Implications at policy-maker level

The role of FDI capital, as well as the operation of FDI enterprises in Vietnam, are positively recognized by researchers, policymakers, and managers through a wide range of activities such as interacting, associating, speeding up the process of renovation and boosting Vietnam's economy. However, the process of attracting FDI as well as the activities of these enterprises in Vietnam is posing many challenges.

Based on the findings, the study has come up with some practically economic implications.

The findings have provided strong evidence for the important role of backward FDI spillover in enhancing the productivity level of domestically manufacturing firms in Vietnam. However, the positive externalities from backward spillovers have unexpectedly been outweighed by intensively negative horizontal and forward spillovers. It is important to note that FDI inflows incur both unpredictable costs and benefits. The findings have revealed the role of human capital and financial development in facilitating productivity spillover from FDI. Therefore, investing in human capital and financial development is the most important keys to unlock the door to absorb advanced technology and knowledge.

Firstly, instead of the attempts to increase the volume of FDI inflows, the government should have proper policies aiming at enhancing the absorptive capacity of local firms. This may provide an effective tool to protect the new domestically emerging industries in Vietnam from the fierce competition as a result of foreign presence. Moreover, the government should create favorable conditions; for example, a better financial system, effective and transparent administrative services to facilitate local firms' business activities, develop their skills and absorptive capabilities to sustain the competitiveness or the local supply chains with foreign subsidiaries. In this way, the government should have appropriate financial incentives for

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technology transfer activities, especially activities related to the transfer of technology in the supporting or embedded industry. Besides, more government expenditures on infrastructure, R&D, education, and training may generate spectacular changes in narrowing down the gap in human capital and technology level between Vietnam and more developed economies. Another challenge and opportunity for Vietnam's economy come from the evolution of Industry 4.0.

The speedy development of technological achievements and smart applications in the context of Industry 4.0 is blurring and rapidly weakening the attractiveness from the production factors considered to be "advantages" in emerging labor markets such as "cheap labor force" and "in-kind incentives". In addition, Vietnam needs to take into account the ability to shift investment back to its home country, which is supported by digital transformation, specialization, automation, combined with artificial intelligence that combines increasingly efficient use of labor and machinery.

Secondly, as foreign investors are often motivated by low labor cost and preferential policies and not every MNCs are sources of knowledge spillovers, Vietnam needs to implement procedure reforms to compete for higher quality FDI flows with more potentials for managerial and technological transfer. Thereby, these domestic firms can maintain and attract foreign investors from higher-income economies which possess advanced technology and process.

Besides, they are more likely to deliver their knowledge to their partners in the backward and forward linkage chain to upgrade and standardize the local supply for stable production and sustain their consumption market. Although the presence of FDI enterprises has played an important role in helping Vietnam maintain a rapid growth rate in the past few decades, it has also increased the pressure on the environment. Typical negative impacts include water degradation, soil degradation, and erosion, increasing greenhouse gas emissions and air pollution, and putting pressure on biodiversity. Therefore, the most challenging duty is to

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maintain an attractive environment for foreign investors associated with harmonious development and environmental protection.

Thirdly, it is necessary to create a truly fair business environment for both domestic and foreign enterprises to compete healthily and cooperate based on a mutually beneficial relationship. To achieve this goal, the government needs to support domestic enterprises to increase their capabilities and their scale to reinforce their readiness to participate in the linkage chain with foreign partners with diversified local advantages in different regions. This may encourage foreign firms to invest in under-developed regions and make positive FDI externalities more accessible. Accordingly, it is necessary to ensure the selection of FDI projects towards high and medium technology industries; promote the connection between FDI enterprises and domestic enterprises; especially support the development and implementation of appropriate priority policies and the orientation of supporting industries toward global and regional production networks and value chains; develop and implement policies to encourage expert advice, technology solutions and human resource training. At the same time, the organization’s openness and desires for innovation may be the drivers for the spread of advanced technologies and knowledge from foreign-invested enterprises to domestic ones.

Fourthly, the impetus for attracting FDI of Vietnam in the coming time will be maintained by Vietnam's efforts to persistently international integration, strong commitment to opening markets, elimination of trade and investment barriers through FTAs such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Free Trade Agreement - EU (EVFTA). It is also admitted that trade tensions between the US and China may affect investor sentiment and may accelerate the trend of shifting investment to other potential markets. Vietnam is an attractive destination in that context. Hence, the renovation of Vietnam should continue to be reinforced, aim at reducing many business conditions, improving the transparency of administrative procedures as well as supporting

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entrepreneurship and private sector development. On the other hand, Vietnam needs to take into account the risk of becoming an out-of-date technological transfer point of investors, especially with capital inflows from China. The roadmap for implementing China's Made in China 2025 will inevitably lead to the need to replace and renew technology, putting pressure on obsolete technologies to less developed countries, especially neighboring countries like Vietnam. Under these circumstances, Vietnam must consistently promote reform, reduce barriers, eliminate unreasonable business conditions, and create an environment that promotes innovation. In addition to investment in infrastructure development, to maintain attractiveness to investors, it is necessary to increase investment in scientific and technological research to

"catch up" with technology trends; at the same time, create a platform to attract and retain talents, create dynamic and attractive competitive forces with high-tech FDI industries.

Finally, wage development is sustainable if it is based on productivity improvement and cost efficiency rather than temporary labor demand. Increasing inward foreign equity and international trade may have different or even strongly negative impacts on wages in the short and long run depending on the movement from labor-intensive production to capital and technology-intensive production. In this context, the abundant resources of unskilled labor in Vietnam are no longer an advantage but a threat to the survival of local firms and worker benefits. Therefore, policymakers need to take advantage of foreign presence and trade to create favorable conditions for preparing and training the existing labor force in Vietnam. In this way, local workers are proactive and ready in absorbing knowledge and productivity spillovers as well as improving their income and bargaining power.