Technology spillovers from foreign direct investment in Vietnam: Horizontal or vertical spillovers?

Abstract

This paper uses firm-level data to examine how technology spillovers through foreign direct investment (FDI) affect the productivity of domestic firms in Vietnam. We advance the understanding as to when, where and under what conditions FDI generates technology spillovers to domestic firms. We find that domestic firms gain technology spillovers through vertical linkages with foreign firms, but the effect of the horizontal presence of foreign firms on the productivity of domestic firms is negative. This suggests that potential technology transfer between foreign firms and their local competitors is more than offset by the competition induced by the entry of foreign firms. The existence and strength of horizontal and vertical spillovers depend on industry and firm characteristics and on the types of FDI.