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How Foreign Direct Investment Impacts Domestic Productivity: The Case of Vietnam
by Minh Phuong Nguyen Hoang
Abstract
Foreign direct investment (FDI) has long been known as a vital driver of economic growth in many developing countries by providing capital boosts, generating employment, and introducing advanced technology. This paper focuses on a more long-term economic impact of FDI — the productivity spillover effect — in the specific case of Vietnam. Using firm-level data from the Vietnam’s Enterprise Survey from 2013 to 2022, I conduct a regional analysis to investigate 1) how foreign presence affects the productivity of firms in the region, and 2) how engagement in international activity further boosts firms’ productivity. Findings indicate that both domestic and foreign firms experience a statistically significant productivity boost as the level of foreign presence in the province increases, with domestic firms seeing a more substantial positive impact. Overall, my study aims to present a comprehensive picture of the dynamic between FDI and domestic productivity, thereby offering insights into how foreign investment can shape Vietnam’s economic landscape. This research can help inform Vietnam’s strategic FDI policies to foster technological advancement and strengthen its global economic integration, which has become a critical priority as the country navigates an unprecedented influx of high-tech foreign investment spurred by the ongoing US-China trade war.
Professor Michelle Connolly, Faculty Advisor
Professor Edmund Malesky, Faculty Advisor
JEL Codes: F21; F43; O30; O33
Keywords: FDI, Productivity, Knowledge Spillover, Vietnam, Economic Development
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Investigating the Impact of Chinese Financing on Productivity in the African Continent
By Kedest Mathewos
Given that productivity is a key component of long-term economic growth and that China has become an important source of external financing in Africa, this study aims to investigate the impact of Chinese foreign direct investment and government-to-government loans on productivity. Using a panel of the top fourteen African recipients of Chinese financing during the period 2003-2017, this study employs a two-stage regression process. The first relies on the use of a revised version of the Solow Model that accounts for human capital, natural resource accumulation and country-specific heterogeneity, to generate values of total factor productivity. The second examines the impact of Chinese financing on this generated measure of productivity. After taking into account significant confounding variables such as institutional quality, trade openness and manufacturing value-added, this study finds that Chinese foreign direct investment (FDI) has a significant negative impact on productivity while Chinese government loans are positively associated with productivity. However, consistent with the literature, the impact of Chinese FDI depends on the country’s absorptive capacity – proxied here by the level of human capital accumulation. Therefore, as African countries seek to boost productivity levels, they should continue to attract Chinese government loans while enhancing their FDI absorptive capacity.
Advisors: Professor Lori Leachman, Professor Grace Kim, Professor Kent Kimbrough| JEL Codes: O4, O47, F21
