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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Despite significant contributions of foreign direct investment to the economies of host countries, 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. Hence, the question whether the market-stealing effect on SOEs appears as FDI increases needs to be answered. This study provides insights into the market-stealing effect from the market share and labor productivity perspectives with the application of the random effects methods utilizing panel data of more than 4,000 observations of SOEs in Vietnam. The market-stealing effect on SOEs in Vietnam in both perspectives of market share and labor productivity is not found as FDI increases. The market-stealing effect from the aspect of market share is revealed in two important industries, which are agriculture, forestry and fishing, and manufacturing. From the aspect of labor productivity, there is no evidence of this effect for all five industries. As the types of SOEs are taken into consideration, the market-stealing effect regarding market size is higher for the SOEs with 100% of state capital than those with less state capital. From the labor productivity perspective, that effect does not exist.

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