The effect of FDI on Vietnam economic growth

Topics: Gross domestic product, Investment, Economics Pages: 15 (3905 words) Published: June 19, 2014


The Impact of Foreign Direct
Investment on Economic Growth

Hanoi, 19 March, 2014
Contents

­­­Abstract2
I. Introduction2
1. Vietnam Economic Growth:3
1.1 Definition of "Economic Growth":3
1.2 Indicators of Vietnam economic growth:3
2. Foreign Direct Investment:8
2.1. Definition and classification:8
2.2. Factors affecting FDI flows:8
2.3. FDI in Vietnam:10
3. FDI and Economic Growth – The Two Linkages:10
II. Literature review12
III. The Empirical Model12
3.1. Data 12
3.2. Econometric method:12
IV/ Estimation Results:13
4.1. Coefficient interpretation:13
4.2. Hypothesis test:13
V. Conclusion14
Fully developed answers to these questions are beyond the scope of this paper. What our analysis does suggest, however, is that no investment, no economic growth. With the right national and global policy framework, FDI could Vietnam achieve the “miracle development”.14 References14

­­­Abstract
This study examines the relationships between foreign direct investment and economic growth in Vietnam. From the available data, figures and using OLS method, we test the hypothesis with the data span for the study is from 1991 to 2012. The result indicates that foreign capital (FDI) is statistically significant in 1991-2012 span, having positive effects on economic growth in Vietnam. The analysis also suggest that the FDI-led growth hypothesis is valid for Vietnamese economy I. Introduction

There has been a debate and an ambiguous picture over the reason of economic miracle in Asian countries. FDI has been found to have positive, sometimes neutral, or even negative impacts. Some said foreign direct investment has not been a dominant factor in Japan’s success since it was financed to a very large degree out of domestic saving. While in Singapore and Indonesia, foreign investment is an apparent factor for the economic miracle. It is obvious that there will be no one-size-fits-all “miracle” for economic development. However, from the recent data and statistical evidence that we collected and used, the impact of FDI in promoting growth in Vietnam is undeniable. Only a short time after the period of renovation, Vietnam has made considerable progress in all fields, especially on the field of attraction of foreign direct investment (FDI). It is quite successful for Vietnam to be rated as the most attractive FDI emerging market by the economic research center – Economist Intelligence Unit (EIU), second only to Brazil, Russia, India and China. Therefore the relationship between foreign direct investment and economic growth has been an issue of intense argument for many past years since economic variables are often highly correlated and a difficult problem is to identify cause and effect. 1. Vietnam Economic Growth:

1.1 Definition of "Economic Growth":
- Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. - It is conventionally measured as the percent rate of increase in real Gross Domestic Product, or real GDP. Of more importance is the growth of the ratio of GDP to population (GDP per capita), which is also called per capita income. An increase in per capita income is referred to as intensive growth. GDP growth caused only by increases in population or territory is called extensive growth. - Economic growth can be measured in nominal terms, which include inflation, or in real terms, which are adjusted for inflation. For comparing one country's economic growth to another, GDP or GNP per capita should be used as these take into account population differences between countries. 1.2 Indicators of Vietnam economic growth:

a. Gross National Product (GNP):
- GNP measures the market value of all products and services produced during a certain period of time by labour and property supplied by the residents of a country....

References: [1] S. Anwar and L. P. Nguyen, “Foreign Direct Investment and Economic Growth in Vietnam,” Research in Interna-tional Business and Finance, Vol. 25, No. 1, 2011, pp. 39-52. http: //www.elsevier.com/locate/ribaf
[2] L
[3] P. Srinivasan, M. Kalaivani and P. Ibrahim, “FDI and Eco-nomic Growth in the ASEAN Countries: Evidence from Cointegration Approach and Causality Test,” Journal of Management Research, Vol. 9, No. 1, 2010, pp. 38-63.
K
J. Y. Wu and C. C. Hsu, “Does Foreign Direct Investment Promote Economic Growth? Evidence from a Threshold Regression Analysis,” Economics Bulletin, Vol. 15, No. 12, 2008, pp. 1-10,
Data, figures cited from
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