Determinants of Technological Diffusion via FDI Enterprises in the Manufacturing Sector in Vietnam over 2005-2013

Much empirical research confirms that foreign enterprises are more efficient than domestic ones in the context of developing countries. However, while most studies support the hypothesis that foreign ownership participation increases performance of firms in terms of productivity and efficiency, some works find no differences, leading to a controversy on this issue. This study was designed to investigate and examine technological diffusion via FDI enterprises in manufacturing sector in Vietnam over the period 2005-2013. The paper finds that in general, the investigation revealed that FDI firms have more technical efficiency than domestic firms in most of manufacturing sub-sectors in Vietnam over the period 2005-2013. Factors affecting technological diffusion between all kinds of FDI and domestic manufacturing enterprises in Vietnam within the framework of this investigation are named as follows: 1) Firm’s past performance: Positive relationship between firms’ past performance and technical efficiency score, 2) Size of a firm in terms of labour and capital: Negative relationship between size of a firm in terms of labour and capital and technical efficiency scores, 3) The firms’ financial performance: Positive relationship between firms’ financial performance and technical efficiency scores, 4) The firms’ level of self-financing: Negative relationship between firms’ level of self-financing and technical efficiency scores, 5) The labour market conditions: Positive relationship between the labour market conditions and technical efficiency scores, 6) Years of operation: A quadratic relationship between Years of operation and technical efficiency scores, 7) FDI creates reverse effects in terms of firms’ financial performance in terms of ROA, ROE on FDI firms’ technical efficiency, 8) FDI creates reverse effects in terms of firms’ characteristics (equity to assets ratio, capital, and labour) on FDI firms’ technical efficiency. Wholly foreign-owned firms also create reverse effects in terms of equity to assets ratio on firms’ technical efficiency. Moreover, wholly foreign-owned firms also create reverse effects in terms of labour on firms’ technical efficiency. Paper also suggests some recommendations to policy makers and administrators at various levels in Vietnam.