Tiến Sĩ Causes and Effects of Foreign Direct Investment Basis for Policy Redirection in Thanh Hoa province i

Luận án tiến sĩ năm 2013
Đề tài: Causes and Effects of Foreign Direct Investment: Basis for Policy Redirection in Thanh Hoa province in Vietnam
Nguyên nhân và ảnh hưởng của đầu tư trực tiếp nước ngoài: Cơ sở cho việc điều chỉnh chính sách tại tỉnh Thanh Hóa, Việt Nam
Luận án bằng tiếng Anh


TABLE OF CONTENTS
Page
ACKNOWLDGEMENT . ii
ABSTRACT .iii
TABLE OF CONTENTS . vi
LIST OF TABLES ix
LIST OF FIGURES x
ABBREVIATIONS . xi
CHAPTER 1. INTRODUCTION . 1
1.1 Background 1
1.2 Problem Statement 3
1.3 Research Objectives 5
1.4 Study Object and Scope 6
1.5 Research Questions . 7
1.6 Significance of the Study 8
1.7 Research Definitions . 9
1.8 Organization of this study . 14
CHAPTER 2. LITERATURE REVIEW AND STUDIES 15
2.1. Theoretical overview: FDI . 15
2.1.1 Definitionsof FDI 15
2.1.2 Attract FDI 17
2.1.3 Forms of FDI . 18
2.1.4 Effects of FDI 21
2.1.5 Summary of some theories of attraction of FDI 22
2.2 FDI and Motivation 28
2.3 Factors Influencing Location of FDI . 35
2.3.1 Political stability and policy mechanisms factors 35
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2.3.2 Socio-cultural environment factors . 35
2.3.3 Financial factors . 36
2.3.4 Economy and market factors 36
2.3.5 Resource factors . 37
2.3.6 Infrastructure factors 38
2.4 The determinants of the FDI in Vietnamreview of literature . 40
2.5 Overview of Thanh Hoa province . 48
2.5.1 Overview of Thanh Hoa’s social -economy . 48
2.5.2 The mechanisms and policies for attracting FDI in Thanh Hoa province 49
CHAPTER 3. RESEARCH METHODOLOGY . 53
3.1. Theoretical framework and hypothesis development 53
3.2. The data collection and data analytical framework . 55
3.3. Sample sizeand Population determination . 60
3.3.1 Population determination . 60
3.3.2 Sample size determination . 61
3.3.3 Sampling Method . 62
3.4. Questionnaire Design . 62
3.5. Response Rate . 63
CHAPTER4. DATA ANALYSIS AND RESULTS 64
4.1 The trends ofFDI inflows in Thanh Hoa Province in the period from 2001 to 2012 64
4.2. Data analysis about the factors affecting the attraction of foreign direct
Investment in Thanh Hoa Province. 67
4.2.1 The importance of various factors in attracting FDI ìnlows in Thanh Hoa
province . 70
4.2.1.1. Political/governmental/legal factors (F1) 70
4.2.1.2. Social and cultural factors (F2) . 72
viii
4.2.1.3. Financial factors (F.3 ) 73
4.2.1.4. Economic and marketing factors (F4) . 74
4.2.1.5. Availability of resources factors (F5) . 75
4.2.1.6 . Infrastructure factors (F6) 76
4.2.2 Results of the Analysis . 77
4.3 Dataanalysis about the effects of FDI in the economic growth of Thanh Hoa
Province . 78
4.3.1 Contributions to development and movement of economic structure 79
4.3.2 Contributions in mobilizing invested capital for development 80
4.3.3 Employment change . 81
4.3.4 Contribution of FDI sector in province revenue 82
4.3.5 FDI contribution to export turnover 83
4.4Analysis of factors affecting the process of FDI investment in Thanh Hoa
province . 84
4.2.1Analysis of research results 84
4.2.2 Correlations coefficient 89
CHAPTER 5. SUMMARY, CONCLUSIONS AND RECOMMENDATIONS . 91
5.1 Summary 91
5.2 Conclusion 93
5.3. Policy implications 96
5.4. Limitations and further research . 99
BIBLIOGRAPHY . 100
Appendix -A 106
Appendix -B 107
Appendix –C . 118
Appendix –D . 137


ABSTRACT
This research was undertaken with the primary objectives of: (1) To describe
the trends in FDI in Thanh Hoa Province in the period from 2001 to 2012. (2) To
determine the factors affecting attraction of FDI in Thanh Hoa Province. (3) To
analyze the effects of FDI in the economic growth of Thanh Hoa Province. (4) To
formulate policy implication to enhance economic growth of Thanh Hoa Province in
Vietnam. To organize the research questionnaire, the conceptual framework was
adopted from the Eclectic Paradigm or the “OLI” paradigm developed by Dunning
1993 and according to factors which are influencing to choice of a host market of
Gilomre, O’s Donnel, Carson and Cummins (2003). The paper was studied six major
factors such as Political / Government / Legal Factors, Social and Cultural Factors,
Economic and Market Factors, Financial Factors, Availability of resourcesfactors and
Infrastructure Factors which are highly affecting for the inflow of FDI. The variables
under each of the above factors have been included in the questionnaire.
The research methodology of the study which explained conceptual
frame work, research design, population and sample size, questionnaire design,
data collection and data analysis methods. The research was conducted in two phases.
The first phase involved secondary collection, desk tally by review, literatures,
research, journals, publications, books, official reports from government officials.
The second phase was the primary date collection by doing survey using structured
questionnaires(either through e-mailing, telephone and direct face to face interview).
The populationof this research was forty one (41) FDI entrepreneurs and 100 officers.
To ob tain the sample size it was used the Slovin formalation and the sample size was
determined as 37 and 80 respondents respectively.
Data processing methods, survey results are coded, data entry are described by
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statistical tool. The combinations of descr iptive and as well as statistical
tools have been used to analyze the findings of the study. The data were processed
by usingSPSS. All primary data collected through the questionnaires were analyzed
by frequency tab les and correlation analysis. The techniques like simple tabulations
have been used for the frequency tables, determination of r a n k s u m , mean, P
Value, Adj. Variance and standard deviations. C orrelation analysis was used to
study the linear correlation among the various factors affecting FDI and the level
of significance.
This study focuses on the four main issues: Firstly , about the trends in FDI in
Thanh HoaProvince, FDI in Thanh Hoa increased rapidly in the period from 2001 –
2012. Secondly, about the factors affectthe attraction of foreign direct investment in
Thanh Hoa Province. We found that there are two aspects of the Thanh Hoa economic
environments in which international business partners are particularly interested: the
economic and marketingand infrastructure factors. However, the social and cultural
factor seemed not be a significant factor. Most investors put the social and cultural
factor in the least important group. Thirdly, analyze the effects of FDI in the
economic growth of Thanh Hoa Province. FDI has a positive impact on the
industrialization and modernization in Thanh Hoa province in recent years. However,
the current state of foreign direct investment in Thanh Hoa still exist some limited
such as: Total investment project is small, they are not commensurate with the
potential and strengths of provincial; Differences between the registered capital and
performance capital is large, performance capital growth is not high etc. Finally ,
evaluate the favorable level of factors affecting the investment process of FDI
enterprises in Thanh Hoa province.The result of the study shows that there are some
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factors that have been evaluated as much more favorable, while other factors are
considered more difficult.
Based on the findings of this research, recommendations were made to the
relevant in Thanh Hoa government in particular and as well as to the in the center
government for the formulation of appropriate investment incentive policies to attract
more foreign direct investment opportunities into Thanh Hoa province in the future
in-line with the FDI entrepreneur’s perception.


CHAPTER 1
INTRODUCTION
1.1 Background
In globalintegration economy, Foreign Direct Investment (FDI) has been very
much needed toboost the growth of a country’s economy especially the developing
countries. It is clai med that FDI can create emplo y ment, increasing technologica l
development in the host country and improving the economic condition o f the
country in general.
Viet nam implemented its economic reform Doi Moi in the mid -1980s. The
market-based economic policies and legal frameworks have contributed to open
up the country, trade barriers have been removed and FDI has been now a
fundamental part of the economy.
Among various forms of international business, FDI is highly regarded as
the most effect ive wa y by which transition ec onomies become integrated to the
glob al economy . FDI involves the transfers ofmultiple resources to a host country,
especially transfers of knowledge, capital, management skills, marketing knowhow and the latest p roduction technology . FDI is expected to provide urgent ly
needed capital for country in various fields with limited access to in ternation al
capital markets a nd to generate cash revenues through privatizat i on for limited
budgets. Furthermore, the entries of foreign companies are projected to foster
cha nges in the economic sy stem, to create competi tion and to promote the
development of many sectors, especially, private sector. Foreign investors also
facilitate exports to Western and other international markets through the ir
knowledge and experi e nce of the releva nt markets as well as access to
distribution networks (Girma et al ., 2005; Meyer, 1998; Nguy en and Xing,
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2006). Hence, FDI interacts with many aspects of the transition process th rough its
direct impact on macroeconomics namely, the bal a nce of payments and
employment, th rough the transfer of knowledge and th rough the role of investo rs as
new owners of formerly state-owned enterprises (Meyer, 1998). However, the
transit ion vice versa influences FDI inflows. For instance, FDI is gravitated to
countries with furthest progress in economic and institutional reforms to
minimize transaction costs of doing busin ess (Baniak et al., 2002; Mey er, 2001).
As other transition economies, in the period from the late 1970s to 1990,
Vietnam wasintegrated in the trading system of the Soviet Union and its a llies with
few other linkages.During 1980s, Vietn am had experienced severe shortages of food
and basic consumer goods, th ree-digit inflation,a high budget defi cit, chronic trade
imbalances and deteri orating living sta ndards. The sluggish economy forced the
Vietnamese government to initiate an overall economic reform from a planned
economy to a market one in 1986. The most important tasks of the reform
program w e r e to encourage development of private sector and to reduce the
dependence of the overall economy on inefficie nt state-owned enterprises. In this
process, FDI had pl ay ed a crucial rol e in creating an “imported” private sector and
strengthening the competitiveness of the economy.
The first Law on Fo reign Investment issued in 1987 b y the Vietnamese
government was considered as one of the first concrete steps to wards FDI
encouragement and economic renovation. This law was revised several ti mes in
1992, 1996, 2000, and most recently replaced by a new law on investment
integrating both domestic and foreign investment (Unifi ed Investment Law 2006).
These c hanges and amendments aimed to remove obstacles against the
operation of foreign investors and to imp rove the environmental investment in
3
Vietnam, creating a fair business environment for both domesti c and foreign
companies. Usually, these cha nges are providing more tax incentives, promote
transfer of technology and simplify investment licensing procedures.
Besides favorable and open policies toward foreign investments, Vietna m
also attracted foreign investors in another ways such as a potencial market for
consuming and low costs of production factors. In particular, Vietnam is a
profitable market with population of some 90 million so the demand of consumer
goodsis huge. Moreover, factor-cost advantages arising from relatively low costs
of raw materials a nd l ow labor costs create the attractiveness of Viet na m
compared to neighboring countries, especially in garment, textile, and sea food
manufacturing indu stries (Mirza & Giroud, 2004).However, foreign companies in
Vietnam still ha ve to pay high transaction costs associated with searching,
negotiating and contracting with domestic partners arising from an incompl ete,
inconsiste nt and continuously changing institutional framework. Acording to the
Provincial Competitiveness Index Reportfrom 2006 to 2012, many ma nagers in
Vietnam have not fully satisfied with the resource of information on suppliers,
buy ers, price trends andchanges in polici e s and regulations, and the y have to use
personal relationships with local authorities to get important information.
1.2 Problem Statement
According to the decentralization polic y started in the FDI law
amendment in 1996, each provin ce was decentralized with more power and
autonomy in dealing with foreign investments such a s in granting investment
licenses, leasing land, providing export and import licenses a nd recruiting labor.
This poli c y , on the one hand, allows provincial authorities to develop in an
innovative ways that attract more foreign investors, and also leads to variations
4
in the implementation of the central laws and regulations among provinces. Foreign
investors may experience a lot of red tapes namely, corruption or delays in
administrative progress if lo cal authorities possess conservative inh erited norms
and cognitions. In this context, foreign investo rs have consid ered many factors
when investing in Vietnam such a s modes of entry and lo cation choi ces for their
operations so that th e y can make use of advantages and mini mize disad va ntages.
In order to attract investors to Thanh Hoa and give the most favorable
conditions to them, the province has offered many investment priority policies as well
as improves administrative procedures. Over the past revised, the province’s
investment environment has been significantly improved. With a view to: no
restrictions on size, industry, and geographic areas, based on the Investment Law and
Enterprise Law, Thanh Hoa is continuing to review and to improve the system of
mechanisms and policies towards incentives and making it more convenient for
investors. These mechanisms and policies of Thanh Hoa focus on improve and
simplify administrative procedures, issue the open and attractive mechanisms and
policies, call for investment, create innovative in building essential socio-economic
infrastructure, promote the advantages of human resources, improve the quality of
human resources in order to meet business’s demands. In addition, resolution No
02/NQ-TU dated 27/6/2011 regarding improvement for investment environment in
province in the stage 2011 –2015 focusedon implementing site clearance work in
order to meet investors’ requirements, support business development, transparency of
information for business, support business development, transparency of information
for business. With the above policy should take until 2012in Thanh Hoa province has
41 investment projects involving foreign direct operation with a total registered
capital of USD 6,952 million.
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These results are encouraging, but compared to the potential and advantages of
Thanh Hoa province are still limited . The number and sizes of investment projects in
Thanh Hoa are low. Thanh Hoa is notone of the top provinces classified based on
provincial competitiveness index. We have to describe the trends in FDI in Thanh
Hoa Provinceand identifiedof factors affecting the attraction of foreign investment in
Thanh Hoa. After that wecananalysis of theimpact of each factor to attract foreign
investment is essential for the government in offering policies to attract investment
capitaland analyze the effects of FDI in the economic growth of Thanh Hoa Province.
Therefore, we can formulate policy implication to enhance economic growth of Thanh
Hoa Province in Vietnam.
This thesis focuses on determinant of “Causes and Effects of Foreign Direct
Investment: Basis for Policy Redirection in Thanh Hoa province in Vietnam”.
The research was conducted in two phases. The first phase involves secondary
collection and desk review such as reviewing of relevant literatures, journals,
publications, books and reports. The second phase is the collection of primary data via
structured questionnaire and data analysis.
1.3 Research Objectives
The main objective of this research is to determinants Foreign Direct
investment in Thanh Hoa province. Thus it hopes to achieve the following objectives:
1. To describe the trends in FDI in Thanh Hoa Province in the period from
2001 to 2012.
2. To determine the factors affecting attraction of FDI in Thanh Hoa Province
in terms of the following factors:
 Political and legal
 Social and culture


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