The Drivers of Foreign Direct Investment in Vietnam

Abstract

Foreign direct investment (FDI) is one of the most studied subjects in the world. Garibaldi et al (1999) and Holland and Pain (1998) indicated that foreign direct investment was a particularly important element of economic integration because it opens possibilities for accelerated growth, technical innovation, and enterprise restructuring, as well as capital account relief. In the study of Sajid and Nguyen P. Lan (2010), they indicated the significant relationships between FDI and Vietnamese economic growth. Mai (2003) concluded that FDI flow in Vietnam has resulted in enhancing domestic saving and investment. Many other studies examine the determinants of FDI in Vietnam but there has not been any research FDI in Vietnam which studies the role of corruption on FDI yet. This study aims at determining the foreign direct investments in Vietnam from 1986 -2016 in terms of implementation capital or FDI inflow in Vietnam and determining the macro-economic factors as the drivers of Foreign Direct Investments (FDI) inflow in Vietnam including corruption index. A multiple regression analysis models are employed on the panel data set consisting of annual frequency data of 31 years ranging from 1986 to 2016 to identify the drivers of FDI inflow in Vietnam. The preliminary empirical results show that market size and infrastructure are potential determinants of FDI inflow in Vietnam whereas, surprisingly, labor cost, trade openness, natural resource, inflation rate, and corruption index are insignificant. Thus, the finding of the study recommends that market size needs to be encouraged and infrastructure needs to be planned and managed reasonably to achieve a higher level of FDI and contribute to accelerating the process of economic development.