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Effects of foreign investment on the exporting activities of domestic firms evidence from Vietnamese manufacturing sector

Using firm-level data, this paper examines the effects of foreign firm presence on the exporting behaviour of domestic firms in the Vietnamese manufacturing sector. Applying the Heckman selection model, we find that investment by foreign firms has a negative effect on domestic firms’ decision to export. | EFFECTS OF FOREIGN INVESTMENT ON THE EXPORTING ACTIVITIES OF DOMESTIC FIRMS EVIDENCE FROM VIETNAMESE MANUFACTURING SECTOR PhD. Ha Thi Cam Van1 Abstract Using firm-level data this paper examines the effects of foreign firm presence on the exporting behaviour of domestic firms in the Vietnamese manufacturing sector. Applying the Heckman selection model we find that investment by foreign firms has a negative effect on domestic firms decision to export. The proportion of exports for domestic firms declines through horizontal and forward linkages but increases through backward linkages. We also find that the presence of foreign firms has varying effects on the exporting activities of state- versus privately-owned domestic firms and low- versus high-tech firms. Keywords export foreign direct investment domestic firms spillover horizontal linkage backward linkage forward linkage. 1. INTRODUCTION In recent years many less developed countries have experienced a significant increase in foreign investment. Given that the effect of foreign investment can manifest itself in many ways throughout the economy it is important to gauge what the effect has been. The indirect effect of foreign investment on domestic enterprises through horizontal or vertical linkages has been confirmed in many studies Aitken Hanson amp Harrison 1997 Aitken amp Harrison 1999 Greenaway Sousa amp Wakelin 2004 Kneller amp Pisu 2007 Sun 2009 . While most of the existing research into foreign investment spillovers in developing countries focuses on productivity effects fewer studies have examined the effects of foreign firms on the exporting activities of local enterprises. Using a large Vietnamese firm-level dataset we address a number of questions about the relationship between foreign investment and the exporting activities of domestic firms. In particular does the presence of foreign firms affect the export decisions of local firms and if so how and to what extent What are the channels of influence and