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Foreign direct investment flows into Vietnam have increased significantly in recent years and are distributed unequally between provinces. This article aims to investigate the locational determinants of foreign direct investment in 62 Vietnamese provinces and whether spatial dependence is a significant factor that both researchers and policy-makers should take into account. We report that province-specific per-capita income, secondary education enrolment, labor costs, openness to trade, and domestic investment affect foreign direct investment directly within the province itself and have indirect effects on foreign direct investment in neighboring provinces. The direct and indirect effects coexist with spill-over effects and spatial dependence between provinces. Our findings indicate that foreign direct investment in Vietnam reflects a combination of complex vertical and export platform motivations on the part of foreign investors; and an agglomeration dynamic that may perpetuate the existing regional disparities in the distribution of foreign direct investment capital between provinces.

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