Determinants of FDI location accross regions in Vietnam

...

2.2.4 Contribution of FDI to export capacity and balance of payment 26

2.2.5 Contribution of FDI to poverty reduction 27

CHAPTER 3:

EMPIRICAL ANALYSIS ON DETERMINANTS OF FDI ACROSS REGIONS IN

VIETNAM 29

3.1. LITERATURE REVIEW 29

3.1.1 Determinants of FDI inflows in developing and transaction economies 29

3.1.2 Determinants of FDI inflow into Vietnam 30

3.2 ESTIMATING THE DETERMINANTS OF REGIONAL FDI LOCATION IN

VIETNAM 33

3.2.1 Model and data 33

3.2.2. Results Analysis 37

CONCLUSION 39

REFERENCES 40

APPENDIX 1. 48

APPENDIX 2 48

APPENDIX 3 49

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LIST OF FIGURES

Figure 1. FDI inflows into Vietnam, 1988-2008 15

Figure 2. Investment committed by economy, 1988-2008 16

Figure 3. Inward FDI by economic sectors, 1988-2008 17

Figure 4. Inward FDI by economic areas, 1988-2008 18

Figure 5. Investment by ownership at current price, 1995-2008 22

Figure 6. FDI shares in GDP and industrial output, 1995-2008 23

Figure 7. Capital account balance and FDI inflows into Vietnam, 2000-2008 27

LIST OF TABLES

Table 1. FDI by province in period 1988-2008 18

Table 2. FDI by form of investment* (up to November 30th , 2005) 20

Table 3. Contribution of FDI to state budget, 2000-2007 24

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ABBREVIATIONS AND ACRONYMS

APEC Asia-Pacific Economic Cooperation

ASEAN Association of Southeast Asian Nations

ASEM Asia-Europe Meeting

BCC Business Corporate Contract

BOT Build-operate-transfer projects

BTA Bilateral Trade Agreement

CIEM Central Institute for Economic Management

FDI Foreign Direct Investment

GDP Gross Domestic Product

GNP Gross National Product

GSO General Statistical Office

IPAP Investment Promotion Action Plan

IMF International Monetary Fund

JV Joint-Venture

MNC Multinationals Corporations

MPI Ministry of Planning and Investment

ODA Official Development Aid

OECD Organization for Economic Cooperation and Development

PCI Provincial Competitiveness Index

UNCTAD United Nations Conference on Trade and Development

TNC Transnational Corporations

US United States

WB World Bank

WDR World Development Report

WIR World Investment Report

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INTRODUCTION

The renovation policy which was initiated in 1986 in Vietnam, also known as Doi moi, has brought about dramatic changes in every aspect of Vietnamese economy and society. Before 1986, Vietnam was a centrally planned economy, in which the Government determined all economic targets and prices. Since the introduction of Doi moi economic reforms in 1986, Vietnam has undergone market-oriented economy. Its economic structure reflected an increasing share of industry and services while the share of agriculture declined significantly. With an average GDP growth rate at over 7 percent per year, the country has been ranked among the fastest growing economies in the region during the last decade. The investment rate (inclusive foreign direct investment) has reached over 37 percent of total GDP on average during 1995-2008, and passed 40 percent since 2004; exports grow at increasing rate of approximately 30 percent annually from the year of 1999. Vietnam has been successful in poverty reduction strategies, which resulted in a significant fell in poverty rate from 58.1 percent in 1993 to 14.8 percent in 20081 and has been able to ensure rapid growth with relative equity. With the GDP per capita increased from US$ 100 in 1990 to nearly US$ 1000 in 2008, the life quality in Vietnam has been improved significantly and the country highly expected to become a middle-low income country in 2010.

FDI inflows are highly considered by many observers and policymakers to be one of the most critical factors that led to these amazing economic and social achievements of Vietnam, not only in providing additional investment capital but also in strengthening industrial production and export capacity, as well as in improving employment and human resources (CIEM, 2006). According to official statistics released from the General Statistic Office, Vietnam has received 10,981 foreign direct investment licensed projects with a total registered capital of US$ 163,607.2 billion,