FOREIGN TRADE UNIVERSITY

FACULTY OF ECONOMICS AND INTERNATIONAL BUSINESS

TECHNOLOGY SPILLOVERS FROM FOREIGN DIRECT INVESTMENT:

THE CASE OF VIETNAM

Intermediate Macroeconomics Midterm Paper

- Submitted by Group 3 -

Đặng Lan Anh (leader) .......... 1311150003

Nguyễn Thúy Hạnh ............... 1311150043

Nguyễn Mỹ Linh ................... 1316150072

Hanoi, May 2015

Contents 1. Theory ................................................................................................................................. 3

1.1. Foreign Direct Investment ........................................................................................... 3

1.1.1. Definition .............................................................................................................. 3

1.1.2. Types of FDI ......................................................................................................... 4

1.2. Spillover Effects of FDI ............................................................................................... 5

2. Foreign Direct Investment (FDI) in Vietnam ................................................................... 10

2.1. Overview of Vietnam’s Economy ............................................................................. 10

2.2. Recent Trends in FDI of Vietnam .............................................................................. 11

2.3. The Roles of FDI on Vietnam’s Economy ................................................................ 14

3. Researches of Technological Spillovers from FDI in Vietnam ........................................ 16

4. Conclusion ........................................................................................................................ 19

5. Appendix .......................................................................................................................... 20

6. References ........................................................................................................................ 22

7. Groupwork Assessment .................................................................................................... 23

1. Theory

1.1. Foreign Direct Investment

1.1.1. Definition

According to World Bank, foreign direct investment (FDI) are “the net inflows of investment

to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise

operating in an economy other than that of the investor. It is the sum of equity capital,

reinvestment of earnings, other long-term capital, and short-term capital as shown in the

balance of payments”. (World Development Indicators, n.d.) On other words, it is a category

of investment that “reflects the objective of establishing a lasting interest by a resident

enterprise in one economy (direct investor) in an enterprise (direct investment enterprise) that

is resident in an economy other than that of the direct investor. The lasting interest implies the

existence of a long-term relationship between the direct investor and the direct investment

enterprise and a significant degree of influence on the management of the enterprise. The

direct or indirect ownership of 10% or more of the voting power of an enterprise resident in

one economy by an investor resident in another economy is evidence of such a relationship.

Some compilers may argue that in some cases an ownership of as little as 10% of the voting

power may not lead to the exercise of any significant influence while on the other hand, an

investor may own less than 10% but have an effective voice in the management. Nevertheless,

the recommended methodology does not allow any qualification of the 10% threshold and

recommends its strict application to ensure statistical consistency across countries”. (OECD

Benchmark Definition of Foreign Direct Investment, 2008)

To be more specific, the investing company may make its overseas investment in a number of

ways - either by setting up a subsidiary or associate company in the foreign country, by

acquiring shares of an overseas company, or through a merger or joint venture.

The accepted threshold for a foreign direct investment relationship, as defined by the OECD,

is 10%. That is, the foreign investor must own at least 10% or more of the voting stock or

ordinary shares of the investee company.

An example of foreign direct investment would be an American company taking a majority

stake in a company in China. Another example would be a Canadian company setting up a

joint venture to develop a mineral deposit in Chile.

1.1.2. Types of FDI

- Horizontal: where the company carries out the same activities abroad as at home (for

example, Toyota assembling cars in both Japan and the UK.

- Vertical: when different stages of activities are added abroad. Forward vertical FDI is where

the FDI takes the firm nearer to the market (for example, Toyota acquiring a car

distributorship in America) and Backward Vertical FDI is where international integration

moves back towards raw materials (for example, Toyota acquiring a tire manufacturer or a

rubber plantation).

- Conglomerate: where an unrelated business is added abroad. This is the most unusual form

of FDI as it involves attempting to overcome two barriers simultaneously - entering a foreign

country and a new industry. This leads to the analytical solution that internationalization and

diversification are often alternative strategies, not complements.

FDI can take the form of greenfield entry or takeover.

Greenfield entry implies assembling all the elements from scratch as Honda did in the UK,

whereas foreign takeover means the acquisition of an existing foreign company - as Tata’s

acquisition of Jaguar Land Rover illustrates.

Foreign takeover is often covered by the term 'mergers and acquisitions’ (M&As) but

internationally, mergers are vanishingly small, accounting for less than 1 per cent of all

foreign acquisitions.

This choice of entry mode interacts with ownership strategy – the choice of wholly owned

subsidiaries versus joint ventures to give a 2x2 matrix of choices – greenfield wholly owned

ventures, greenfield joint ventures, wholly owned takeovers and joint foreign acquisitions -

giving foreign investors choices that they can match to their own capabilities and foreign

conditions.

(Definition of foreign direct investment, n.d.)

1.2. Spillover Effects of FDI

The studies on spillover effects of FDI are based on the common recognition that

multinational corporations possess superior organizational and production techniques

compared to the domestic firms (Hymer, 1976). Wang and Blomstrom (1992) developed a

model in which international technology transfer through multinational corporations develops

endogenously by means of the interaction between a foreign subsidiary and a host country

firm. They have found that:

The higher the level and cost efficiency of a domestic firm’s learning investment, the

faster the technology transfer.

The lower the subsidiary’s discount rate, the more rapid the technology transfer. The

higher the operation risks—for example, political instability or low potential economic

growth—the more reluctant foreign firms will be to transfer technology.

The less costly the technology spillovers from the parent to subsidiary firms, the faster the

technology transfer.

Figure 1. Channels of Technology Transfer and Spillover from FDI

Multinational corporations can transfer technology through various means like licensing, trade,

FDI, subcontracting, franchising and strategic alliances. Eventually, multinational

corporations are preferably to transfer technology through FDI since it can internalise the

transfer of superior technological assets at little or no extra cost and regarded as the best way

to keep control over the technological knowledge (Caves 1996). Moreover, to the side of the

host economy, it is possible that a portion of the technologies and experiences transported by

multinational corporations will be diffused from their affiliates to the indigenous

establishments.

According to Javorcik (2004, p. 607), “Spillovers from FDI take place when the entry or

presence of multinational corporations increases the productivity of domestic firms in a host

country and the multinationals do not fully internalize the value of these benefits”.

Business projects of multinational corporations provide learning opportunities for the

domestic firms. They could reduce the costs of innovation and imitation for local firms, which

in turn speed up productivity improvement (Helpman, 1999). FDI may heighten productivity

levels of domestic firms in the industries they entered by improving the allocation of

resources in those industries.

Mu

ltin

atio

nal

En

terp

rise

s

Licensing

Trade

Subcontracting

FDIHost Country

Subsidiary

Horizontal Spillover

Vertical Spillover

Franchising

Strategic Alliances

This is neo-classical view on spillover effects. The spillover effects from the FDI can be

broadly classified as intra-industry/horizontal spillovers and inter-industry/ vertical spillovers.

o intra-industry/horizontal spillovers

FDI may lead to an increase in the productivity of the host economy in the same industry

through various means.

First, demonstration effects refer to the copying or the imitation of foreign firms’ technology

and organisational practices by the domestic firms. Since new technologies are introduced to

the host country, domestic firms can observe foreign firm’s actions, skills or techniques and

‘imitate’ them or make efforts to achieve these techniques and apply them, which results in

production improvements (Wang and Blomstrom, 1992).

Second labour mobility effects occurs when workers and managers employed in foreign

affiliates who have been trained with advanced technical and managerial skills move to other

domestic firms or open their own enterprises (Fosfuri, 1996). These workers are carriers of

multinational corporations’ technology. Multinationals can prevent the flow of labour by

paying higher wages. On the contrary, there is a possibility of reverse labour effect when

employees of domestic firms can move to foreign firms.

Third, competition effects refers to a situation in which entry of foreign firm forces the

domestic firms to increase their efficiency by improving the existing methods of production or

adopt new ones. Competition is considered as the drive of innovation. From the point of view

of the consumer, competition effects are certainly beneficial thanks to the availability of the

higher quality of products. In contrast, in an industry consisted of weak and small domestic

firms, the entry of foreign firms may eventually lead to an exit of those host firms.

o inter-industry/ vertical spillovers

Spillovers effect is not just confined within industries. It can appear as a result of interaction

across industries. The inter-industry spillover arises mainly by the consumer-supplier

relationship between foreign firms and domestic firms. According to Dunning (1993, p.456),

“the presence of FDI has helped to raise the productivity of many domestic suppliers, and this

has often had beneficial spillover effects on the rest of their operations”.

Vertical spillover mechanism operates both at the upstream and downstream sector.

multinational corporations usually source their raw materials and components from domestic

suppliers. The incentive for the multinational corporations to source from the domestic market

arises in the case of high transportation costs as well as certain regulations imposed by the

local government. The multinational corporations usually assists the local suppliers to achieve

technical and organisational competence by providing technological assistance as well as

training programmes for employees of local supplier firms (Lall, 1978). As a result, the

domestic supplier firms improve their quality of products and production process. The entry

of foreign firms may increase the demand for intermediate inputs by local firms. Therefore

through backward linkage mechanism, productivity of domestic firms may improve.

o Negative spillover

On the contrary to positive effects of spillovers discussed above, it is also argued that FDI

may create negative spillovers to domestic firms’ productivity and this effect may be large

enough to offset the above positive ones. A multinational corporations enter the market, their

advantages on technology and know-how may take in the market of the domestic firms and

make them produce in less efficient scales, which leads to less productiveness of domestic

firms (so-called ‘market stealing effects’). As a result a negative vertical spillover can arise in

such a situation. On the other hand, Markusen and Venables (1999) in a theoretical model

show that as a result of the contact with multinational firms, local input suppliers can be

strong enough in the long run to make the multinational corporations leave the market. We

can conclude that the net effects of horizontal and vertical spillover can be either positive or

negative.

In summary, foreign firms can have productivity “spillover” effects on local competitors

(horizontal spillovers) as well as on upstream and downstream domestic firms (vertical

spillovers). The transfer of technology (broadly defined as managerial practices, production

methods, marketing techniques or any other knowledge embodied in a product or service) can

occur through a number of channels. For example, local firms may learn to imitate a new

process or improve the quality of their product through observation, interaction with foreign

managers in business chambers, and from former employees of foreign multinational

corporations. Local firms may also benefit from the entry of new professional services or

suppliers as a result of the multinational corporations entry. Foreign firms may act as catalyze

domestic suppliers to improve the quality or time efficiency of their good or service by

demanding higher standards. On the other hand, foreign firms may have a negative effect on

domestic firms’ output and productivity, especially in the short run, if they compete with

domestic firms and “steal” their market or their best human capital. As domestic firms cut

back production they may experience a higher average cost as fixed costs are spread over a

smaller scale of production. (Aitken and Harrison, 1998)

2. Foreign Direct Investment (FDI) in Vietnam

2.1. Overview of Vietnam’s Economy

The development of Vietnamese Economy is divided into two major phases: before 1986

(pre-reform) period and after 1986 (post-reform). In the previous phase, Vietnam is a

centralized economy, in which government determined all economic targets and prices. Since

the political and economic reformed after 1986, Vietnam has transformed from one of the

poorest countries in the world , with per capita income below $100, to a lower middle income

country within about 25 years with per capita income of over $2000 by the end of 2014.

For more than a decade, Vietnam’s growth rate has averaged 6.4% per year since 1990, living

standard improves, poverty reduced from almost 60% in the 1990s to less than 3% in 2014, a

lot of achievements have been made in education and Vietnam ranks high as of UNDP

Human Development Index (HDI). There was a recession during 1997-1999 period after

Asian currency crisis, however, the economy has recovered since 2000. Another recession

occurred in 2009 due to world economic crisis, nevertheless, the economy has picked up the

next year (Figure: GDP Growth Rate). Among factors leading to these successes, it is

believed that FDI has been played a crucial role to the economic development of Vietnam.

(Source: World Bank, 2013)

0

2

4

6

8

10

12

1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

GDP Growth Rate

2.2. Recent Trends in FDI of Vietnam

After the introduction of open door policy or Doi Moi in 1986, Vietnamese economy was

restructured. Since the approval of the Law of Foreign Investment (LFI), which opened the

economy to foreign investment and was passed in December 1987, FDI inflows to Vietnam

have increased substantially. Foreign companies found that Vietnam is a potential market

which has cheap and plentiful labour, therefore, they started establishing business in this

developing country, opening FDI trend in Vietnam. As a matter of fact, Vietnam has so much

potential for economic growth and its young and energetic and knowledgeable population

who are willing to favorable attitudes to multinational companies. Aware of it, Vietnamese

government uses FDI as a business development strategy. According to Multinational

business review, in a survey among 3 countries, Korea, Indonesia and Vietnam, when being

asked about evaluation of foreign companies’ impact on their own countries, Vietnamese

government showed the approval with highest mark, which means that FDI plays an

important role in the economy in recent years. Vietnamese Ministry of Planning and

Investment (MPI) acknowledged these forms of FDI in Vietnam:

Joint venture: parties have mutual agreement about equity contribution to form a new

entity. Joint venture companies are mainly in tourism, transportation and other industries.

100% foreign owned: the foreign companies are parent ones which own 100% stock

common.

Business Corporate Contract: parties enter legally binding agreement. BCC are mostly in

oil and telecommunications.

Other forms such as Built-Operation-Transfer (BOT), Built-Transfer-Operation (BTO),

and Built-Transfer (BT), stock company, and conglomerate company. The latest data

issued by MPI show that, based on the number of projects, 100% foreign owned and

venture forms rank 1st and 2nd. What’s more, local areas in Vietnam that attract foreign

companies’ investment are main cities which has facilities and huge population force: Ho

Chi Minh, Ha Noi, Vung Tau, Dong Nai and developing city: Binh Duong.

Rapid growth via high FDI inflows

Vietnam advanced from virtually no foreign investment in the era of 1986-1988 to 8004.80

million USD in the fourth quarter of 2014. In UNTACD’s ranking, from a host country of low

inward FDI potential index during 1988-2001, Vietnam had become ranked as a “front runner”

with high inward FDI potential and performance indices in 2004. FDI in Vietnam averaged

3667.60 million USD from 2001 until 2014, reaching an all time high of 25790.92 million

USD in the second quarter of 2008, due to the fact that Vietnam joined WTO in 2007 has

opened more opportunities for Vietnamese economic growth in the future.

(Source: World Bank, 2013)

Sources of FDI inflow in Vietnam by country

Up to the end of 2013, Vietnam has attracted investors from a total number of 60 countries,

among them investors from Japan have contributed the largest share, worth 7.3 billion USD.

Hong Kong is the next largest investor with 3 billion USD in contributions. Singapore, British

Virgin Islands and Taiwan have also participated heavily in Vietnamese FDI for a combined

contribution of 5.7 billion USD.

0

2,000

4,000

6,000

8,000

10,000

12,000

1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

Mill

ion

s o

f U

SD

FDI inflows in Vietnam

(Source: The General Statistics Office of Vietnam, 2013)

Japan is not only one of the earliest but also the largest investor up to date in Vietnam.

Predicting the Vietnamese potential economy, Japan has participated in almost all sectors of

Vietnam. According to Tradescope’s information, collaborating with Viettronics, a state

owned home appliance company, Sony was the first Japanese company to start manufacturing

home appliance in Vietnam in 1994, with first products: audio equipment and color TV set. It

led to many Japanese companies to Vietnam as joint venture with Vietnamese ones, such as

Toshiba (color television), Matsushita Electric (Color TV, stereo system), Sanyo (washing

machine). In manufacturing field, particularly automotive sector, after estimating the vehicles

demand in Vietnam, and granting Vietnamese government approval for investment,

Mistubishi, Toyota and Suzuki opened their factories in Vietnam. They all specialized in

manufacturing vehicles such as: motorbikes, passenger cars and industrial vehicles.

Vietnamese construction field also witnessed the investment of big construction contractors

such as Shimizu, Nippon Koei, and Toda,… They have carried numerous projects in building

facilities, infrastructures and buildings in Vietnam. With high technology application, Japan is

one of the global leading countries in IT industry. In Vietnam, there are many Japan-owned

companies in IT services such as website development, integration system, and hosting, also,

15.0%

13.0%

13.0%

12.0%

7.0%

5.0%

5.00%

4.0%3.0%

Vietnam top 10 sources of FDI inflows

Japan

South Korea

Singapore

Taiwan

British Virgin Islands

Hong Kong

United States

Malaysia

China

Vietnam was chose to be business partner of Japan software outsourcing.

In recent years, from the end of 2013 onward, Vietnam has been received huge new

investment projects from South Korea, among them the largest project signed and passed in

December 2014 is valued for more than 6 billion USD.

It can be concluded that Asian countries still dominate Vietnam’s sources of foreign

investment. The fact that foreign investors are mainly from Asia implies that technology gaps

from Vietnam’s level are not so big and Asian customs are comparatively similar, hence it

may be favorable for FDI to spillover on domestic production.

2.3. The Roles of FDI on Vietnam’s Economy

Attracting FDI has become an important element of economic and industrial development

strategies for many developing countries, and Vietnam is not an exception. The policy makers

have undertaken several measures to attract foreign direct investment to the country.

The role of FDI on Vietnam’s Economy is very important. FDI is known as a financial

support for developing Vietnam’s economy. It is believed to contribute to the economic

growth of the host countries, directly through capital inflow, increased local employment,

usage of advanced equipment and technology or indirectly through a number of channels

including technological innovation caused by increased domestic competition and technology

spillover from subsidiaries of multinational corporations to indigenous firms in the host

countries.

Moreover, the amount of FDI inflows to Vietnam will create a positive impact on the

mobilization of other sources such as ODA, NGO, while also stimulating investment

attraction within domestic.

FDI also plays a role of accelerating the process of economic structural shift. Through foreign

direct investment, many new industries and field has emerged and developed such as oil and

gas, information technology, chemicals, automobiles, motorcycles, steel, electronics and

electronics household, industrial food, agricultural products, footwear, apparel... FDI helps to

promote the level in many economic sectors, contributing to labor productivity growth in

these sectors and increase its share in the economy.

With the surge of FDI inflow in the last few years, it is now time for policy makers and

researchers to pay more attention to the potential spillover effects that FDI brought about

rather than focusing almost entirely on determinants of FDI inflows.

3. Researches of Technological Spillovers from FDI in Vietnam

In the year 2008, the researchers from Development and Policy Center (DEPOCEN) and

Center for Analysis and Forecasting (CAF) carried out a report called “Foreign Direct

Investment in Vietnam: Is The Any Evidence of Technology Spillover Effects?”. They

collected data for measurement from The General Statistics Office (GSO). The database

contained information on type of enterprises (State owned enterprises, joint stock companies,

private enterprise, FDI), value of output, value of exports and imports, number of employees,

wages, materials costs and fixed assets, R&D activities. Although there was still a serious

limitation of the data which is some of the information is only available for some years which

made it difficult to construct a continuous panel dataset for analysis, the result was still

applicable.

They used the OLS model to measure the spillover effects. Researchers have used data from

different categories, in different periods of time and from different types of countries to form

the most suitable methods of calculation for technology spillover effects.

Basically, the framework of most researchers are similar to each other. They combined the

influence of foreign presence on output level or labor productivity of domestic firms with

other factors such as capital intensity, labor quality, production sales, competitiveness of the

market, the foreign presence proxy was included as an independent variable in a linear or log-

linear regression with labor productivity of domestic sector being the dependent variable. In

the estimation, if the significant positive sign of foreign presence coefficient is found, a

positive spillover is concluded.

They investigated both the intra-industry and the inter-industry linkages for both the

manufacturing and the service sectors.

In manufacturing sectors, the measures of FDI forward linkages were found to be statistically

significant and negatively related to the output performance of domestic firms. In contrast, the

measures of FDI backward linkages were found to be statistically significant and positively

related to the output of firms. Turning to the horizontal effects, they found mixed results of

the horizontal spillovers. It seems that there was some evidence of the “market stealing effect”.

The estimated coefficient of the horizontal output measures of FDI presence was negative and

statistically significant. However, at the same time the horizontal employment measure of FDI

presence in the industry was positive and also statistically significant indicating some learning

of domestic firms through the labour mobility channel.

In the estimation results for the service sector, both the backward and forward measures of

FDI linkages were found to be statistically significant and negatively related to the

performance of domestic service firms. This indicated that on average the domestic service

firms do not benefit from their contacts with their FDI partners (both suppliers and customers).

However, interestingly there was evidence of “demonstration effects” that domestic service

firms can learn from their competitor FDI firms. Similar to the manufacturing sector, there

was some evidence of a negative spillover effect in terms of labour mobility for Vietnamese

domestic service firms.

In general, the emerging picture of FDI spillover effects for Vietnamese domestic industries

are mixed. The results of their study indicated a positive spillovers for those domestic firms

supplying to foreign multinational corporations in the manufacturing sector (i.e. the existence

of spillover through the backward linkage). However, they did not find any evidence of

backward and forward spillovers for the service sector. In terms of horizontal spillover,

although they did not find any evidence of technological spillover for domestic firms in terms

of the conventional measure of output (demonstration or competition), they did find some

evidence of spillovers through labour mobility in the manufacturing sector. However, for the

service sector they found evidence of horizontal spillovers both through the output channel

and through the labour mobility channel.

In conclusion, their findings about both positive and negative spillovers effects as well as

different channel of FDI spillovers to domestic firms call for a more elaborate policy gearing

toward encouraging FDI into sectors that nurture the technological spillover.

4. Conclusion

FDI has been considered as the engine growth for developing countries in general and a major

concern in the researches of Vietnamese economists and politicians in particular. As a result,

there are many policies taken on the ground that FDI inflows will create employment and

bring along the much needed technological advances, which will spill over to domestic firms.

However, much of the existing studies concentrate on the objective and subjective factors and

institutions attracting FDI to Vietnam. While, in fact, potential benefits of technological

spillovers from international multinational corporations to Vietnamese firms should also be

put in further study.

As explained from the whole assignment, spillovers from FDI take place when the entry or

presence of multinational corporations increases the productivity of domestic firms in a host

country and the multinationals do not fully internalize the value of these benefits. Indeed, on

one hand, FDI when invested in country, multinational corporations consisted of capital,

technology, managerial and marketing skills and global network which contribute

significantly to a host country’s economic growth. They are also the chances for us to

improve our management and directly learn new technology. If our country can adjust policy

to maximize the positive technological spillovers, it means that those investments from

foreign has been made use of wisely.

In summary, we can achieve technology spillover by ‘imitating’ a new process or improving

the quality of our product or learning managerial skill. As a result, if domestic firms fail to

catch up with multinational firms on any of these aspects, our economy might be much suffer

from competitive market.

That’s why we should pay more attention to technology spillover effect from FDI to build

solution and policy to take advantage of spillover effect, otherwise FDI could become a threat

to our domestic economy.

5. Appendix

The basic model of DEPOCEN research in 2008 is demonstrated as follow:

𝑙𝑛 𝑌𝑖𝑗𝑡 = 𝛼 + 𝛽1 ln 𝐾𝑖𝑗𝑡 + 𝛽2 ln 𝐿𝑖𝑗𝑡 + 𝛽3 ln 𝑀𝑖𝑗𝑡 + 𝛽4𝐻𝑜𝑟𝑖𝑧𝑜𝑛𝑡𝑎𝑙𝑗𝑡

+ 𝛽5𝐵𝑎𝑐𝑘𝑤𝑎𝑟𝑑𝑗𝑡 + 𝛽6𝐹𝑜𝑟𝑤𝑎𝑟𝑑𝑗𝑡 + 𝛼𝑗 + 𝛼𝑡 + 𝜀𝑖𝑗𝑡

𝑌𝑖𝑗𝑡: the real output of firm i at time t operating in sector j

𝐾𝑖𝑗𝑡: the capital of firm i at time tin sector j, which is defined as the value of assets at

the beginning of the year

𝐿𝑖𝑗𝑡 : the measure of labor, defined as the number of employees

𝑀𝑖𝑗𝑡: material inputs

𝐻𝑜𝑟𝑖𝑧𝑜𝑛𝑡𝑎𝑙𝑗𝑡 is to measure the presence of foreign firms in sector j at time t, defined as

follows:

𝐻𝑜𝑟𝑖𝑧𝑜𝑛𝑡𝑎𝑙𝑗𝑡 = ∑ 𝑦𝑗,𝑡∀𝑗∈𝑖

𝑌𝑖,𝑡

𝑦𝑗,𝑡 ∶ gross output/labor of foreign invested firm j of the sector i at time t

𝑌𝑖,𝑡 ∶ total gross output/labor, of the sector i at time t.

𝐵𝑎𝑐𝑘𝑤𝑎𝑟𝑑𝑖,𝑡 can be calculated by the model below:

𝐵𝑎𝑐𝑘𝑤𝑎𝑟𝑑𝑖,𝑡 = ∑ 𝑎𝑖𝑗𝑗 𝑖𝑓 𝑗≠𝑖

𝐻𝑜𝑟𝑖𝑧𝑜𝑛𝑡𝑎𝑙𝑗,𝑡

𝑎𝑖𝑗is taken directly from input-output table.

𝐹𝑜𝑟𝑤𝑎𝑟𝑑𝑗,𝑡is defined as

𝐹𝑜𝑟𝑤𝑎𝑟𝑑𝑗𝑡 = ∑ 𝑎𝑖𝑗𝑗 𝑖𝑓 𝑗≠𝑖

∑ (𝑦𝑗,𝑡 − 𝑒𝑗,𝑡)∀𝑗∈𝑖

𝑌𝑖,𝑡 − 𝐸𝑖,𝑡

The equation can also be written in another way:

𝑙𝑛∆ 𝑌𝑖𝑗𝑡 = 𝛼 + 𝛽1 ∆ln 𝐾𝑖𝑗𝑡 + 𝛽2∆ ln 𝐿𝑖𝑗𝑡 + 𝛽3 ∆ln 𝑀𝑖𝑗𝑡 + 𝛽4∆𝐻𝑜𝑟𝑖𝑧𝑜𝑛𝑡𝑎𝑙𝑗𝑡

+ 𝛽5∆𝐵𝑎𝑐𝑘𝑤𝑎𝑟𝑑𝑗𝑡 + 𝛽6∆𝐹𝑜𝑟𝑤𝑎𝑟𝑑𝑗𝑡 + 𝛼𝑗 + 𝛼𝑡 + 𝜀𝑖𝑗𝑡

Estimated results using the pooled OLS method in the research carried out by DEPOCEN

6. References

1. (2013). Retrieved May 2015, from General Statistics Office of Vietnam.

2. Anh, M. (Ed.). (2013, July 16). Foreign Direct Investment in Vietnam. Retrieved May

2015, from Vtown: http://vtown.vn/en/articles/foreign-direct-investment-in-vietnam.html

3. Anh, N. N. (2008, January 1). Foreign Direct Investment in Vietnam: Is There Any

Evidence Of Technological Spillover Effects? Retrieved May 2015, from DEPOCEN.

4. Definition of foreign direct investment. (n.d.). Retrieved May 2015, from Financial Times

Lexicon: http://lexicon.ft.com/Term?term=foreign-direct-investment

5. Foreign Direct Investment - FDI. (n.d.). Retrieved May 2015, from Investopedia:

http://www.investopedia.com/terms/f/fdi.asp

6. OECD Benchmark Definition of Foreign Direct Investment. (2008). Retrieved May 2015,

from OECD: http://www.oecd.org/daf/inv/investmentfordevelopment/2487495.pdf

7. Thực trạng Đầu tư trực tiếp nước ngoài (FDI) ở Việt Nam. (2014, 12 2). Retrieved May

2015, from VIETRADE: http://www.vietrade.gov.vn/tin-tuc/20-tin-tuc/4666-thc-trng-u-t-trc-

tip-nc-ngoai-fdi-vit-nam.html

8. Vietnam Foreign Direct Investment. (n.d.). Retrieved May 2015, from Trading

Economics: http://www.tradingeconomics.com/vietnam/foreign-direct-investment

9. Vietnam Overview. (2013). Retrieved May 2015, from World Bank:

http://www.worldbank.org/en/country/vietnam/overview

10. World Development Indicators. (n.d.). Retrieved May 2015, from World Bank:

http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD

11. Yuen, J. (Ed.). (2015, January 20). Vietnam’s Logistics Market: Exploring the

Opportunities. Retrieved May 2015, from HKTDC:

http://hkmb.hktdc.com/en/1X0A0XQJ/hktdc-research/Vietnam%E2%80%99s-Logistics-

Market-Exploring-the-Opportunities

7. Groupwork Assessment

Assigned tasks

Name Task assignment

Đặng Lan Anh Technological Spillover – Theory

Trends of FDI in Vietnam

Nguyễn Thúy Hạnh Theory

Nguyễn Mỹ Linh Research about Technological Spillover from FDI in Vietnam

Groupwork Evaluation

Advantages:

Team leader set up clear roles and ground rules for team.

All members made great effort to complete tasks assigned and met the deadline.

Good communication skills among members.

No conflicts happened during the period of group work.

Disadvantages

In spite of meeting the deadline, tasks were completed at slow speed.

Difficulty in the process of building outline.

Team members lacked of econometrics knowledge, which led to difficult in

understanding researches of experts.