The Impacts of Trade and FDI on Total Factor Productivity Growth in Vietnam

Studying Total Factor Productivity (TFP) growth and identifying its drivers have always been crucial for understanding Vietnam’s economic development. Given Vietnam’s extensive process of economic integration, international trade and inward Foreign Direct Investment (FDI) are recognized as having potential impacts on the country’s productivity growth. This study examines the effects of trade and FDI on productivity growth across 24 Vietnamese provinces in the Four Key Economic Zones from 2015 to 2021. Using the DEA-Malmquist Productivity Index, the study decomposes TFP growth into two main components, efficiency change and technological change, aiming to provide a comprehensive evaluation of TFP growth in Vietnam. Additionally, the study employs a Generalized Method of Moments (GMM) technique to jointly examine the impacts of international trade and FDI on TFP growth. The findings show that FDI-induced spillover negatively impacts Vietnam’s TFP growth, whereas international trade is a significant driver of TFP growth in Vietnam, regardless of the difficulties arising from the COVID-19 pandemics. These results highlight the importance of effectively managing FDI spillovers and leveraging trade to ensure sustainable productivity growth in Vietnam.