Tiến Sĩ Impact assessment of foreign direct investment (fdi) on the economy of hung yen province (1998-2010)

Luận án tiến sĩ năm 2013
Đề tài: IMPACT ASSESSMENT OF FOREIGN DIRECT INVESTMENT (FDI) ON THE ECONOMY OF HUNG YEN PROVINCE (1998-2010)
Đánh giá tác động của đầu tư trực tiếp nước ngoài (FDI) đến nền kinh tế của tỉnh Hưng Yên trong giai đoạn từ 1998 đến 2010

TABLE OF CONTENT
Chapter I: INTRODUCTION 1
1.1 Background of the study 1
1.2 Statement of the problem 2
1.3 Hypotheses 4
1.4 Significance of the Study . 5
1.5 Scope and limitation of the study 5
1.6 Definition of Terms 6
Chapter II: REVIEW OF RELATED LITERATURE AND STUDIES 7
2.1 REVIEW OF RELATED STUDIES . 7
2.2 THEORETICAL AND CONCEPTUAL FRAMWORK 16
2.2.1 Theoretical framework . 16
2.2.1.1 Provincial Competitiveness Index (PCI) 16
2.2.1.2 Foreign direct investment . 17
2.2.1.3 Economy . 24
2.2.1.4 FDI in Vietnam . 25
2.2.2 Conceptual Framework 28
Chapter III: DATA AND METHODOLOGY 29
3.1 INTRODUCTION . 29
3.2 RESEARCH DESIGN 29
3.2.1 The research approach 29
3.2.1.1 Scientific beliefs 29
iv
3.2.1.2 Research strategies 30
3.2.2 The research approach and process design 31
3.3 DATA COLLECTION METHOD. 31
3.4 DATA COLLECTION PROCEDURE 32
3.5 DATA PROCESSING METHOD 32
3.6 ANALYTICAL FRAMEWORK 43
3.7 CONCLUSION 44
Chapter IV: PRESENTATION, ANALYSIS AND INTERPRETATION OF
DATA . 45
4.1 FDI inflows in Hung Yen province. 45
4.2 The impacts of FDI on Economy of Hung Yen province 50
4.2.1 Survey analysis 50
4.2.2 Summary . 68
Chapter V: FINDINGS, CONCLUSIONS AND RECOMMENDATIONS . 74
5.1 Findings 74
5.2 Conclusions 75
5.3 Recommendations 75
References 77
Appendix 85

ABSTRACT
Foreign Direct Investment (FDI) is often seen as an important catalyst for
economic growth in developing countries. It affects the economic growth of the host
country by stimulating domestic investment, increasing human capital formation and
facilitating technology transfer. Regional Gross Domestic Product, Taxes Generation,
Export and FDI Labor are often considered the indicators to evaluate the contribution of
FDI on the economy of a province.
The main purpose of the study is to investigate impacts of FDI on the economy of
Hung Yen, measured by four economic indicators, i.e. Regional Gross Domestic
Product, Taxes Generation, Export and FDI Labor. The study uses annual data series for
the period of 1998-2010. The relationships between FDI and the indicators are analyzed
by using Distributed-Lag models. The results of the study show positive and statistically
insignificant relations between FDI inflows and the Regional Gross Domestic Product,
Taxes Generation, Export, FDI Labor respectively in Hung Yen. Policy recommendations
are suggested in the light of the results obtained, regarding the FDI in the province.

Chapter I: INTRODUCTION
1.1 Background of the study
Today, globalization is more and more increasingly recognized process and
becomes an inevitable trend of development in human history. When globalization and
international economic integration take place more rapidly in both size and speed,
competition becomes tougher in the world market. Foreign Direct Investment (FDI) is
increasingly important for development of economy of nations. It is claimed that
FDI can create employment, increase technological development in the host country
and improve the economic condition of the country in general. FDI is a sign to evaluate
the policy and economic outlook of a nation. FDI is the motivation to make extensive
changes in the development of international relations such as political, economic,
diplomatic, etc. Simultaneously, FDI becomes a sharp instrument for development and
global integration, market extension, cost reduction and enhancement of competitive
advantages of nations. Townsend (2003) said the relationship between foreign direct
investment and economic growth is not so clear. There are different views by
researchers on the contributions of FDI to economic growth, based on theoretical and
analytical findings. Some scholars see FDI as a very important tool for economic growth
especially in the less developed countries (LDCs), but others claim that the contribution
of FDI to economic development is not as pronounced as most people believe, even
some think FDI has no positive contribution to the economic growth of the host
country. For example, Nuzhat Falki (2009) examined the Impact of FDI on Economic
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Growth of Pakistan from 1980 to 2006. She concluded that FDI has negative statically
insignificant relationship between GDP and FDI inflows in Pakistan in this period.
Pardeep (2000) founded that the increase in FDI inflows in South Asia were associated
with a many-fold increase in the investment by national investors, suggesting that there
exist linkage effects between FDI and GDP. The impact of FDI on GDP growth is found
to be negative prior to 1980, mildly positive for early eighties and strongly positive over
the late eighties and nineties. It can be seen that there has been no consensus opinion on
FDI and economic growth.
1.2 Statement of the problem
In Vietnam, the important role of FDI has been acknowledged for the last 20
years. Since the launch of market-oriented economic reforms in 1986, Vietnam has been
among the fastest growing countries in Southeast Asia with the active participation of
foreign investors in all fields of the economy. Vietnamese government has quickly
jointed the competition for foreign direct investment into regional and global markets by
restructuring the domestic economy and opening up the economy to external trade and
investment (Hoang Thi Thu, 2013). The FDI capital has been supporting provinces to
restructure the economy towards industrialization and modernization, to create many new
industries and products. It also contributed to improving management capacity,
increasing labor productivity, developing technology, expanding export markets, creating
jobs, and improving living standards of workers. However, in recent years, some
problems, which related to FDI, occurred in Vietnam. For example, Vedan company
discharged the waste to the ThiVai River, over 100 golf course projects were licensed,
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capacity of cement plants increased rapidly to levels that exceed the domestic demand,
etc.
Hung Yen is a delta province, located in the key economic zone of Northern
Vietnam. It has advantages of natural conditions and infrastructure. After the Foreign
Investment Law was issued (in December, 1987), Hung Yen has attracted a flow of FDI
capital to some of its key industries, and this contributed significantly to the restructuring
of the province economy. The attraction and use of FDI capital not only contribute to
economic development of the province, but also promote economic development of the
whole key economic zone in Northern Vietnam.
Hung Yen’s economy has greatly transformed since the FDI activities were
implemented. Therefore, it is highly necessary to conduct assessment of the impact of
FDI on the economy of Hung Yen province . This assessment would be a good basis for
the authority to issue appropriate policies on economic development of the province.
In this study, the relationship between FDI and the economy in the province
will be discussed, and the contribution of FDI to growth will be investigated. To
perform this analysis scholarly opinions and suggestions will be discussed and empirical
analysis on FDI will be carried out.
This study attempts to answer the follow questions:
1. How does FDI effect on the existing status and flow of FDI in Hung Yen province
from 1998 to 2010?
2. What have the FDI inflows contributed to the economy of Hung Yen province?
3. Have the contributions been positive or not?
4
To answer above questions, the objectives of the study are:
 To investigate the effect of PCI on FDI inflows in Hung Yen province;
 To assess the contribution of FDI to the economy in Hung Yen province by
assessing the impacts of FDI on fours economic indicators:
+ Regional Gross Domestic Product
+ Taxes Generation
+ Export
+ FDI Labor
 To determine the positive and negative effects of FDI on the economy of Hung
Yen province
1.3 Hypotheses
Because PCI includes the component indicators affect on the FDI attraction, so to
investigate the FDI attraction in Hung Yen province, the effect of PCI on FDI inflows
will be researched.
Hypothesis 1: PCI affects FDI in Hung Yen province in the period of 1998-2010.
Fours economic indicators: Regional Gross Domestic Product, Taxes Generation,
Export, FDI Labor can represent the economic growth. To assess the contribution of FDI
to the economy in Hung Yen province, the following hypotheses will be tested:
Hypothesis 2: FDI inflows positively contribute to RGDP of Hung Yen province.
Hypothesis 3: FDI inflows positively contribute to Taxes Generation of Hung Yen
province.
Hypothesis 4: FDI inflows positively contribute to Export of Hung Yen province.
5
Hypothesis 5: FDI inflows positively contribute to FDI Labor of Hung Yen province.
1.4 Significance of the Study
The study shall become noteworthy to the following subjects:
1. To the management of the province: The result of the study can serve as a basis
to revise some policies as well as devise an appropriate attraction FDI strategy for the
development of the province.
2. To investors: The result of the study may help investors realize the advantages
they can have in doing business in the province, so that they may get interested to make
new or expand existing investments in the province.
3. To business students and future researchers: This study can serve as benchmark
information for related studies.
4. To the researcher: This work is a test of his/her knowledge in business and
his/her ability to engage in a research work.
1.5 Scope and limitation of the study
Scope of the study: Hung Yen province
Hung Yen province is located next to Hanoi, the capital of Vietnam. Hung Yen
province includes nine districts: Van Lam, My Hao, Yen My, Kim Dong, Phu Cu, Tien
Lu, Van Giang, Khoai Chau, An Thi, and one city under province is Hung Yen.
Limitation of the study:
The author studied the influences of PCI on the FDI attraction and the impacts of
FDI on fours economic indicators: Regional Gross Domestic Product, Export, Taxes
Generation and FDI Labor.
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The thesis will concentrate on the period between 1998 and 2010 based on the
secondary data.
1.6 Definition of Terms
1. Domestic investment - Investment in the companies and products of the host
country rather than in those of foreign countries.
2. Export - The value of goods and services sold to overseas.
3. FDI Labor - Total of employees working in the FDI enterprises. The FDI Labor
is one of the economic indicators to evaluate the contribution of FDI inflows on the
economy.
4. Foreign Direct Investment (FDI) – Investment directly into production or
services in a country by a company located in another country, either by buying a
company of the host country or expanding the existing business to the host country.
5. Provincial Competitiveness Index (PCI) - An index used to evaluate and rank
the performance of economic governance including the construction of a favorable
business environment for enterprise development of Vietnam’s provinces.
6. Regional Gross Domestic Product (RGDP) – The market value of all officially
recognized final goods and services produced within a region in a given period
7. Taxes Generation – The total tax revenue of the province’ budget contributed
by the FDI enterprise.
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Chapter II: REVIEW OF RELATED LITERATURE AND STUDIES
In analyzing the contribution of FDI on economy, it is necessary to know the type
of investment that is qualified as FDI. This section discusses the investments that can
be called FDI and those involved in it. Simultaneously, the factors of economy are
effected by FDI will be discussed. It also reviews previous researches on the relationship
between FDI and economic growth on FDI flows to developing countries in general and
to Vietnam in particular.
2.1 REVIEW OF RELATED STUDIES
There have been numerous research works on the effects of FDI on economic
growth with varied conclusions on the role of FDI on economic growth. Alfaro (2003)
applies linear regression method to study the relationship between FDI and labor
productivity in various industries, base on the panel data of 47 countries from 1981 to
1999. The research found out that, FDI has positive effects on the productivity in
manufacturing industries, whereas its effects on growth of agricultural and mining sectors
are negative. Mencinger (2003) pointed out, from the panel data of eight East European
transition economies from 1994 to 2001, that FDI undermines these countries’ ability in
catching up with EU. The possible reasons include the small scales of such economies
and over-concentration of FDI on trade and finance which reduce the spillover effects in
terms of labor productivity in economic sectors as a whole. FDI may not necessarily put
further competition pressures, since the competitors in receiving countries are likely to be

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