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.
Keyword : meta-frontier framework, meta translog inefficiency, backward, forward, and horizontal linkage, foreign direct investment, Vietnam
How to Cite
Nguyen, C., Le, M., Cai, K., & Simioni, M. (2021). Technical efficiency of Vietnamese manufacturing firms: do FDI spillovers matter?. Journal of Business Economics and Management, 22(2), 518-536. https://doi.org/10.3846/jbem.2021.14253
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Blomström, M., & Kokko, A. (1998). Multinational corporations and spillovers. Journal of Economic Surveys, 12(3), 1–31. https://doi.org/10.1111/1467-6419.00056
Bölük, G., & Koç, A. A. (2010). Electricity demand of manufacturing sector in Turkey: A translog cost approach. Energy Economics, 32(3), 609–615. https://doi.org/10.1016/j.eneco.2010.01.007
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Cai, K., Le, M., & Vo, H. (2019). The cost of being safer in banking: Market power loss. Economic Analysis and Policy, 62, 116–130. https://doi.org/10.1016/j.eap.2019.01.006
Caves, R. E. (1996). Multinational enterprise and economic analysis. Cambridge University Press.
Demsetz, H. (1973). Structure, market rivalry, and public policy. Journal of Law & Economics, 16(1), 1–9. https://doi.org/10.1086/466752
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Halpern, L., Koren, M., & Szeidl, A. (2015). Imported inputs and productivity. American Economic Review, 105(12), 3660–3703. https://doi.org/10.1257/aer.20150443
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Iwasaki, I. (2007). Enterprise reform and corporate governance in Russia: A quantitative survey. Journal of Economic Surveys, 21(5), 849–902. https://doi.org/10.1111/j.1467-6419.2007.00520.x
Iwasaki, I., & Tokunaga, M. (2016). Technology transfer and spillovers from FDI in transition economies: A meta-analysis. Journal of Comparative Economics, 44(4), 1086–1114. https://doi.org/10.1016/j.jce.2016.10.005
Javorcik, S. B., & Spatareanu, M. (2011). Does it matter where you come from? Vertical spillovers from foreign direct investment and the origin of investors. Journal of Development Economics, 96(1), 126–138. https://doi.org/10.1016/j.jdeveco.2010.05.008
Javorcik, S. B. (2004). Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. American Economic Review, 94(3), 605–627. https://doi.org/10.1257/0002828041464605
Le, H. Q., & Pomfret, R. (2011). Technology spillovers from foreign direct investment in Vietnam: Horizontal or vertical spillovers? Journal of the Asia Pacific Economy, 16(2), 183–201. https://doi.org/10.1080/13547860.2011.564746
Le, M., Hoang, V. N., Wilson, C., & Ngo, T. (2020). Risk-adjusted efficiency and bank size in a developing economy: An analysis of Vietnamese banks. Journal of Economic Studies, 47(2), 386–404. https://doi.org/10.1108/JES-12-2018-0425
Le, V., Vu, X.-B. (Benjamin), & Nghiem, S. (2018). Technical efficiency of small and medium manufacturing firms in Vietnam: A stochastic meta-frontier analysis. Economic Analysis and Policy, 59, 84–91. https://doi.org/10.1016/j.eap.2018.03.001
Liang, F. H. (2017). Does foreign direct investment improve the productivity of domestic firms? Technology spillovers, industry linkages, and firm capabilities. Research Policy, 46(1), 138–159. https://doi.org/10.1016/j.respol.2016.08.007
Lin, B., & Atsagli, P. (2017). Inter-fuel substitution possibilities in South Africa: A translog production function approach. Energy, 121, 822–831. https://doi.org/10.1016/j.energy.2016.12.119
Lin, P., Liu, Z., & Zhang, Y. (2009). Do Chinese domestic firms benefit from FDI inflow? Evidence of horizontal and vertical spillovers. China Economic Review, 20(4), 677–691. https://doi.org/10.1016/j.chieco.2009.05.010
Lu, Y., Tao, Z., & Zhu, L. (2017). Identifying FDI spillovers. Journal of International Economics, 107, 75–90. https://doi.org/10.1016/j.jinteco.2017.01.006
Markusen, J., & Venables, A. J. (1999). Foreign direct investment as a catalyst for industrial development. European Economic Review, 43(2), 335–356. https://doi.org/10.1016/S0014-2921(98)00048-8
Newman, C., Rand, J., Talbot, T., & Tarp, F. (2015). Technology transfers, foreign investment and productivity spillovers. European Economic Review, 76, 168–187. https://doi.org/10.1016/j.euroecorev.2015.02.005
Ni, B., Spatareanu, M., Manole, V., Otsuki, T., & Yamada, H. (2017). The origin of FDI and domestic firms’ productivity – Evidence from Vietnam. Journal of Asian Economics, 52, 56–76. https://doi.org/10.1016/j.asieco.2017.08.004
Peltzman, S. (1977). The gains and losses from industrial concentration. Journal of Law & Economics, 20(2), 229–263. https://doi.org/10.1086/466902
Peters, B. (2008). Innovation and firm performance. In ZEW Economic Studies: Vol. 38. Springer Science & Business Media.
Ramstetter, E. D., & Ngoc, P. M. (2013). Productivity, ownership, and producer concentration in transition: Further evidence from Vietnamese manufacturing. Journal of Asian Economics, 25, 28–42. https://doi.org/10.1016/j.asieco.2012.12.001
Rodríguez, A. C. (1996). Multinationals, linkages, and economic development. American Economic Association, 86(4), 852–873.
Schumpeter, J. (1912). The theory of economic development (Vol. 51). Oxford University Press.
Wang, E. T. G., & Wei, H. L. (2005). The importance of market orientation, learning orientation, and quality orientation capabilities in TQM: An example from Taiwanese software industry. Total Quality Management and Business Excellence, 16(10), 1161–1177. https://doi.org/10.1080/14783360500236270
Zhang, Y. (2019). Institutions, firm characteristics, and FDI spillovers. Emerging Markets Finance and Trade, 55(5), 1109–1136. https://doi.org/10.1080/1540496X.2018.1523057
Alcacer, J., & Delgado, M. (2016). Spatial organization of firms and location choices through the value chain. Management Science, 62(11), 3213–3234. https://doi.org/10.1287/mnsc.2015.2308
Anwar, S., & Nguyen, L. P. (2014). Is foreign direct investment productive? A case study of the regions of Vietnam. Journal of Business Research, 67(7), 1376–1387. https://doi.org/10.1016/j.jbusres.2013.08.015
Ayyagari, M., & Kosová, R. (2010). Does FDI facilitate domestic entry? Evidence from the Czech Republic. Review of International Economics, 18(1), 14–29. https://doi.org/10.1111/j.1467-9396.2009.00854.x
Ba Trung, N., & Kaizoji, T. (2017). Investment climate and firm productivity: An application to Vietnamese manufacturing firms. Applied Economics, 49(44), 4394–4409. https://doi.org/10.1080/00036846.2017.1282148
Battese, G. E., & Coelli, T. J. (1995). A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empirical Economics, 20(2), 325–332. https://doi.org/10.1007/BF01205442
Biørn, E., & Skjerpen, T. (2004). Aggregation biases in production functions: a panel data analysis of Translog models. Research in Economics, 58(1), 31–57. https://doi.org/10.1016/j.rie.2003.09.004
Blalock, G., & Gertler, P. J. (2008). Welfare gains from Foreign Direct Investment through technology transfer to local suppliers. Journal of International Economics, 74(2), 402–421. https://doi.org/10.1016/j.jinteco.2007.05.011
Blomström, M., & Kokko, A. (1998). Multinational corporations and spillovers. Journal of Economic Surveys, 12(3), 1–31. https://doi.org/10.1111/1467-6419.00056
Bölük, G., & Koç, A. A. (2010). Electricity demand of manufacturing sector in Turkey: A translog cost approach. Energy Economics, 32(3), 609–615. https://doi.org/10.1016/j.eneco.2010.01.007
Brown, J. D., Earle, J. S., & Telegdy, Á. (2006). The productivity effects of privatization: Longitudinal estimates from Hungary, Romania, Russia, and Ukraine. Journal of Political Economy, 114(1), 61–99. https://doi.org/10.1086/499547
Cai, K., Le, M., & Vo, H. (2019). The cost of being safer in banking: Market power loss. Economic Analysis and Policy, 62, 116–130. https://doi.org/10.1016/j.eap.2019.01.006
Caves, R. E. (1996). Multinational enterprise and economic analysis. Cambridge University Press.
Demsetz, H. (1973). Structure, market rivalry, and public policy. Journal of Law & Economics, 16(1), 1–9. https://doi.org/10.1086/466752
Dhanora, M., Sharma, R., & Khachoo, Q. (2018). Non-linear impact of product and process innovations on market power: A theoretical and empirical investigation. Economic Modelling, 70, 67–77. https://doi.org/10.1016/j.econmod.2017.10.010
Djankov, S., & Hoekman, B. (2006). Foreign investment and productivity growth in Czech enterprises. Integration & Technology, 161.
Feng, G., & Serletis, A. (2008). Productivity trends in US manufacturing: Evidence from the NQ and AIM cost functions. Journal of Econometrics, 142(1), 281–311. https://doi.org/10.1016/j.jeconom.2007.06.002
Girma, S., Görg, H., & Pisu, M. (2008). Exporting, linkages and productivity spillovers from foreign direct investment. Canadian Journal of Economics, 41(1), 320–340. https://doi.org/10.1111/j.1365-2966.2008.00465.x
Halpern, L., Koren, M., & Szeidl, A. (2015). Imported inputs and productivity. American Economic Review, 105(12), 3660–3703. https://doi.org/10.1257/aer.20150443
Huang, C. J., Huang, T.-H., & Liu, N.-H. (2014). A new approach to estimating the metafrontier production function based on a stochastic frontier framework. Journal of Productivity Analysis, 42(3), 241–254. https://doi.org/10.1007/s11123-014-0402-2
Huang, Y., & Yang, H. (2020). Identifying IFDI and OFDI productivity spatial spillovers: Evidence from China. Emerging Markets Finance and Trade, 56(5), 1124–1145. https://doi.org/10.1080/1540496X.2018.1553161
Huang, Y., & Zhang, Y. (2020). The innovation spillovers from outward and inward foreign direct investment: A firm-level spatial analysis. Spatial Economic Analysis, 15(1), 43–59. https://doi.org/10.1080/17421772.2019.1618484
Iwasaki, I. (2007). Enterprise reform and corporate governance in Russia: A quantitative survey. Journal of Economic Surveys, 21(5), 849–902. https://doi.org/10.1111/j.1467-6419.2007.00520.x
Iwasaki, I., & Tokunaga, M. (2016). Technology transfer and spillovers from FDI in transition economies: A meta-analysis. Journal of Comparative Economics, 44(4), 1086–1114. https://doi.org/10.1016/j.jce.2016.10.005
Javorcik, S. B., & Spatareanu, M. (2011). Does it matter where you come from? Vertical spillovers from foreign direct investment and the origin of investors. Journal of Development Economics, 96(1), 126–138. https://doi.org/10.1016/j.jdeveco.2010.05.008
Javorcik, S. B. (2004). Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. American Economic Review, 94(3), 605–627. https://doi.org/10.1257/0002828041464605
Le, H. Q., & Pomfret, R. (2011). Technology spillovers from foreign direct investment in Vietnam: Horizontal or vertical spillovers? Journal of the Asia Pacific Economy, 16(2), 183–201. https://doi.org/10.1080/13547860.2011.564746
Le, M., Hoang, V. N., Wilson, C., & Ngo, T. (2020). Risk-adjusted efficiency and bank size in a developing economy: An analysis of Vietnamese banks. Journal of Economic Studies, 47(2), 386–404. https://doi.org/10.1108/JES-12-2018-0425
Le, V., Vu, X.-B. (Benjamin), & Nghiem, S. (2018). Technical efficiency of small and medium manufacturing firms in Vietnam: A stochastic meta-frontier analysis. Economic Analysis and Policy, 59, 84–91. https://doi.org/10.1016/j.eap.2018.03.001
Liang, F. H. (2017). Does foreign direct investment improve the productivity of domestic firms? Technology spillovers, industry linkages, and firm capabilities. Research Policy, 46(1), 138–159. https://doi.org/10.1016/j.respol.2016.08.007
Lin, B., & Atsagli, P. (2017). Inter-fuel substitution possibilities in South Africa: A translog production function approach. Energy, 121, 822–831. https://doi.org/10.1016/j.energy.2016.12.119
Lin, P., Liu, Z., & Zhang, Y. (2009). Do Chinese domestic firms benefit from FDI inflow? Evidence of horizontal and vertical spillovers. China Economic Review, 20(4), 677–691. https://doi.org/10.1016/j.chieco.2009.05.010
Lu, Y., Tao, Z., & Zhu, L. (2017). Identifying FDI spillovers. Journal of International Economics, 107, 75–90. https://doi.org/10.1016/j.jinteco.2017.01.006
Markusen, J., & Venables, A. J. (1999). Foreign direct investment as a catalyst for industrial development. European Economic Review, 43(2), 335–356. https://doi.org/10.1016/S0014-2921(98)00048-8
Newman, C., Rand, J., Talbot, T., & Tarp, F. (2015). Technology transfers, foreign investment and productivity spillovers. European Economic Review, 76, 168–187. https://doi.org/10.1016/j.euroecorev.2015.02.005
Ni, B., Spatareanu, M., Manole, V., Otsuki, T., & Yamada, H. (2017). The origin of FDI and domestic firms’ productivity – Evidence from Vietnam. Journal of Asian Economics, 52, 56–76. https://doi.org/10.1016/j.asieco.2017.08.004
Peltzman, S. (1977). The gains and losses from industrial concentration. Journal of Law & Economics, 20(2), 229–263. https://doi.org/10.1086/466902
Peters, B. (2008). Innovation and firm performance. In ZEW Economic Studies: Vol. 38. Springer Science & Business Media.
Ramstetter, E. D., & Ngoc, P. M. (2013). Productivity, ownership, and producer concentration in transition: Further evidence from Vietnamese manufacturing. Journal of Asian Economics, 25, 28–42. https://doi.org/10.1016/j.asieco.2012.12.001
Rodríguez, A. C. (1996). Multinationals, linkages, and economic development. American Economic Association, 86(4), 852–873.
Schumpeter, J. (1912). The theory of economic development (Vol. 51). Oxford University Press.
Wang, E. T. G., & Wei, H. L. (2005). The importance of market orientation, learning orientation, and quality orientation capabilities in TQM: An example from Taiwanese software industry. Total Quality Management and Business Excellence, 16(10), 1161–1177. https://doi.org/10.1080/14783360500236270
Zhang, Y. (2019). Institutions, firm characteristics, and FDI spillovers. Emerging Markets Finance and Trade, 55(5), 1109–1136. https://doi.org/10.1080/1540496X.2018.1523057