Do Domestic Manufacturing Firms Benefit from Foreign Direct Investment in Vietnam?
Project title: Spillover effects of FDI: Do domestic manufacturing firms benefit from foreign direct investment in Vietnam.
Introduction
Back in the 1990s, foreign direct investment (FDI) became the largest source of external finance for many developing countries. In Vietnam in particular, the Law on Foreign Investment promulgated in the 1986 Congress to attract FDI was considered the first step of the doi moi (renovation) reform. The cumulative FDI increased from 28 projects of total US$ 140 million FDI in 1988 to 8266 project for roughly US$ 78 billions at the end of 2006. FDI, therefore, has generally lived up to the expectation that it would play a key role in accelerating economic growth (GSO’s Statistical Yearbook, various years). [1]
The most important benefit of FDI in previous literature was proved to create spillover effect. Lipsey (2002), for instance, argued that the expecting FDI inflows would bring about new technologies, know-how and hence contribute to increasing productivity and competitiveness of domestic industries. FDI, on the other hand, is criticized for stealing market share of their domestic counterpart and generating considerable costs (Blomstrom and Kokko, 2003).
The understanding on this spillover effect in the Vietnamese context is currently rather poor. In fact, there appears to be no empirical evidence on this matter. The objective of this research is to focus on FDI flows and its effects on domestic enterprises in Vietnam using a panel on manufacturing firms between 2002 and 2006. Research questions and a review of literature on spillover effect on developing countries are outlined in the next sections. Section 4 and 5 describe data and methodology used for the research. Some remarks are offered in the final section.
Objectives
This project is proposed to empirically examine the spillover effect of FDI on the Vietnam’s manufacturing sector. Particularly, we will concentrate on two specific questions:
i) Does the
Introduction
Back in the 1990s, foreign direct investment (FDI) became the largest source of external finance for many developing countries. In Vietnam in particular, the Law on Foreign Investment promulgated in the 1986 Congress to attract FDI was considered the first step of the doi moi (renovation) reform. The cumulative FDI increased from 28 projects of total US$ 140 million FDI in 1988 to 8266 project for roughly US$ 78 billions at the end of 2006. FDI, therefore, has generally lived up to the expectation that it would play a key role in accelerating economic growth (GSO’s Statistical Yearbook, various years). [1]
The most important benefit of FDI in previous literature was proved to create spillover effect. Lipsey (2002), for instance, argued that the expecting FDI inflows would bring about new technologies, know-how and hence contribute to increasing productivity and competitiveness of domestic industries. FDI, on the other hand, is criticized for stealing market share of their domestic counterpart and generating considerable costs (Blomstrom and Kokko, 2003).
The understanding on this spillover effect in the Vietnamese context is currently rather poor. In fact, there appears to be no empirical evidence on this matter. The objective of this research is to focus on FDI flows and its effects on domestic enterprises in Vietnam using a panel on manufacturing firms between 2002 and 2006. Research questions and a review of literature on spillover effect on developing countries are outlined in the next sections. Section 4 and 5 describe data and methodology used for the research. Some remarks are offered in the final section.
Objectives
This project is proposed to empirically examine the spillover effect of FDI on the Vietnam’s manufacturing sector. Particularly, we will concentrate on two specific questions:
i) Does the