FDI and Efficiency Convergence, the Case of Vietnamese Manufacturing Industry

Aims: The scope of this study is twofold. We aim to test efficiency convergence hypothesis among firms in Vietnamese manufacturing industry, and to analyze the influence of foreign direct investment (FDI) on efficiency and efficiency convergence.

Study Design: Case study

Place and Duration of Study: Technical efficiency measures are derived for a sample of Vietnamese manufacturing firms during 2000-2012

Methodology: nonparametric data envelopment analysis (DEA). The approach to find the impacts of FDI on efficiency and efficiency convergence through horizontal and vertical spillover effects is to construct the linkages from dynamic input - output tables. The way to test unconditional convergence in the two technical efficiency measures from DEA is used the regression in the form of the Barro equation. The same approach is employed in order to test the influence of FDI as conditioning factor over firms’ efficiency.

Results: We find the evidence that increase foreign presence within an industry rises the speed of convergence, and impact of FDI on efficiency and efficiency convergence through channels and time are quite different.

Conclusion: The existence and the nature of the effect of FDI on firms’ efficiency and efficiency convergence at firms levels in the sub- industries: (1) There were impact of FDI on domestic firms’ efficiency score and convergence at a firm level; (2) The presence of FDI increased the speed of efficiency convergence in domestically owned firms.