Examining the Impact of Foreign Direct Investment on Domestic Firm Innovation in Vietnam

Abstract

The effect of foreign direct investment (FDI) on domestic firm innovation in Vietnam is aimed to explore by utilizing cross-sectional data published by the World Bank Enterprise Survey in 2023. Firm-level data are analyzed using ordinary least squares (OLS) regression and robust standard errors. The findings show that foreign direct investment has a significant negative impact on local firm innovation, which is measured by process innovation, product innovation, and research and development (R&D) activities. Other firm-related factors, such as firm sales, implementation of formal training, top managers’ working experience, and presence of informal competition, have also been found to be positively correlated with domestic firm innovation. The moderating effects of formal training for employees and the presence of informal competition show that both these factors exert a negative influence on the connection of FDI and domestic firm innovation.