The threshold of absorptive capacity: The case of Vietnamese manufacturing firms

Abstract

The paper empirically examines the impact of foreign direct investment spillovers on the performance of Vietnamese manufacturing firms from 2007 to 2015, and the role exerted by absorptive capacity on this relationship. Importantly, it is expected that the thresholds of absorptive capacity of the domestic firms exist, and the benefits which local firms enjoy can vary subject to the thresholds. This paper applies a threshold fixed effect model with panel data in Vietnam to show several findings. Firstly, the domestic firms can benefit from spillovers via the horizontal channel and backward linkage. Secondly, absorptive capacity is a vital factor in linking horizontal spillovers to local firms. Finally, the paper finds that there are thresholds of absorptive capacity in the case of Vietnam. © 2020 CEPII (Centre d'Etudes Prospectives et d'Informations Internationales), a center for research and expertise on the world economy