Foreign Direct Investment as a Conduit for Technology Transfer: The Case of Vietnam

By making use of panel data that involves 23 manufacturing industries over the period 1995-2005, this paper examines the impact of foreign direct investment generated spillovers on total factor productivity in Vietnam. Following the existing literature a positive relationship between foreign direct investment and total factor productivity is viewed as evidence of technology transfer. Unlike most existing studies, this paper focuses on the impact of spillovers that take place through both horizontal and vertical linkages. The results presented in this paper suggest that FDI spillovers generate strong positive impact on Vietnam’s total factor productivity through backward vertical linkages. The effect of backward linkages is strengthened by the size of human capital stock. Specifically, industries with larger stock of human capital gain more benefits from FDI spillovers through backward linkages and hence these industries experience a higher level of technology transfer