Potential market-stealing effect of FDI on state-owned enterprises: an empirical examination of the case of Vietnam

Tang Van Nghia1, Cao Thi Hong Vinh1, Nguyen Duy Hung2, Paul Schrader3
1 Foreign Trade University, Hanoi, Vietnam
2 Central Economic Commission, Hanoi, Vietnam
3 Bielefeld University, Bielefeld, Germany

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Abstract

Despite significant contributions of foreign direct investment to the economies of the host countries, the market-stealing effect on the domestic enterprises could appear as international capital flow rises. Market-stealing effect could be negative to the domestic firms, including the state-owned enterprises (SOEs). For Vietnam, both foreign invested firms and SOEs are of interest to the government. The question of whether the market-stealing effect on SOEs appears as foreign direct investment increases needs to be answered. This study provides insights into the market-stealing effect from the market share and labor productivity perspectives using the random effects models with the panel data of more than 4,000 observations of SOEs in Vietnam. The market-stealing effect on SOEs in Vietnam is not found in either market share or labor productivity perspective in this analysis. From the aspect of market share, this effect is revealed in two important industries, which are agriculture, forestry and fishing (Industry A) and manufacturing (Industry C). In addition, the market-stealing effect is higher for the SOEs with 100% of state capital. From the labor productivity perspective in this analysis, this effect does not exist.

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