Does foreign direct investment influence R&D activity in the host country? Evidence from Vietnam
International Journal of Emerging Markets
ISSN: 1746-8809
Article publication date: 27 July 2021
Issue publication date: 14 November 2023
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.
Keywords
Acknowledgements
The authors are grateful for the helpful comments provided by the editor and three anonymous referees. The usual disclaimer applies. This study uses the TCS dataset generously provided by the United Nations University (UNU). The authors would especially like to thank Professor Finn Tarp, former director of the UNU, for his support in gaining access to the data. This study uses the TCS dataset generously provided by the UNU. The first author, Van Ha, is grateful to the Vietnamese government for the financial support via Ministry of Education's Project 911.
Citation
Ha, V., Holmes, M.J. and Hassan, G. (2023), "Does foreign direct investment influence R&D activity in the host country? Evidence from Vietnam", International Journal of Emerging Markets, Vol. 18 No. 9, pp. 2599-2619. https://doi.org/10.1108/IJOEM-08-2020-0932
Publisher
:Emerald Publishing Limited
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