Much attention has been paid to foreign investment spillovers in the literature, since inward
foreign direct investment is regarded as a key engine of industrial growth and technological
progress. However, little clear evidence has been found with regard to the relevance of
geographic proximity for spillover effects, owing to a lack of location specific information. We
therefore study the spatial component of spillover effects from foreign direct investment on total
factor productivity (TFP) of domestic manufacturing firms in Vietnam from 2005 to 2010. Firm
level TFP is estimated by applying a semi-parametric method. We geo-reference firms by using
the smallest administrative unit (ward) and compile a unique data set containing information of
firms location to exploit the variation in the presence of foreign firms around each domestic firm
over time. Benefiting from enhanced spatial accuracy over previous studies, our empirical
results using a first differenced two-stage least squares estimator are threefold. First, they show
positive local spillover effects of foreign investment on domestic firms in the same industry. The
effects are strongest and highly significant within a radius of 2 km to 10 km, and they show a
distinct decay pattern within 10-50 km. Second, small and unproductive firms benefit
disproportionately from the presence of foreign firms in their neighborhoods. Third,
manufacturing vertical spillovers are also localized while vertical spillovers from the service
sector are less geographically restricted.