Analyzing Impact of Foreign Direct Investment on the Labor Productivity in Vietnam: The Case of Electronics Industry

Abstract

Foreign direct investment (FDI) may positively impact labor productivity in recipient industries directly by introducing capital, management skills, and technology; indirectly through spillover effects on domestic firms. This paper used two models to examine the overall impact of inward FDI on Vietnam's electronics industry and test for spillover effects on domestic firms. This paper used Vietnam Enterprise Survey [VES] in 2014 -2020 with 223 enterprises operating in the electronics industry. Labor productivity is modeled as dependent on the degree of foreign presence in the industry and other variables. Specifically, they are capital intensity, human level, firm size, firm age, research & development cost, and location. The results suggest that foreign presence in the electronics industry was associated with higher labor productivity. However, this paper found no evidence indicating positive spillover effects of FDI on the domestic firm.