International Investment

PRESENTED BY group 4

Foreign Direct Investment & Export Spillovers: Evidence From Vietnam

Introduction: Ob ectives
The existing International business literature suggests that the presense of foreign firms in a country can benefit domestic firms through the formation of inter-firm linkages. These linkages can take various forms. The objectives of this research is to examines the impact of horizontal and vertical (backward and forward linkages (between domestic and foreign firms on!

!"# T$e decision o% domestic %irms to e&port

!'# T$e e&port s$are o% domestic %irm

Introduction: %ocus
Based on a large number o% t$e e&isting studies since '!!!( t$is paper clari%ied several important points and put %or)ard conclusions %or t$e issue *DI and e&port spillovers in +ietnam#

Vietnam - a country that has attracted significant FDI since the late 1908s !he introduction of reform policy "no#n as Doi $oi in 198%& mar"ed the 'eginning of opening up of the Vietnamese economy #hich resulted in a significant inflo# of foreign investment

FDI has played an important role in the rapid economic gro#th in Vietnam

!he impact of FDI-related industrial lin"ages on e(port spillovers in Vietnam )n analysis of the indirect effect of FDI on Vietnam e(port performance allo#s one to assess the effectiveness of government policies

Introduction: results
*ffect of the lin" among FDI and e(port activities mostly depends on the characteristics of 'oth domestic firms and host country !he presence of sun" cost can lead to a delayed effect on e(port performance )nd of course& sun" cost is different from countries to another& so there is a gap among the result of study in each country
!he presence of sun" cost can lead to a delayed effect on e(port performance )nd of course& sun" cost is different from countries to another& so there is a gap among the result of study in each country

RES,-TS

T$eor. %rame)or/
".#. The presence of $%& and its impact on the host countries
!"# E&plaining t$e impact o% 0N1s )it$ O-I and IDP %rame)or/s#

!'# T$e impact o% *DI on local %irms in developing countries#

!2# T$e spreading e%%ect o% 0N1s in $ost countries#

".". The presence of $%&s in developing

countries can facilitate technology transfer from developed to the developing countries.

Emperical models 3ND data

*mpirical model is 'ased on )it"en at al 319945& 6reena#ay et al 370045 and 8neller and +isu 370045 !he model consists of t#o e9uations as a'ove:

Exportijt 4 %5 1apital6 Intensit.i t( 7uman61apitali t( Scalei t( 1oncentration t( Tec$nolog.68api t( *inancial6Developmenti t( *DISpilloversi t( 9i t: Export_intensityijt 4 g5 1apital6 Intensit.i t( 7uman61apitali t( Scalei t( 1oncentration t( Tec$nolog.68api t( *inancial6Developmenti t( *DISpilloversi t( ;i t:
;here: < Capital_ Intensityijt is capital stoc" per employee in million V.D at time t < Human_Capitalijt is measured 'y total #ages and training costs per employee in million V.D < Scaleijt is measured 'y sales of firm I relative to the average firm sales in the same sector < Technology_Gapijt is the percentage difference 'et#een the average productivity of foreign firm and that of domestic firms in the same industry < < < Concentrationijt is measured 'y means of the -erfindahl inde( for domestic firms Financial_Developmentijt of firm I in industry = at time is measured 'y #or"ing capital as a proportion of total assets FDISpilloversijt can occur through hori>ontal and vertical lin"ages 'et#een domestic and foreign firms

Emperical models 3ND data

8eneral Statistics O%%ice o% +ietnam

T$e dataset is a cross<sectional %irm level data t$at covers 4'"'2 %irms in '!!!( utili=es a small portion o% t$e surve. t$at covers "!>"? %irms in manu%acturing industries in +ietnam in '!!!# Based on t$e sectoral classi%ication o% enterprises t$at is at t$e t)o digit level o% +ietnamese Standard Industrial 1lassi%ication 5+SI1:( t$e e&port spillovers %rom *DI o% '? %irms %rom 2 industrial groups $ave been collected#

Emperical results and anal.sis

E&port Spillovers %rom *DI in 0anu%acturing Industries o% +ietnam
< Irrespective of level of technology' the presence of foreign firms encourages domestic firms in the same sector to enter the export markets and increase their export volume.

<

(nly low technology industries gain significant benefits from forward linkages. This can be contributed to the presence of high sunk costs that discourage export activity.

<

The impact of export spillovers on the decision to export and on the export share varies with the level of technology.

Emperical results and anal.sis

T$e Impact o% *irm O)ners$ip and Industr. Structure on E&port Spillovers
< !he impact of hori>ontal lin"ages on the decision to e(port and e(port share is
< < < positive for 'oth private and state-o#ned firms 'ut the effect is highly significant only for state o#ned firms -o#ever& state-o#ned firms do not gain any 'enefits from vertical lin"ages #ith foreign firms #ith foreign firms

<

+rivate firms are relatively more innovative and have 'etter access to good 9uality intermediate inputs& #hich helps to reduce production costs )s a result& private firms are a'le to increase their mar"et share too and gain 'enefits through vertical lin"ages

Emperical results and anal.sis

T$e Impacts o% t$e Presence o% bot$ E&port Oriented and Domestic 0ar/et Oriented *oreign *irms on E&port Spillovers
< !he presence of e(port-oriented foreign firms not only significantly increase the pro'a'ility that domestic firms in the same industry #ill 'ecome involved in e(porting 'ut it also leads a significant increase in their e(port intensity

<

!he presence of domestic mar"et oriented foreign firms in V. has the opposite effect

+resence of significant imitation and "no#ledge spillover effect among V.?s manufacturing firms Decrease the sun" costs associated #ith e(port activities

Emperical results and anal.sis

T$e Impacts o% t$e 8eograp$ic Pro&imit. on E&port Spillovers
< !he higher the geographical concentration of foreign firms operating in the same regions increases higher pro'a'ility of e(porting 'y domestic firms 2onse9uently& domestic firms increase their output for e(ports

<

!he presence of e(port oriented foreign firms also lead domestic firms in the same regions to enter the e(port mar"ets

<

!he hori>ontal and for#ard lin"ages 'et#een foreign firms and domestic firms are the main channels of e(port spillovers from FDI

1onclusion
This essay studies on " main issues!
Issue " Issue '

!he impact of vertical and hori>ontal lin"ages 'et#een domestic and foreign companies to e(plain:

< <

!he e(porting decision of domestic companies *(porting shares companies of domestic

!he impact of FDI on the economy of the host country through direct and indirect channels FDI is seen as a developing mean of technology transfer It can 'oost productivity and contri'ute significantly to the development of production !he presence of the foreign companies may also affect the decision of domestic companies as #ell as their e(porting mar"et share

T73N@S *OR YO,R TI0E

INTERN TI!N " IN#EST$ENT % GR!&' ( )oreign *irect Investment + ,xport -pillovers! ,vidence )rom .ietnam