Determinants of FDI location accross regions in Vietnam

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PÔLES UNIVERSITAIRES FRANÇAIS (PUF)

MASTER IN ECONOMIC EXPERTISE &

INTERNATIONAL PROJECTS MANAGEMENT

PROFESSIONAL THESIS:

DETERMINANTS OF FDI LOCATION ACROSS REGIONS IN VIETNAM

Professional tutor: Julie LOCHARD

Employment tutor: LE Cong An

Student: NGUYEN Huu Mai Huong

Hanoi, November 2009

ABSTRACT

This thesis provides an overall picture on the development of FDI in Vietnam, as well as its increasing contribution to the country economic development since the introduction of Doi Moi in 1986 and attempts to studying which factors affect foreign direct investment inflows across eight economic regions in Vietnam. Four among five selected explanatory variables, the one-period lagged FDI inflows, local market size, degree of openness, and labor quality are of importance in attracting FDI, whereas infrastructure development is found not statistically significant. One control variable, global economic development, has negative impact on FDI in Vietnam while the other (global FDI inflows) is not statistically significant.

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ACKNOWLEDGMENT

I am indebted to many people without whom this dissertation could not have been completed.

First of all, I would like to express my special gratitude to my respectable academic tutor, Professor Julie LOCHARD, for her invaluable guidance, support and encouragement from the beginning through the accomplishment of my research. Her seminars and instructions have provided the foundation and tools, much of which has been applied in this dissertation.

I am also indebted to Mr. LE Cong An, my professional tutor, for his support for my study. I am grateful to Dr. NGUYEN Ngoc Toan for his suggestions when writing parts of this dissertation.

I would like to express my deep gratitude to Professor Gérard Duchêne and the lecturers in the Master Programs in Economics Expertise and International Project Management – University of Paris XII – Val de Marne, as well as to the staffs at the Pôles Univeristaires Français for their valuable guidelines during my course.

I also wish to thank all my friends, especially my classmates for sharing and helping me during the over period time. Many other people have, directly or indirectly, assisted me during my study. Though I could not mention each of them here, their support is sincerely appreciated.

Finally, I would like to express my gratitude and love to my parents and sister who have always been encouraging me throughout my research. If I have any success in study and life, it is all from the inspiration and stimulation they give.

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TABLE OF CONTENT

ABSTRACT        ii

ACKNOWLEDGMENT        iii

TABLE OF CONTENT        iv

LIST OF FIGURES        vi

LIST OF TABLES        vi

ABBREVIATIONS AND ACRONYMS        vii

INTRODUCTION        1

CHAPTER 1:

THEORETICAL OVERVIEW OF FOREIGN DIRECT INVESTMENT        3

1.1 DEFINITION OF FOREIGN DIRECT INVESTMENT        3

1.2 TYPE OF FOREIGN DIRECT INVESTMENT        4

1.3 TREND IN FDI        6

1.4 THEORETICAL FRAMEWORK ON FDI        7

1.4.1 Market imperfection theory        7

1.4.2 Internalization theory        8

1.4.3 Vernon’s product life cycle model        9

1.4.4 Dunning’s eclectic paradigm        10

1.5 THE IMPACT OF FDI IN DEVELOPING COUNTRIES        11

CHAPTER 2:

OVERVIEW OF FDI INFLOWS INTO VIETNAM AND ITS CONTRIBUTION

TO THE ECONOMY        13

2.1 OVERVIEW OF FDI INFLOWS INTO VIETNAM (1988-2008)        13

2.1.1 Periods of development        13

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2.1.2 Country of origin        15

2.1.3 FDI by sectors and by provinces        16

2.1.4 FDI by form of investment        19

2.1.5 Vietnam’s policy framework and international commitments on foreign direct

investment        20

2.2 CONTRIBUTION OF FDI TO VIETNAMESE ECONOMY        21

2.2.1 Contribution of FDI to national investment, GDP and industrial output        21

2.2.2 Contribution of FDI to State budget, employment and training        24

2.2.3 Contribution of FDI to technology transfer and productivity improvement ..25

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