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Foreign direct investment in provinces: A spatial regression approach to FDI in Vietnam

  • Esiyok, Bulent
  • Ugur, Mehmet

Foreign direct investment (FDI) flows into Vietnam have increased significantly in recent years, with unequal distribution between provinces and regions. We aim to contribute to the literature on locational determinants of FDI by accounting for spatial interdependence between 62 Vietnamese provinces from 2006-2009. For this purpose, we estimate a spatial lag model using maximum likelihood estimation method. We report existence of spatial dependence between provinces as well as spatial spill-over effects. The results are robust to different specifications for weight matrices and inclusion of different explanatory variables and/or proxies. We also report that conventional determinants of FDI such as market size, domestic investment, openness to trade, labour cost, education and governance, etc. are significant and remain robust to inclusion of spatial interdependence. The sign of the spatial dependence suggests that the distribution of FDI between provinces is subject to conglomeration effects.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36145.

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Date of creation: 20 Dec 2011
Date of revision: 05 Jan 2012
Handle: RePEc:pra:mprapa:36145
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  1. J. Elhorst, 2010. "Applied Spatial Econometrics: Raising the Bar," Spatial Economic Analysis, Taylor & Francis Journals, vol. 5(1), pages 9-28.
  2. Blonigen, Bruce A. & Davies, Ronald B. & Waddell, Glen R. & Naughton, Helen T., 2007. "FDI in space: Spatial autoregressive relationships in foreign direct investment," European Economic Review, Elsevier, vol. 51(5), pages 1303-1325, July.
  3. Anselin, Luc, 2002. "Under the hood Issues in the specification and interpretation of spatial regression models," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 27(3), November.
  4. Matthew Cole & Robert Elliott & Jing Zhang, 2008. "Corruption, Governance and FDI Location in China : A Province-Level Analysis," Discussion Papers 08-06, Department of Economics, University of Birmingham.
  5. Cletus C. Coughlin & Eran Segev, 1999. "Foreign direct investment in China: a spatial econometric study," Working Papers 1999-001, Federal Reserve Bank of St. Louis.
  6. David Drukker & Daniel Millimet, 2007. "Assessing the Pollution Haven Hypothesis in an Interdependent World," Departmental Working Papers 0703, Southern Methodist University, Department of Economics.
  7. Head, Keith & Ries, John & Swenson, Deborah, 1995. "Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States," Journal of International Economics, Elsevier, vol. 38(3-4), pages 223-247, May.
  8. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2007. "Estimating models of complex FDI: Are there third-country effects?," Journal of Econometrics, Elsevier, vol. 140(1), pages 260-281, September.
  9. Anselin, Luc, 2002. "Under the hood : Issues in the specification and interpretation of spatial regression models," Agricultural Economics, Blackwell, vol. 27(3), pages 247-267, November.
  10. Harry Garretsen & Jolanda Peeters, 2009. "FDI and the relevance of spatial linkages: do third-country effects matter for Dutch FDI?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(2), pages 319-338, July.
  11. J. Barkley Rosser, 2009. "Introduction," Chapters, in: Handbook of Research on Complexity, chapter 1 Edward Elgar.
  12. Anselin, Luc & Bera, Anil K. & Florax, Raymond & Yoon, Mann J., 1996. "Simple diagnostic tests for spatial dependence," Regional Science and Urban Economics, Elsevier, vol. 26(1), pages 77-104, February.
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