FIRM AND INDUSTRIAL CHARACTERISTICS AND THE LINKAGE BETWEEN FOREIGN DIRECT INVESTMENT AND DOMESTIC FIRMS IN VIETNAM

Abstract

This paper investigates the determinants of linkages between foreign direct investment (FDI) and domestic firms in Vietnam, using data from 2011 to 2023. Linkages are found to be persistent and dependent on a range of firm-level, industrial, and macroeconomic characteristics, including institutional quality. Larger, more productive, and younger domestic firms are more likely to form linkages with FDI firms. The FDI penetration ratio raises the likelihood of linkages, while the ratio of industry exports to total national exports lowers it. Firms located in more developed provinces with higher institutional quality are also more likely to form linkages. The results indicate that linkages in Vietnam are currently low, partly because export-oriented FDI firms are less likely to source inputs locally. However, the findings suggest that linkages are poised to increase due to their persistent nature and a critical mass effect driven by sustained FDI inflows. Impact Statement: This paper identifies the key firm-level, industrial, and macroeconomic determinants of linkages between foreign direct investment (FDI) and domestic firms in Vietnam. The findings provide a robust evidence base for policymakers to design targeted strategies that foster stronger and more beneficial FDI-domestic firm linkages....