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Does foreign direct investment influence R&D activity in the host country? Evidence from Vietnam

Author

Listed:
  • Van Ha
  • Mark J. Holmes
  • Gazi Hassan
Abstract
Purpose - This study focuses on the linkages between foreign direct investment and the research and development (R&D) and innovation activity of domestic enterprises in Vietnam. Design/methodology/approach - The Heckman selection model approach is applied to a panel dataset of nearly 7,000 Vietnamese firms for the 2011–2015 study period to investigate the impact of foreign presence on the R&D of local firms through horizontal and vertical linkages. Probit model estimation is employed to examine how foreign investment influences the innovation activity of local companies. Findings - While there are a small number of firms carrying out R&D activities in Vietnam, foreign or joint domestic–foreign venture firms are less inclined than domestic firms to undertake R&D. Domestic factors that include capital, labor quality, location and export status of firm have a significant effect on the decision of domestic firms to participate in R&D activity. Only forward linkages and the gross firm output are found to have an impact on the R&D intensity of domestic enterprises, while other factors appear to have no significant influence on how much firms spend on R&D activities. Practical implications - In order to promote the R&D activity of domestic firms, policy should focus on (1) the backward linkages between local firms in downstream sectors with their foreign suppliers in upstream sectors, and (2) the internal factors such as labor, capital or location that affect the decisions made by domestic firms. Originality/value - Given that foreign investment may affect R&D and innovation activity of local firms in host countries, the impact is relatively unexplored for many emerging economies and not so in the case of Vietnam. The availability of a unique survey on Vietnamese firm technology and competitiveness provides the opportunity to address this gap in the literature.

Suggested Citation

  • Van Ha & Mark J. Holmes & Gazi Hassan, 2021. "Does foreign direct investment influence R&D activity in the host country? Evidence from Vietnam," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 18(9), pages 2599-2619, July.
    • Handle: RePEc:eme:ijoemp:ijoem-08-2020-0932
    DOI: 10.1108/IJOEM-08-2020-0932
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    More about this item

    Keywords

    Research and development (R&D); Innovation; Foreign direct investment (FDI); Domestic firms; D22; F21; F23; O12;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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