Do Vertical Spillovers Differ by Investors' Productivity? Theory and Evidence from Vietnam

37 Pages Posted: 19 Jul 2017 Last revised: 30 Apr 2020

See all articles by Bin Ni

Bin Ni

Toyo University - Business Administration

Hayato Kato

Osaka University

Date Written: February 18, 2020

Abstract

Developing countries are eager to host foreign direct investment to receive positive technology spillovers to their local firms. However, what types of foreign firms are desirable for the host country to achieve spillovers best? We address this question using firm-level panel data from Vietnam to investigate whether foreign Asian investors in downstream sectors with different productivity affects the productivity of local Vietnamese firms in upstream sectors differently. Using endogenous structural breaks, we divide Asian investors into low-, middle-, and high-productivity groups. The results suggest that the presence of the middle group has the strongest positive spillover effect. The differential spillover effects can be explained by a simple model with vertical linkages and productivity-enhancing investment by local suppliers. The theoretical mechanism is also empirically confirmed.

Keywords: FDI spillovers; Heterogeneous productivity; Firm-level data; Endogenous structural break; Vietnam; Vertical Cournot model

JEL Classification: D22; F21; F64; Q56

Suggested Citation

Ni, Bin and Kato, Hayato, Do Vertical Spillovers Differ by Investors' Productivity? Theory and Evidence from Vietnam (February 18, 2020). Available at SSRN: https://ssrn.com/abstract=3003037 or http://dx.doi.org/10.2139/ssrn.3003037

Bin Ni

Toyo University - Business Administration ( email )

5-28-20 Hakusan
Bunkyo-ku
Tokyo, 112-8606
Japan

Hayato Kato (Contact Author)

Osaka University ( email )

1-7 Machikaneyama
Toyonaka, Osaka 5600043
Japan

HOME PAGE: http://https://hayatokato.weebly.com/

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