(Luận văn) horizontal technology spillover effects from foreign dirrect investment on labor producttivty in manufacturing industry in vietnam

t to INSTITUTE OF SOCIAL STUDIES UNIVERSITY OF ECONOMICS ng THE HAGUE VIETNAM THE NETHERLANDS hi HO CHI MINH CITY ep ====oOo==== w n lo ad ju y th VIETNAM-NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS yi pl ua al n HORIZONTAL TECHNOLOGY SPILLOVER n va ll fu EFFECTS FROM FOREIGN DIRECT oi m INVESMENT ON LABOUR PRODUCTIVTY IN nh at MANUFACTURING INDUSTRY IN VIETNAM z z ht vb jm IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF k MASTER OF ART IN DEVELOPMENT ECONOMICS ACADEMIC SUPERVISOR: DR LE THI THANH LOAN an Lu THAN HOANG DUNG om l.c gm BY n va r I' Ho Chi Minh, November 2011 t to CERTIFICATION ng hi ep , I hereby certify that the substance of this thesis has not been submitted for any degrees and is not being currently submitted for any other degrees w n lo I also certify that, to the best of my knowledge, and any help received in preparing ad the thesis and all sources used have been acknowledged in the thesis ju y th yi pl Signature n ua al n va ll fu oi m Than Hoang Dung at nh z z , k jm ht vb om l.c gm an Lu va n , re • t to ACKNOWLEDGEMENT ng • I have been receiving a great support from many people to complete this research I hi ep am greatly grateful to the valuable guidance, encouragement and advice from numerous individuals including Vietnam-Netherlands program lecturers, friends and my family w members n lo I would like to express my sincere appreciation to my supervisor, Dr Le Thi Thanh ad Loan, for her continuous support, for her valuable instructions, advices, comments and y th immense knowledge during the completion of my thesis ju yi I am truly grateful to Professor Peter Calkins for his precious advices and pl comments for improving the quality of the thesis, for his lectures in research and n ua al methodology lectures in econometrics, Mr Phung Thanh Binh and Mr Le Van Chon, the lectures of n fu va My sincere thanks also go to Associate Professor Nguyen Trong Hoai for his ll Vietnam- Netherlands project, for his kind help and instructions in data analysis by Eviews oi m and Stata software nh Finally, I would like to send my special thanks to my friends in MDE class 14, 15 at z and the rest of my thesis committee for their supportive friendship, encouragement and z insightful comments vb me spiritually in my learning and my career k jm ht My special gratefulness is to my family for their love, affection and for supporting om l.c gm n a Lu n va r ' t to TABLE OF CONTENTS ng CHAPTER 1: INTRODUCTION hi ep 1.1 Problem Statement 1.2 Research Objectives 1.3 Research Questions 10 w Research scope 10 n 1.4 lo Organization of the Research 11 ad 1.5 CHAPTER 2: LITERATURE REVIEW 12 y th 2.1 Literature Review- The Concepts 12 ju Foreign Direct Investment (FDI) 12 2.1.2 Productivity and Labour Productivity 13 2.1.3 Spillovers Effects 13 pl ua al 2.2 yi 2.1.1 The Economics Theory 15 n Neoclassical Theory 15 2.2.2 Endogenous Theory 17 n va 2.2.1 fu The Empirical Study 18 2.4 Analysis Framework 23 ll 2.3 CHAPTER 3: RESEARCH METHODOLOGY 25 nh 3.1 Data Collection 25 3.2 Description ofVariables 26 at z 3.2.1 Dependent variable: Labour productivity (LABPRO) 26 3.2.2 Explanatory variables 26 z ht vb 3.3 Model Specification 28 3.4 Estimation Strategy 29 3.5 Hypothesis statements 30 k jm gm CHAPTER 4: MODEL RESULTS AND DISCUSSION 32 l.c 4.1 Descriptive statistics 32 4.2 Estimation results 34 om Pool regression model results 34 4.2.2 Random effects model results 34 4.2.3 Fixed effects model results 35 4.3.1 The significant effect ofFDI spillovers in Food processing industry 39 4.3.2 The influence ofFDI spillovers in Electronics and Mechanics industry 40 re Results discussion 39 n 4.3 va 4.2.1 n a Lu j oi m t to 4.3.3 The effect of controllable variables on labour productivity 40 CHAPTER 5: CONCLUSION AND IMPLICATIONS 42 ng hi ep 5.1 Conclusion 42 5.2 Implication 42 5.3 Research limitation 44 REFERENCES 45 APPENDICES 51 w n lo APPENDIX C OVERVIEW OF FDI IN VIETNAM 60 ju 7.3 APPENDIX B MODEL RESULTS IN ELECTRONICS AND MECHANICS 56 y th 7.2 APPENDIX A MODEL RESULTS IN FOOD PROCESSING 51 ad 7.1 yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va re t to LIST OF TABLES ng Table 1: The expected signs ofindependent variables 31 hi ep Table The descriptive statistics of data sample in Food Processing industry 32 Table The correlation coefficients of the variables in Food Processing industry 33 w Table Pool regression model result in Food Processing industry 34 n Table Random effects model result in Food Processing industry 34 lo ad Table Breusch-Pagan Lagrange multiplier test 35 y th Table Fixed effects model result in Food Processing industry 36 ju Table Hausman test 36 yi Table Fixed effects model result with time fixed effects in Food Processing industry 37 pl al Table 10 Time-fixed effects test 37 n ua Table 11 Modified Wald test 37 va Table 12 The result of the most appropriate model in Food Processing industry 38 n Table 13 The summary ofresu1ts in the most appropriate model in Food Processing and fu ll Electronics and Mechanics 39 oi m at nh z z k jm ht vb om l.c gm an Lu n va re • t to LIST OF FIGURES ng Figure Foreign direct investment inflows in period 1995 - 2010 60 hi ep Figure FDI projects licensed in period 1988 - 2009 by kinds of economic activity 61 Figure Structure of investment at current prices by Foreign investment sector 62 w Figure Structure ofGDP at current prices by Foreign investment sector 62 n lo Figure Structure ofGDP at current prices by Manufacturing industry 63 ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va r t to ABBREVIATIONS ng BPM6 Balance ofPayments and International hi ep Investment Position Manual h edition FEM Fixed Effects Regression Model w GSO General Statistics Office n IMF International Monetary Fund lo ad MNCs Multinational Corporations y th OECD Organization for Economic Co-Operation and ju Development yi REM Random Effects Regression Model pl n ua al VSIC Vietnam Standard Industrial Classification n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va r t to CHAPTER 1: INTRODUCTION ng 1.1 Problem Statement hi ep It has been observed that within decades recently, there are some emerging countries gaining benefits from foreign direct investment and getting significant w n economic growth Direct effects can be seen from capital inflow, growth of local lo ad employment, application of advanced equipment, practical usage of technology y th Indirect effect can be seen from technology spillover from subsidiaries of ju multinational corporations (MNCs) to local firms in host countries yi pl Within the period of 1960s- 1970s, the inflow ofFDI has been a significant al ua factor contributed to the rapid growth of Hong Kong, Singapore The pattern also n applies to China and Vietnam in recent years as well In particular, Vietnam is va n considered as one of the fastest growing economies in the world with the average fu ll growth rate over percent per annum due to the successfulness in attracting a large oi m inflow ofFDI nh at The debate of positive effect of FDI inflows on the economic growth of host z countries does not gain much attention; however, there is much discussion on z k jm productivity of domestic firms ht vb whether and how FDI inflows produce technology spillovers to the labour gm Some studies find that FDI brings positive technology spillovers to the l.c productivity of domestic firms by competition, demonstration and training of om employees such as Caves (1974), Blomstrom and Persson (1983), Kokko (1994), and Liu (2002) Other studies, Aitken and Harrison (1999), Kathuria (2000), an Lu believe that FDI generates negative effects to the labour productivity of domestic re spillovers or horizontal spillovers n examine FDI technology spillovers within industries, which are called intra-industry va firms by market stealing and skill stealing These studies with mixed evidences - - t to In Vietnam, the number of studies on horizontal spillover effects from MNCs ng to Vietnamese firms is still limited, but the mixed evidences are also found in the hi studies Le Thanh Thuy (2007), Nguyen Thi Tue Anh et al (2006), Quoc Hoi Le ep and Richard Pomfret (2008), Anh Ngoc Nguyen et al (2008) and Chuc D w Nguyen et al (2008) n lo ad Therefore, this research investigates horizontal technology spillover effects y th from foreign direct investment on labour productivity of domestic firms in ju manufacturing industry However, due to limitation of the available data, this study yi only focuses on two industries representative for low technology industry (Food pl ua al processing in particular) and high technology industry (Electronics and Mechanics in particular), not in the whole manufacturing industry as other studies The n n va research applies many panel regression models including pool regression, fixed ll fu effects regression model (FEM) and random regression model (REM) The m interesting findings are expected to come and contribute to policymakers in the oi government and firms With the findings, the government as well as firms could nh at make a set of recommendations to take the best of advantage of FDI to improve z labour productivity of domestic firms in low technology industry and high z 1.2 Research Objectives k jm ht vb technology industry gm The overall goal of this research is to analyze horizontal technology spillover l.c effects from FDI on labour productivity of domestic firms in low technology om industry (Food processing in particular) and high technology industry (Electronics n focus on three objectives as follows: a Lu and Mechanics industry in particular) in Vietnam Specifically, the research will n va (i) Whether horizontal technology spillovers through FDI affect the labour re productivity of domestic firms in low technology industry as Food processing