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

Main Article Content


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.

Article Details


Aitken, B. and Harrison, E.A. (1999), “Do domestic firms benefit from foreign direct investment?
Evidence from Venezuela”, American Economic Review, Vol. 89 No. 3, pp. 605 - 618.
Blomstrom, M., Kokko, A. and Zejan, M. (2000), Foreign direct investment: firm and host country strategies, New York: Palgrave.
Caves, R.E. (1996), Multinational enterprises and economic analysis, 2nd ed., Cambridge: Cambridge University Press.
Chang, H-J. (2007), State-owned enterprise reform, National Development Strategies, Policy Notes, United Nations Department for Economic and Social Affairs (UNDESA), New York.
Choi, H. (2018), “Does FDI crowd out domestic firms? Micro-level evidence from the Republic of Korea”, Journal of Korea Trade, Vol. 22 No. 4, pp. 405 - 416.
Geddes, R. (2008), “Pricing by state-owned enterprises: the case of postal services”, Managerial and Decision Economics, Vol. 29, pp. 575 - 591.
General Statistics Office. (2021a), “Online data”, Available at https://www.gso.gov.vn/en/px- web/?pxid=E0304-05&theme=National%20Accounts%20and%20State%20budget (Accessed 02 January, 2022).
General Statistics Office. (2021b), “Socio-economic situation”, Available at https://www.gso.gov.vn/ wp-content/uploads/2021/11/Thang-11.2021_EN-1-6.pdf (Accessed 02 January, 2022).
Hoang, V.T. and Pham, T.H. (2010), “Productivity spillovers from foreign direct investment: the case of Vietnam”, in Hahn, C.H. and Narjoko, D. (Eds.), Causes and Consequences of Globalization in East Asia: What do the Micro Data Analyses Show?, ERIA Research Project Report 2009-2, Jakarta: ERIA, pp. 228 - 246.
Hu, A.G.Z. and JeRerson, G.H. (2002), “FDI impact and spillover: evidence from China’s electronic and textile industries”, The World Economy, Vol. 25 No. 8, pp. 1063 - 1076.
Hymer, S. (1976), The international operations of national firms: a study of foreign direct investment,
MIT Press, Cambridge, MA.
International Monetary Fund. (2004), “Glossary”, Available at https://www.imf.org/external/np/sta/di/ glossary.pdf (Accessed 02 April, 2020).
Kornai, J. (1979), “Resource-constrained versus demand constrained systems”, Econometrica, Vol. 47, pp. 801 - 819.
Kosova, R. (2010), “Do foreign firms crowd out domestic firms? Evidence from the Czech Republic”,
The Review of Economics and Statistics, Vol. 92 No. 4, pp. 861 - 881.
Le, N.H., Duy, L.V.Q. and Ngoc, B.H. (2019), “Effects of foreign direct investment and human capital on labour productivity: evidence from Vietnam”, Journal of Asian Finance, Economics and Business, Vol. 6 No. 3, pp. 123 - 130.
Le, T.T. (2005), Technological spillovers from foreign direct investment: the case of Vietnam, Graduate School of Economics, University of Tokyo.
Lin, M. and Kwan, Y. K. (2016), “FDI technology spillovers, geography, and spatial diffusion”, International Review of Economics & Finance, Vol. 43, pp. 257 - 274.
Ministry of Planning and Investment. (2021), “White Book 2020”, Available at https://wtocenter.vn/ file/17557/sach-trang-doanh-nghiep-vn-2020-1.pdf (Accessed 25 January, 2022).
Nguyen, V.P., Tran, T.K., Le, T.T.N. and Trieu, X.D.H. (2020), “Examining FDI spillover effects on productivity growth: firm-level evidence from Vietnam”, Journal of Economic Development, 9ol. 45 1o. 1, SS. 97 - 121.
OECD. (2008), “Benchmark definition of foreign direct investment”, Available at https://www.oecd. org/investment/fdibenchmarkdefinition.htm (Accessed 02 April, 2020).
OECD. (2009), “State-owned enterprises in China: reviewing the evidence”, OECD Working Group on Privatization and Corporate Governance of State-Owned Assets, Paris, France.

Pham, T.M.H. (2016), “Foreign direct investment, productivity and crowding-out: dynamic panel evidence on Vietnamese firms”, Presented at the 19th Annual Conference on Global Economics Analysis, Available at https://www.gtap.agecon.purdue.edu/resources/res_display. asp?RecordID=4925 (Accessed 03 May, 2021).
Pesaran, M.H., Shin, Y. and Smith, R.J. (2001), “Bounds testing approaches to the analysis of level relationships”, Journal of Applied Econometrics, Vol. 16 No. 3, pp. 289 - 326.
Rudy, B.C., Miller, S.R. and Wang, D. (2016), “Revisiting FDI strategies and the flow of firm-specific advantages: a focus on state-owned enterprises”, Global Strategy Journal, Vol. 6 No.1, pp. 69 - 78.
Statista. (2021), “Leading sectors for foreign direct investment (FDI) in Vietnam from 2016 to 2020, by investment value”, Available at https://www.statista.com/statistics/1011690/vietnam- major-fdi-sectors/ (Accessed 02 January, 2022).
Tang Van, N., Nguyen, T.A., Le, T.T. and Le, T.T. (2016), “Competitive neutrality: challenges on the application for Vietnam (December 2016)”, SECO/WTI Academic Cooperation Project Working Paper Series 2016/19, Available at https://ssrn.com/abstract=2905632 (Accessed 08 March, 2021).
Toda, H.Y. and Yamamoto, T. (1995), “Statistical inference in vector autoregressive with possibly integrated processes”, Journal of Econometrics, Vol. 66 No. 1, pp. 225 - 250.
The United States Department of State. (2020), “2020 Investment Climate Statements: Vietnam”, Available at https://www.state.gov/reports/2020-investment-climate-statements/vietnam/ (Accessed 02 October, 2021).
Vernon, J. (1979), “The international aspect of state-owned enterprises”, Journal of International Business Studies, Vol. 10, pp.7 - 15.
Vietnam Prime Minister. (2007), Decision numbered 10/2007/ND-CP issued Viet Nam Standard Industrial Classification 2007.
Vu, C.L. (2012), International Investment, Lao Dong Publishing House.