Determinants of Foreign Direct Investment: Evidence from Vietnam

Abstract

The paper investigates the determinants of foreign direct investment (FDI) in Vietnam in 2000-2019 period. This study uses difference Generalized Methods of Moments (GMM) and Pooled Mean Group (PMG) to analyse panel data officially provided by General Statistical Office of Vietnam. The results show that market size impacts positively significant on FDI attraction: 1% -1.45% (PMG) and 1% -1.25% (GMM). Besides, some other factors have positive influences as labor force, macroeconomic policy, macroeconomic stability and skilled labor. Meantime, the trade openness negatively affects FDI inflows in the short-term, while not being statistically significant in the long-term. Moreover, economic shocks often have a negative impact on FDI inflows. The findings of this study lead to the following recommendations. First, authorities should pay special attention to encourage economic growth rate in Vietnam to expand market size because this is the first priority of foreign investors. Second, authorities need to continue increasing the rate of skilled labor, especially highly qualified management force, engineers and well-skilled workers. Third, the authorities should adjust trade openness to boost the role of its determinant in attracting FDI inflows. Fourth, macroeconomic stability needs to be governed by international standards in order to secure the belief of foreign investors in the long-term.

Factors Affecting Foreign Direct Investment: Evidence on Tay Ninh Province

“…The research results are similar to those of previous foreign studies (Jadhav, 2012;Groh and Wich, 2012; Makhavikova, 2015) as well as those in Vietnam (Nguyen and Nguyen, 2007;Wang and Balasubramanyam, 2011;Nguyen, 2015;Le, 2015;Le and Nguyen, 2017;Ngo et al, 2020). Also, these results are fully explainable by the theories of Dunning (1979) regarding inherent advantages of regional resources.…”

“…An abundant human resource with qualified and skilled laborers is a promising condition for attracting FDI. It can be seen that this factor had been mentioned in most of the previous study and it is widely believed that this factor has a positive impact on FDI attraction (Nguyen and Nguyen, 2007;Wang and Balasubramanyam, 2011;Nguyen, 2015;Makhavikova, 2015;Le and Nguyen, 2017;Ngo et al, 2020). Therefore, the proposed hypothesis is:…”

“…Regarding Vietnam, a few studies have been carried out such as Nguyen and Nguyen (2007); Wang and Balasubramanyam (2011); Le and Nguyen (2017), Ta et al (2020) and Ngo et al (2020). Also, some studies by Le (2015); Nguyen (2015) examined separate provinces.…”

“…Design and implementation of projects are still inadequate. Moreover, multiple projects that have been suspended or Wang and Balasubramanyam (2011); Le and Nguyen (2017) and other studies of Le (2015), Nguyen (2015), Ta et al (2020) and Ngo et al (2020).…”

Sectoral Contribution to Economic Development in India: A Time-Series Co-Integration Analysis

“…Kumar and Paramanik (2020) showed that economic growth rate is affected positively by financial development in the long run, while Luong, Nguyen, and Nguyen (2020) revealed that economic growth indicators have negative and statistically significant impact on the shadow economy. Moreover, Ngo, Cao, Nguyen, and Nguyen (2020) highlighted that FDI is affected by size of market and Nurlanova, Omarov, and Satpayeva (2020) identified that innovative activities is most important factor affecting sustainable development…”