Can foreign direct investment foster the manufacturing industries’ spatial total factor productivity convergence in a transition economy? An empirical approach from Vietnam

This study tries to examine the influence of foreign direct investment (FDI) on the total factor productivity (TFP) convergence of the manufacturing industries in Vietnamese provinces. We find that the convergence rates estimated using spatial lag and error models are larger than those implied by panel data models that do not consider spatial dependence. The spatial dependence of TFP growth in the provinces is due to geographical TFP and FDI spillovers. Our findings indicate that studies on the convergence rate of regions should check for spatial dependence.