Does foreign direct investment stimulate the output growth of the formal economic sector in Vietnam: a subnational-level analysis

Abstract

PurposeThis study focuses on the relationship between foreign direct investment (FDI) and economic growth of the formal sector comprising all foreign and domestic registered enterprises engaged in production of goods and services.Design/methodology/approachThis study uses a balanced longitudinal data set for the period from 2006 to 2014 from secondary sources in 63 provinces/cities of Vietnam. The generalized method of moments (GMM) estimation for a dynamic panel data model is applied.FindingsThe greater the share of FDI in capital resource, the more favorable the output growth in the whole formal sector. The FDI enterprises are more productive than domestic formal firms, and the output growth of FDI firms creates a positive spillover effect on the output growth of domestic firms.Originality/valueThe effect of FDI on economic growth is investigated at subnational level for the whole formal economic sector as well as the formal domestic firms. The domestic and foreign industrial agglomerations and the business environment are also examined.