7067
(3.34)*
0.00004
(0.59)
0.00004
(1.01)
0.00011
(0.85)
1.3296
(2.24)**
1.0360
(0.40)
0.9543
(2.18)**
0.0039
(4.49)*
0.2272
(0.26)
0.0208
(2.25)*
0.1071
(2.15)**
0.7631
(4.17)*
0.6477
(2.81)*
0.4318
(0.18)
0.6638
(1.82)***
0.0033
(2.34)**
0.4882
(0.82)
0.0062
(1.19)
0.0222
(1.65)***
0.9694
(2.67)*
1383
Appendix
(continued)
3 (continued)

Estimation without
interaction


0.0032
(0.71)
0.0108
(2.00)**
0.0588
(1.82)***

Yes
Yes
0.38
0.00
465
0.28
0.0086
(0.75)
0.0065
(0.63)
0.0087
(0.33)
Yes
Yes
0.37
0.00
465
0.36

Time dummies
Industry dummies
R-squared

Yes
Yes
0.45
0.00
465
0.38
Yes
Yes
0.39
0.00
465
0.32
Appendix 4. The effect of FDI on TFP in North Central Coast


Scale (S)
Concentration (C)
Technology gap (T)

Estimation without
interaction



0.4797
(21.34)*
0.1383
(0.13)
0.3367
(2.67)*
0.0021
(11.53)*
0.0018
(1.91)**
0.0060
(7.70)*
0.0043
(2.04)**
0.9349
(11.99)*
0.6584
(1.87)***
1.3827
(0.62)
0.0173
(0.12)
0.0028
(2.27)**
0.0128
(0.08)
0.0075
(8.18)*
0.0074
(1.49)
0.8135
(6.81)*
0.00002
(0.41)
0.00012
(2.25)**
0.00028
(1.40)
0.5863
(0.93)
3.3211
(1.47)
0.2098
(1.32)
0.0037
(3.22)*
2.2669
(1.85)***
0.0047
(1.15)
0.0501
(1.81)***
0.9892
(12.46)*
0.9498
(2.23)**
3.0785
(1.09)
0.1061
(0.46)
0.0007
(0.71)
0.4616
(1.71)***
0.0064
(3.12)*
0.0085
(1.64)***
0.7537
(4.27)*

0.0110
(1.69)***
0.0062
(2.80)*
0.0346
(1.97)

Time dummies
Industry dummies
R-squared
Yes
Yes
0.55
0.00
2987
0.43
Yes
Yes
0.19
0.00
2987
0.43
Yes
Yes
0.16
0.00
2987
0.34
0.0087
(2.09)**
0.0005
(0.16)
0.0131
(1.42)
Yes
Yes
0.12
0.00
2987
0.34
1384
Appendix 5. The effect of FDI on TFP in South Central Coast


Scale (S)
Concentration (C)
Technology gap (T)

Estimation without
interaction



1.3199
(5.01)*
19.2282
(3.32)*
0.4171
(1.91)**
0.0008
(4.54)*
0.0019
(1.78)***
0.0021
(2.12)**
0.0087
(3.57)**
0.8172
(10.65)*
2.27651
(3.26)*
46.9831
(2.46)**
1.1422
(2.36)**
0.0015
(0.89)
0.5698
(1.38)
0.0001
(0.04)
0.0300
(2.92)*
0.5706
(3.18)*
0.0005
(2.13)**
0.00001
(0.24)
0.0013
(2.36)**
9.4182
(2.11)**
76.0676
(2.03)**
6.0229
(1.93)***
0.0001
(0.23)
18.7057
(1.91)***
0.0205
(1.30)
0.4149
(1.97)**
1.6669
(4.19)*
1.4996
(4.52)*
23.8597
(2.98)*
0.6587
(2.12)**
0.0006
(1.98)**
0.3917
(1.10)
0.0019
(0.79)
0.0017
(0.36)
1.4744
(7.37)*

0.0915
(1.94)***
0.0121
(1.49)
0.2405
(2.00)**

Yes
Yes
0.56
0.00
3885
0.16
0.0105
(1.80)***
0.0002
(0.06)
0.0003
(2.22)**
Yes
Yes
0.21
0.00
3885
0.14

Time dummies
Industry dummies
R-squared
Yes
Yes
0.18
0.00
3885
0.25
Yes
Yes
0.29
0.00
3885
0.12
Appendix 6. The effect of FDI on TFP in Central Highlands


Scale (S)
Concentration (C)
Technology gap (T)

Estimation without
interaction



0.7480
(2.35)*
5.0855
(0.31)
0.1886
(0.39)
0.0060
(3.94)*
0.0037
(1.84)***
0.0010
(0.54)
0.0051
(1.10)
1.0561
(9.38)*
0.5904
(1.39)
0.4973
(0.03)
0.1021
(0.15)
0.0111
(2.92)*
0.1436
(0.49)
0.0035
(1.74)***
0.0004
(0.05)
1.1004
(8.97)*
0.0002
(1.70)***
0.0002
(1.88)***
0.0004
(1.60)***
2.3187
(2.99)*
5.7480
(0.52)
0.0004
(0.11)
0.0083
(4.49)*
5.1689
(2.99)*
0.0151
(1.42)
0.1011
(1.91)***
1.2021
(9.47)*
0.8272
(2.40)**
10.6405
(0.66)
0.2474
(0.42)
0.0060
(3.10)*
0.4214
(0.96)
0.0025
(0.65)
0.0081
(0.92)
1.5293
(6.25)*
1385
Appendix
(continued)
6 (continued)

Estimation without
interaction


0.0238
(2.85)
0.0072
(1.34)
0.0597
(2.01)**

Yes
Yes
0.29
0.00
1354
0.31
0.0023
(0.28)
0.0008
(0.13)
0.0260
(1.52)
Yes
Yes
0.31
0.00
1354
0.32

Time dummies
Industry dummies
R-squared

Yes
Yes
0.22
0.00
1354
0.34
Yes
Yes
0.14
0.00
1354
0.39
Appendix 7. The effect of FDI on TFP in South East

Scale (S)
Concentration (C)
Technology gap (T)

Estimation without
interaction



0.6994
(5.71)*
1.2087
(1.85)***
0.1723
(1.30)
0.0003
(11.54)*
0.0051
(10.79)*
0.0022
(5.54)*
0.0078
(9.01)*
1.0828
(39.24)*
0.7547
(1.78)***
0.9034
(0.44)
0.1004
(0.52)
0.0004
(1.45)
0.5525
(8.15)*
0.0027
(3.46)*
0.0079
(5.86)*
1.0737
(18.68)*
0.00004
(1.41)
0.00003
(2.07)**
0.00001
(0.73)
2.1076
(6.99)*
1.6491
(3.85)*
0.5606
(2.44)*
0.0003
(2.06)**
4.9724
(4.63)*
0.0161
(7.48)*
0.0230
(2.78)*
1.1141
(42.27)*
1.6723
(11.32)*
3.2606
(3.63)
0.0765
(0.43)
0.0001
(0.77)
1.4650
(11.20)*
0.0114
(7.28)*
0.0163
(6.40)*
0.5483
(7.24)*

Technology Gap Forward
0.0216
(5.07)*
0.0057
(6.84)*
0.0154
(3.93)*

Time dummies
Industry dummies
R-squared
Yes
Yes
0.28
0.00
24,286
0.43
Yes
Yes
0.51
0.00
24,286
0.44
Yes
Yes
0.92
0.00
24,286
0.31
0.0152
(7.47)*
0.0137
(5.81)*
0.0084
(2.18)**
Yes
Yes
0.16
0.00
24,286
0.26
1386
Appendix 8. The effect of FDI on TFP in Mekong River Delta


Scale (S)
Concentration (C)
Technology gap (T)

Estimation without
interaction



1.8812
(16.48)*
9.9852
(6.17)*
0.3275
(1.70)***
0.0004
(1.15)
0.0115
(8.14)*
0.0019
(1.83)***
0.0411
(15.45)*
0.7001
(10.95)*
1.9586
(15.72)*
13.4318
(2.68)*
0.4462
(1.83)***
0.0011
(1.86)***
1.1771
(7.49)*
0.0009
(0.88)
0.0415
(14.86)*
0.6999
(10.79)*
0.00005
(0.12)
0.00008
(1.66)***
0.00007
(0.09)
1.9339
(3.55)*
10.3396
(1.95)**
2.3368
(1.58)
0.0049
(1.59)
1.7551
(3.41)*
0.0147
(0.95)
0.1651
(2.22)**
0.5823
(2.53)**
1.7709
(14.92)*
11.0623
(2.60)*
0.2645
(1.21)
0.0010
(1.72)***
1.3946
(4.51)*
0.0079
(3.50)*
0.0342
(6.46)*
1.2198
(8.03)*

0.3114
(3.37)*
0.0058
(0.74)
0.1177
(2.81)*

Time dummies
Industry dummies
R-squared
Yes
Yes
0.68
0.00
11,922
0.27
Yes
Yes
0.18
0.00
11,922
0.23
Yes
Yes
0.36
0.00
11,922
0.35
0.0037
(0.68)
0.0127
(2.95)*
0.0137
(1.37)
Yes
Yes
0.21
0.00
11,922
0.32
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FDI To Productivity in Vietnam

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Journal of Business Research 67 (2014) 13761387

Contents lists available at ScienceDirect

Journal of Business Research

Is foreign direct investment productive? A case study of the regions

Corresponding author. Tel.: +61 7 5430 1222.

By making use of a rm level panel dataset, this paper empirically

2. Review of related studies

S. Anwar, L.P. Nguyen / Journal of Business Research 67 (2014) 13761387

adversely affected most domestic rms in the Czech Republic, especially

Red River Delta

data to investigate the effect of FDI-related horizontal, backward and

FDI spillovers through horizontal channels have a positive impact on rm output.

Barbosa and Eiriz (2009)

Exporting leads to positive spillover effects.

S. Anwar, L.P. Nguyen / Journal of Business Research 67 (2014) 13761387

Red River Delta

development within industry j, which is measured by working capital

The empirical model used in this paper is developed in two stages.

where Yijt is the real output of domestic rm i in industry j in period t; Kijt

3. The model and data

Y ijt Aijt K ijt Lijt

where H is human capital of rm i in industry j in period t, which is

Red River Delta

S. Anwar, L.P. Nguyen / Journal of Business Research 67 (2014) 13761387

approximately 11,661 rms in 2000 to 27,478 rms in 2005 (see

Delta whereas, in other regions, these effects are either negative

Red River Delta

North Central Coast

South Central Coast

Mekong River Delta

S. Anwar, L.P. Nguyen / Journal of Business Research 67 (2014) 13761387

Human capital [log(H)]

Dependent variable: log (TFP)

North Central Coast

South Central Coast

Mekong River Delta

The interaction of technology gap and backward spillovers is negative

paper is based on panel data that covers a large number of manufacturing

Interaction of H and horizontal spillovers

Red River Delta

S. Anwar, L.P. Nguyen / Journal of Business Research 67 (2014) 13761387

Empirical analysis of more recent data when available would allow

Appendix 1. The effect of FDI on TFP in Red River Delta

Human capital [log(H)]

Dependent variable: log (TFP)

Estimation with interaction

Estimation with interaction

Estimation with interaction

Technology gap horizontal

Human capital backward

S. Anwar, L.P. Nguyen / Journal of Business Research 67 (2014) 13761387

Appendix 2. The effect of FDI on TFP in North East

Human capital [log(H)]

Dependent variable: log (TFP)

Estimation with interaction

Estimation with interaction

Estimation with interaction

Technology gap horizontal

Human capital backward

Financial development backward

Appendix 3. The effect of FDI on TFP in North West

Human capital [log(H)]

Dependent variable: log (TFP)