Multinational enterprises and local firms’ export market entry: A panel data analysis of Vietnam's food processing industry

Abstract

This study develops new insights into the spillover effects of foreign multinational enterprises (MNEs) on local firms’ export market entry, using the case of Vietnam—a notable global manufacturing hub located in Southeast Asia. The empirical analysis is based on a disaggregated firm‐level panel dataset of 25,032 observations of Vietnamese food processing firms during the period 2011–2016. The food processing industry is an essential part of the country's thriving manufacturing sector, with enormous potential for exports. The random‐effects Probit estimation results suggest that the presence of foreign MNEs significantly raises the likelihood that private local firms become exporters and thereby start integrating into global value chains. Further regressions reveal that foreign presence is also linked to higher export intensity among domestic firms, and that the magnitude of the estimated spillover effects is conditional on the specific measures of foreign MNE presence, the ownership structure in local industry, and the size of local firms. The findings highlight the considerable potential for foreign MNEs to influence local firms’ export prospects and validate the policy efforts to attract foreign direct investment inflows to the examined industry.