IDEAS home Printed from https://ideas.repec.org/p/jet/dpaper/dpaper1005.html

Local labor market effects of FDI: job growth and skills demand in Vietnam

Author

Listed:
  • Thi Hang,Banh
  • Coxhead,Ian
  • Vuong,Dinh Tuan Nguyen

Abstract

Foreign direct investment (FDI) in manufacturing industries creates jobs in laborabundant developing economies, but does it also promote human capital development? We investigate the net contribution of FDI to employment and demand for skills in Vietnam, a country undergoing an economic boom driven by dramatic growth in export-oriented manufacturing. Nearly all job growth within this sector is due to FDI, so direct employment growth and skill mix outcomes largely reflect external choices over production scale and technology. FDI alters local labor markets directly, and also indirectly by stimulating growth and jobs in domestic firms. We estimate local FDI employment multipliers for total jobs and for labor by level of educational attainment. Our study seeks to fill a knowledge gap on the contribution of "factory to the world” strategies to human capital formation and economic growth.

Suggested Citation

  • Thi Hang,Banh & Coxhead,Ian & Vuong,Dinh Tuan Nguyen, 2026. "Local labor market effects of FDI: job growth and skills demand in Vietnam," IDE Discussion Papers 1005, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper1005
    as

    Download full text from publisher

    File URL: https://ir.ide.go.jp/record/2001830/files/IDP001005_001.pdf
    File Function: First version, 2026
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David H. Autor & David Dorn & Gordon H. Hanson, 2016. "The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 205-240, October.
    2. Petia Topalova, 2010. "Factor Immobility and Regional Impacts of Trade Liberalization: Evidence on Poverty from India," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 1-41, October.
    3. Thi Hang Banh & Trang Hong Dao & Paul Glewwe & Giang Thai, 2024. "An investigation of the decline in the returns to higher education in Vietnam," Education Economics, Taylor & Francis Journals, vol. 32(5), pages 665-685, September.
    4. Vu, Khoa & Vuong, Nguyen Dinh Tuan & Vu-Thanh, Tu-Anh & Nguyen, Anh Ngoc, 2022. "Income shock and food insecurity prediction Vietnam under the pandemic," World Development, Elsevier, vol. 153(C).
    5. Bruce A. Blonigen & Matthew J. Slaughter, 2019. "Foreign-Affiliate Activity and U.S. Skill Upgrading," World Scientific Book Chapters, in: Foreign Direct Investment, chapter 10, pages 325-367, World Scientific Publishing Co. Pte. Ltd..
    6. Ian Coxhead & Rashesh Shrestha, 2017. "Globalization and School–Work Choices in an Emerging Economy: Vietnam," Asian Economic Papers, MIT Press, vol. 16(2), pages 28-45, Summer.
    7. Dix-Carneiro, Rafael & Kovak, Brian K., 2019. "Margins of labor market adjustment to trade," Journal of International Economics, Elsevier, vol. 117(C), pages 125-142.
    8. Tinh Doan & Quan Le & Tuyen Quang Tran, 2018. "Lost in Transition? Declining Returns to Education in Vietnam," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 30(2), pages 195-216, April.
    9. Ian Coxhead & Nguyen Dinh Tuan Vuong, 2023. "Does the Skill Premium Influence Educational Decisions? Evidence from Viet Nam," Working Papers DP-2023-03, Economic Research Institute for ASEAN and East Asia (ERIA).
    10. Sun, Liyang & Abraham, Sarah, 2021. "Estimating dynamic treatment effects in event studies with heterogeneous treatment effects," Journal of Econometrics, Elsevier, vol. 225(2), pages 175-199.
    11. Eric V. Edmonds & Nina Pavcnik & Petia Topalova, 2010. "Trade Adjustment and Human Capital Investments: Evidence from Indian Tariff Reform," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 42-75, October.
    12. Erten, Bilge & Leight, Jessica & Tregenna, Fiona, 2019. "Trade liberalization and local labor market adjustment in South Africa," Journal of International Economics, Elsevier, vol. 118(C), pages 448-467.
    13. Robertson, Raymond & Kokas, Deeksha & Cardozo Medeiros, Diego & Lopez-Acevedo, Gladys, 2020. "Short and Long-Run Labor Market Effects of Developing Country Exports: Evidence from Bangladesh," IZA Discussion Papers 13041, IZA Network @ LISER.
    14. Roger Bandick & Pär Hansson, 2009. "Inward FDI and demand for skills in manufacturing firms in Sweden," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(1), pages 111-131, April.
    15. McGuinness, Seamus & Kelly, Elish & Pham, Thi Thu Phuong & Ha, Thi Thu Thuy & Whelan, Adele, 2021. "Returns to education in Vietnam: A changing landscape," World Development, Elsevier, vol. 138(C).
    16. Gerhard Toews & Pierre-Louis Vezina, 2022. "Resource Discoveries, FDI Bonanzas, and Local Multipliers: Evidence from Mozambique," The Review of Economics and Statistics, MIT Press, vol. 104(5), pages 1046-1058, December.
    17. Tinh Doan & John Gibson, 2012. "Return to education in Vietnam during the recent transformation," International Journal of Education Economics and Development, Inderscience Enterprises Ltd, vol. 3(4), pages 314-329.
    18. Nguyen, Cuong Viet & Chacaltana, Juan & Estupinan, Xavier & Huynh, Phu, 2025. "Manuscript: Heterogenous returns to education in labor markets: New evidence from Vietnam," International Journal of Educational Development, Elsevier, vol. 118(C).
    19. Fukase, Emiko, 2013. "Export Liberalization, Job Creation, and the Skill Premium: Evidence from the US–Vietnam Bilateral Trade Agreement (BTA)," World Development, Elsevier, vol. 41(C), pages 317-337.
    20. Brian, McCaig, 2011. "Exporting out of poverty: Provincial poverty in Vietnam and U.S. market access," Journal of International Economics, Elsevier, vol. 85(1), pages 102-113, September.
    21. Fukase, Emiko, 2013. "Export liberalization, job creation and the skill premium : evidence from the U.S.-Vietnam bilateral trade agreement," Policy Research Working Paper Series 6419, The World Bank.
    22. Jasper Jacob van Dijk, 2017. "Local employment multipliers in U.S. cities," Journal of Economic Geography, Oxford University Press, vol. 17(2), pages 465-487.
    23. Ian Coxhead & Nguyen Dinh Tuan Vuong & Phong Nguyen, 2023. "Getting to Grade 10 in Vietnam: does an employment boom discourage schooling?," Education Economics, Taylor & Francis Journals, vol. 31(3), pages 353-375, May.
    24. Wang, Ting & Chanda, Areendam, 2018. "Manufacturing growth and local employment multipliers in China," Journal of Comparative Economics, Elsevier, vol. 46(2), pages 515-543.
    25. Bradley Setzler & Felix Tintelnot, 2021. "The Effects of Foreign Multinationals on Workers and Firms in the United States," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(3), pages 1943-1991.
    26. Brian McCaig & Nina Pavcnik, 2018. "Export Markets and Labor Allocation in a Low-Income Country," American Economic Review, American Economic Association, vol. 108(7), pages 1899-1941, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mansour, Hani & Medina, Pamela & Velásquez, Andrea, 2022. "Import competition and gender differences in labor reallocation," Labour Economics, Elsevier, vol. 76(C).
    2. Nguyen, Anh Phuoc Thien, 2025. "Export expansion and children’s school-work decision: Evidence from Vietnam," Economic Modelling, Elsevier, vol. 152(C).
    3. Ian Coxhead & Nguyen Dinh Tuan Vuong & Phong Nguyen, 2023. "Getting to Grade 10 in Vietnam: does an employment boom discourage schooling?," Education Economics, Taylor & Francis Journals, vol. 31(3), pages 353-375, May.
    4. Diep Phan & Ian Coxhead, 2020. "Persistent Privilege? Institutional Education Gaps during Vietnam's Economic Boom," The Developing Economies, Institute of Developing Economies, vol. 58(4), pages 332-359, December.
    5. Nina Pavcnik, 2017. "The Impact of Trade on Inequality in Developing Countries," NBER Working Papers 23878, National Bureau of Economic Research, Inc.
    6. Devashish Mitra & Hoang Pham & Beyza Ural Marchand, 2022. "Enhanced Intergenerational Occupational Mobility through Trade Expansion: Evidence from Vietnam," Working Papers 2022-09, University of Alberta, Department of Economics.
    7. Dai, Mi & Huang, Wei & Zhang, Yifan, 2021. "How do households adjust to tariff liberalization? Evidence from China's WTO accession," Journal of Development Economics, Elsevier, vol. 150(C).
    8. L. Alan Winters & Antonio Martuscelli, 2014. "Trade Liberalization and Poverty: What Have We Learned in a Decade?," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 493-512, October.
    9. Sarra Ben Yahmed & Pamela Bombarda, 2020. "Gender, Informal Employment and Trade Liberalization in Mexico," The World Bank Economic Review, World Bank, vol. 34(2), pages 259-283.
    10. Maryla Maliszewska & Deborah Winkler, 2024. "Leveraging Trade for More and Better Jobs," World Bank Publications - Reports 42148, The World Bank Group.
    11. Yessi Vadila & Budy P. Resosudarmo, 2020. "Tariff reform and income inequality in Indonesia," Regional Science Policy & Practice, Wiley Blackwell, vol. 12(3), pages 455-475, June.
    12. Trung X. Hoang & Ha M. Nguyen, 2020. "Impact of U.S. market access on local labour markets in Vietnam," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 28(2), pages 315-343, April.
    13. Kis-Katos, Krisztina & Sparrow, Robert, 2015. "Poverty, labor markets and trade liberalization in Indonesia," Journal of Development Economics, Elsevier, vol. 117(C), pages 94-106.
    14. Erten, Bilge & Leight, Jessica & Tregenna, Fiona, 2019. "Trade liberalization and local labor market adjustment in South Africa," Journal of International Economics, Elsevier, vol. 118(C), pages 448-467.
    15. Alvarez, Bastien & Orefice, Gianluca & Toubal, Farid, 2025. "Trade Liberalization and Working Conditions," CEPR Discussion Papers 20047, Centre for Economic Policy Research.
    16. Dix-Carneiro, Rafael & Kovak, Brian K., 2019. "Margins of labor market adjustment to trade," Journal of International Economics, Elsevier, vol. 117(C), pages 125-142.
    17. Sèna Kimm Gnangnon, 2023. "Do unilateral trade preferences help reduce poverty in beneficiary countries?," International Journal of Economic Policy Studies, Springer, vol. 17(1), pages 249-288, February.
    18. Pavcnik, Nina & Goldberg, Pinelopi, 2016. "The Effects of Trade Policy," CEPR Discussion Papers 11104, Centre for Economic Policy Research.
    19. Diep Phan & Ian Coxhead, 2025. "Capital market distortions and skills demand in a transitional economy: The case of Vietnam," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 33(3), pages 695-717, July.
    20. Rodriguez Castelan,Carlos & Vazquez,Emmanuel Jose & Winkler-Seales,Hernan Jorge, 2020. "Tracing the Local Impacts of Exports on Poverty and Inequality in Mexico," Policy Research Working Paper Series 9459, The World Bank.

    More about this item

    Keywords

    ;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    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:jet:dpaper:dpaper1005. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Michitaka Imamitsu (email available below). General contact details of provider: https://edirc.repec.org/data/idegvjp.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.