THE IMPACT OF FDI ON THE SURVIVAL RATE OF LOCAL PRIVATE FIRMS AND POLICY IMPLICATIONS

Abstract

                 Foreign direct investment (FDI) may benefit local firms in the host country through various kinds of spillovers, but it may also raise competition pressure and result in reducing the survival of domesticfirms. Using detailed firm-level data for the period of 2005-2011, this paper examines the aggregate effect of FDI on the survival of domestic private firms in Viet Nam. The authors have analysed the impact of both horizontal and vertical FDI and explored how the presence of stateownedenterprises influences private firms. The results have shown that horizontal and upstream FDI raise the exit hazard significantly, while downstream FDI may reduce the hazard. The presence of state-owned enterprises has a direct negative effect on the survival rate of local private firms in the same industry, but there is also an indirect impact on the exit hazard from FDI. Those findings provide important evidences for further adjustment of the FDI policy in Vietnam.