Determinants of Product Sophistication in Viet Nam: Findings from the Firm– Multi-Product Level Microdata Approach

Through capitalising data from the Viet Nam Enterprise Survey and applying the methods proposed by Hausmann, Hwang, and Rodrik (2007) and Eck and Huber (2016), this study investigates the determinants of product sophistication at the firm–multi-product level in Viet Nam – a developing economy – over 2010– 2016. Regression results show that horizontal foreign direct investment (FDI) spillovers have a negative effect on the firm–multi-product sophistication of Viet Nam. On the vertical side, we find opposite influences on product sophistication, with a positive contribution of forward spillovers and a negative contribution of backward linkages. Estimated outcomes also indicate that the average amount of labour and revenue of firms has advantageous impacts on the product sophistication. This paper suggests that strengthening forward FDI linkages by facilitating the supply of intermediate inputs from multinational firms, coupled with improving governance capability, could help Viet Nam’s domestic firms to produce more sophisticated goods.

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Determinants of Product Sophistication in Viet Nam: Findings from the Firm– Multi-Product Level Microdata Approach