IDEAS home Printed from https://ideas.repec.org/a/jda/journl/vol.51year2017issue4pp331-345.html
   My bibliography  Save this article

Does Foreign Direct Investment Accelerate the Vietnamese Economic Growth? A Simultaneous Equations Approach

Author

Listed:
  • Hiep Ngoc Luu
  • Vu Quang Trinh
  • Nam Hoai Vu

    (University of St Andrews, UK
    University of Newcastle, UK
    University of Leicester, UK)

Abstract

The main purpose of this paper is to investigate the impact of foreign direct investment (FDI) on economic growth in Vietnam over the five-year post-crisis period of 2010-2014. In addition, it also provides a comparative analysis with the pre-crisis period to yield greater insight into how the FDI-growth nexus evolved over time and under different economic conditions. Our empirical work is based on a panel data set containing 63 provinces in Vietnam. We start our analytical section by examining the FDI-growth relationship using two simple ordinary-least-square (OLS) models, where FDI and economic growth are the dependent variables and are regressed on a number of other factors that seemingly influence FDI and growth. With an awareness of the possible endogeneity bias, we re-estimate our model using the simultaneous equation approach, employing the two-step system generalized method of moment (GMM) estimator. We complement our study by re-estimating the model on the pre-crisis sample during the period 1999-2006. Then, we re-run our regressions on the full-sample setting and take into account the possible effect of the 2007/2008 crisis by incorporating the crisis dummy variables (D2007 and D2008) to shed more light on the impact of the crisis on FDI and economic growth. Overall, we find some evidence of the simultaneous relationship: increased inward FDI promotes economic growth, while at the same time, greater growth could help the country to attract additional FDI capital. However, this bi-directional relationship only existed in the post-crisis period, and not in the pre-crisis time. During the pre-crisis period, growth does not exhibit a significant impact on FDI, while FDI is found to be an important driver of growth. In our full-sample setting, we find a robust positive significant influence of FDI on economic growth. However, economic growth, again, does not exhibit a significant positive impact on FDI. Some other factors, including domestic investment, market size, exports, level of trade openness and infrastructure development, either promote economic growth or inward investment. We also find some evidence suggesting that Vietnam should invest more in human capital to obtain a sufficient absorptive capability in order to benefit from advanced technologies and knowledge transfers that accompany inward FDI. In the end, our empirical findings suggest that the country should implement a more ‘open door’ policy to exploit further benefits from additional FDI inflows.

Suggested Citation

  • Hiep Ngoc Luu & Vu Quang Trinh & Nam Hoai Vu, 2017. "Does Foreign Direct Investment Accelerate the Vietnamese Economic Growth? A Simultaneous Equations Approach," Journal of Developing Areas, Tennessee State University, College of Business, vol. 51(4), pages 331-345, October-D.
  • Handle: RePEc:jda:journl:vol.51:year:2017:issue4:pp:331-345
    as

    Download full text from publisher

    File URL: https://muse.jhu.edu/article/662846
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Magazzino, Cosimo & Mele, Marco, 2022. "Can a change in FDI accelerate GDP growth? Time-series and ANNs evidence on Malta," The Journal of Economic Asymmetries, Elsevier, vol. 25(C).
    2. Kikuchi, Tomoo & Yanagida, Kensuke & Vo, Huong, 2018. "The effects of Mega-Regional Trade Agreements on Vietnam," Journal of Asian Economics, Elsevier, vol. 55(C), pages 4-19.

    More about this item

    Keywords

    Foreign Direct Investment; Economic Growth; Absorptive Capacity; Vietnam;
    All these keywords.

    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • P45 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - International Linkages
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jda:journl:vol.51:year:2017:issue4:pp:331-345. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Abu N.M. Wahid (email available below). General contact details of provider: https://edirc.repec.org/data/cbtnsus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.