Add missing value in column with value from row above

Here is one way of doing it by making use of run-length encoding (rle) and its inverse rle.inverse:

fillTheBlanks <- function(x, missing=""){
  rle <- rle(as.character(x))
  empty <- which(rle$value==missing)
  rle$values[empty] <- rle$value[empty-1] 
  inverse.rle(rle)
}

df1$var1 <- fillTheBlanks(df1$var1)

The results:

df1

  var1 var2
1    a    x
2    a    y
3    a    z
4    b    x
5    b    z

Here is a simpler way:

library(zoo)
df1$var1[df1$var1 == ""] <- NA
df1$var1 <- na.locf(df1$var1)