IMPACT OF FDI’S CROWDING OUT EFFECT ON DOMESTIC FIRMS’ EXIT

Abstract

Foreign Direct Investment (FDI) plays an important role in the economic and social development of developing countries, including Vietnam. FDI is expected not only to provide a large amount of capital investment, create more jobs but also promote export activities, bring about changes in technology and modern management skills for enterprises in the host country. Nevertheless, FDI has some adverse impacts on domestic enterprises, one of which is the crowding out effect. The presence of FDI also generates competitiveness pressures on domestic firms. Applying a panel data consisting of Vietnamese enterprises in manufacturing sectors from 2002 to 2010, this study aims at evaluating the impact of FDI on domestic firms’ exit under the crowding out effect. The results show that in addition to factors such as age of the firm, firm size, import and export status, market concentration, labor productivity, the appearance of FDI in the same industry significantly and positively affects the ability to exit the industry of domestic enterprises.