Technical Efficiency of Vietnamese Manufacturing Firms: Do Fdi Spillovers Matter?

Abstract

This paper investigates the spillover effect (backward, forward, and horizontal linkage) of foreign direct investment (FDI) firms on the technical efficiency of local firms. This research extends the literature by employing meta-frontier framework analysis which is superior to single stochastic analysis because each industry has a different combination of inputs (or dissimilar production technology). Using a large data set (178,700 firm-year observations), this paper finds evidence on the negative impact of the horizontal and forward linkages on the meta-technical inefficiency for the data set as a whole as well as in three economic regions, in private owned firms, and capital and labor-intensive sectors in Vietnam.

Essays on Technical Change and Efficiency in a Transition Economy

“…Turning to the results of the intra-industry (horizontal) spillovers, almost all models point to the same direction that the horizontal output measure of FDI spillovers is either negative (significant) or not significant. Our results about the lack of horizontal spillover effects as measured in terms of the FDI output are in concordance with recent studies (Le and Pomfret, 2011;Ni et al, 2017;Nguyen et al, 2020;Huynh et al, 2021 andNguyen et al, 2021). On the other hand, we find that the horizontal employment measure of FDI presence is positive and statistically significant in both the random effect model and the fixed effect model but not the first-differenced model.…”

“…Our mixed results of forward spillovers are similar to Tran et al (2016), who argue that forward spillovers could be negative in case domestic firms are in the same region as foreign firms, and positive if domestic firms are located far from foreign firms. The significant negative spillovers through forward linkages between foreign-owned firms and Vietnamese firms are put forward in many empirical studies (Nguyen, 2008;Nguyen et al, 2020;Huynh et al, 2021 andNguyen et al, 2021). In contrast, Newman et al (2015), using direct measures of linkages between domestic and FDI firms in Viet Nam, find strong evidence for a positive coefficient on forward direct linkages between FDI firms and domestic firms supplied by FDI firms.…”