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

27 Pages Posted: 7 Oct 2020

See all articles by Bin Ni

Bin Ni

Hosei University

Hayato Kato

Osaka University

Date Written: August 1, 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 affect 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: endogenous structural break, FDI spillovers, firm‐level data, heterogeneous productivity, vertical Cournot model

Suggested Citation

Ni, Bin and Kato, Hayato, Do Vertical Spillovers Differ by Investors’ Productivity? Theory and Evidence from Vietnam (August 1, 2020). Review of Development Economics, Vol. 24, Issue 3, pp. 1046-1072, 2020, Available at SSRN: https://ssrn.com/abstract=3706248 or http://dx.doi.org/10.1111/rode.12671

Bin Ni (Contact Author)

Hosei University ( email )

Tokyo
Japan

Hayato Kato

Osaka University ( email )

1-7 Machikaneyama
Toyonaka, Osaka 5600043
Japan

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

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