Spillovers from foreign direct investment and export

Abstract

While foreign direct investment is a major driver of economic growth and structural change in many developing countries, probing its microeconomic mechanism still needs more research. This dissertation investigates the spillover effects of foreign investment on domestic businesses and households in Vietnam. Particularly in Chapters 1 and 2, I focus on the most prominent episode of the "big foreign firm opening” in a developing country—amsung Electronics—a mega multinational corporation (MNC). Chapter 1 examines the spillover effects of Samsung’s investment on the productivity of domestic enterprises. Employing the two-way fixed-effects model and the synthetic control method (SCM), I estimate the spillover effects on firms in the same industry and/or region as horizontal spillovers, and in upstream industries for vertical spillover channels. Examining firm-level microdata, I find that the establishment of Samsung raised total factor productivity and labor productivity in the same regions by two and twelve percentage points, respectively. Such positive spillover effects are concentrated among manufacturing firms in the same industry as Samsung Electronics. Additionally, we find that Samsung’s Consultation Program targeting vendors in the upstream sectors is associated with productivity improvement and presents little evidence of spillovers to other industries. Another key finding is the positive effects of the entry channel—new domestic firms tend to be more productive in the affected regions and industries. The synthetic control analysis corroborates our results. Chapter 2 examines the transformative impact of the big foreign firm’s entry on household labor decisions, especially young women’s work. Examining the Vietnamese household living standard survey, I find a shift from informal employment, including selfemployment, toward formal jobs, primarily into wage work and work for foreign firms, along with increased household expenditures and income in the provinces with Samsung production facilities. We observe smaller but significant results for households in the adjacent regions. Impacts are more substantial for households with female members aged 18-35, a demographic specifically targeted by Samsung's local recruitment efforts. Synthetic control analysis confirms our main results. Our study shows how a big foreign company hiring less-utilized demographic groups can cause a fundamental change in household labor supply behavior. Finally, Chapter 3 analyzes the structure of job creation and destruction from the firm dynamics’ perspective, examining the role of size and age. The structure of enterprises in Vietnam reveals that the firm size distribution has increasingly shifted toward micro and small firms, including self-employed and household businesses, becoming more right-skewed over time. In addition, the empirical results indicate that given the same number of years in operation, large enterprises exhibit a higher job creation rate, and the difference in job creation rates between small and large firms is even more pronounced for female employment. In terms of the number of jobs, large enterprises again outweigh small ones. Moreover, this study highlights the gender-based hiring trends of firms, large enterprises tend to hire more female workers than male workers. In contrast, firms with less than 50 employees prefer males to females, especially new entrants.