Các yếu tố thúc đẩy đầu tư trực tiếp nước ngoài vào Việt Nam: Một cách tiếp cận thông qua phương trình hồi quy đa biến

Nội dung text: Các yếu tố thúc đẩy đầu tư trực tiếp nước ngoài vào Việt Nam: Một cách tiếp cận thông qua phương trình hồi quy đa biến

1. DETERMINANTS OF FDI INFLOWS INTO VIETNAM: A MULTIPLE REGRESSION ANALYSIS APPROACH CÁC YẾU TỐ THÚC ĐẨY ĐẦU TƯ TRỰC TIẾP NƯỚC NGOÀI VÀO VIỆT NAM: MỘT CÁCH TIẾP CẬN THÔNG QUA PHƯƠNG TRÌNH HỒI QUY ĐA BIẾN TS. Hoàng Chí Cương ThS. Nguyễn Văn Thụ ThS. Đồng Thị Nga Trường Đại học Dân lập Hải Phòng Abstract In this article, first, the authorsgive an analysis on FDI inflows into Vietnam during 1995-2015. Then, the author employsa multiple regression model with a panel dataset to identify deterministic factors of FDI inflows into the country recently.The estimation results suggest that the most important elements inducing FDI inflows into the country recently are the Institutional Reform, Openness to Trade, and Improvement of the Infrastructure. The Financial Policy for a low Landing Interest Rate is also a factor attracting FDI inflows. The Exchange Rate Policy has not supported for magnetizing FDI capital. Surprisingly, Labour Force has had a negative impact on FDI attraction. Some policy recommendations are also proposed. JEL Classifications: F21, F23, O16, O43 Key words: FDI,multiple regression model, Panel data, Vietnam Tóm tắt Trong bài báo này, trước tiên, tác giả phân tích thực trạng thu hút vốn FDI vào Việt Nam giai đoạn 1995-2015. Sau đó, tác giả xây dựng mô hình kinh tế lượng hồi quy đa biến với dữ liệu bảng (Panel data) để xác định các yếu tố thu hút FDI vào Việt Nam. Kết quả ước lượng cho thấy các yếu tố thu hút FDI vào Việt Nam gần đây là sự cải thiện về thể chế, độ mở thương mại cao, cải thiện về cơ sở hạ tầng. Chính sách tài chính với lãi suất thấp cũng là một yếu tố thu hút FDI. Chính sách tỷ giá và lực lượng lao động dồi dào không tác động đến thu hút FDI. Một số đề xuất về chính sách cũng được đưa ra trong nghiên cứu này. Phân loại theo JEL: F21, F23, O16, O43 Từ khóa: FDI, hồi quy đa biến, dữ liệu bảng, Việt Nam 1. Introduction The International Monetary Fund (IMF) defines foreign direct investment (FDI) as “cross border investment” in which an investor that is “resident in one country has control or a significant degree of influence on the management of an enterprise that is resident in another economy”. Foreign direct investment is “a form of international capital flows” (Razin and Sadka 2007). Nowadays, the issue of FDI catches the attention of both national and international levels. This is probably due to its growing economic importance for both 523
2. countries of origin and host countries of FDI activities. Historically, Vietnam started transforming its centrally planned economy into a market-economy since 1986, which is the so-called Renovation Policy. The country opened “the door” to the World in the early 1990s. Since the end of the U.S. embargo, in February 1994, Vietnam has engaged successively in several regional trade agreements and international organizations such as ASEAN, AFTA, USBTA, ACFTA, AKFTA, JVEPA, WTO, AEC and the TPP etc. Through which the country has made efforts to reform its economic institution. The results of the institutional reforms demonstrated through administrative reforms, removal of restrictions on investment, improvement of legal transparency. Recently, FDI has become a significant source of funds for Vietnam. Many of Vietnam’s economic indicators prove that FDIcapital has been a key to success in the process of industrialization-modernization and economic development. On one hand, FDI generates new financial and managerial, and technological resources. On the other hand, it increases employment and exports. Moreover, FDI may also have the linkage effect to domestic firms, and promote the efficiency of the economy. After over the two decades since the Renovation, the country has attracted up to $314,707 million of FDI registered capital of 21,392 projects (GSO, 2017).128 Thisraises the research question thatwhat are the trends and determinants of FDI inflows into Vietnam. The main purpose of this research is to identify the best determinants of FDI inflows into the country by employing multiple regressionmodels and a panel datasetof seventeen main FDI partners. The resultswill havean important implication for the design of supporting policy for Vietnam to further attracting foreign capital flows. The remainder of this article is constructed as follows. Section 2 presents a brief literature review on determinants of FDI. Section 3 gives an overview about FDI inflows into Vietnam during1995-2015. Section 4specifies the economic model and decrypts a panel dataset. Section 5 analyses the estimation results. Final section refers to concluding remarks and policy implications.129 2. A brief literature review on determinants of fdi Table 1 below presents some notable studies related to the research topic. Generally, these mentioned researches investigated for developing countries, transition economies as well as for the groups like the European Union, the Latin America countries, the Southeast Asia or the BRICS countries using the gravity model, the Poisson regression model, time series or panel data with the OLS, FE, RE, GMM, GLS, WLS estimates but no consensus has emerged (Kok and Versoy, 2009). Above all, presently available research literature pertaining to Vietnam is still scared with a few notable exceptions such as Hoang et al. (2015), Nguyen and Nguyen (2014), Pham (2011), Hsieh (2005), Mirza and Giroud 128 Please see the website of Vietnam GSO: accessed in March, 2017. 129 Due to lack of data of some variables offered by the World Bank and Vietnam GSO in 2015, the authors only collect the panel data in the duration of 1995-2014 to run regression model. However, this does not effect to the nature in explanation the relationship between the independent variables and the dependent variable (FDI inflows into Vietnam) in regression models. 524
3. (2004), Nguyen and Haughton (2002), Parker et al. (2002) in a short time frame.In this context, to provide the originality and significance of the research, this article intends to expend the literature on the case of Vietnam by identifying the best determinants of FDI inflows into the country by employing a long term and updated panel data. The author hopes to contribute to the existing literature on the determinants of FDI inflows into a developing economy in terms of testable implication from economic model. Table 1: Some Notable Studies on Determinants of FDI Author/year Methodology Results Ravinthirakumaran, Market size, trade openness and infrastructure K.; Selvanathan, E. A.; Time series data of Sri Lanka in level have a positive impact, while wage and Selvanathan, S.; Singh, the period from 1978-2013 political instability have a negative impact on T (2015) FDI. The stock of infrastructure attracts FDI to LAC 68 developing countries (1975- Kevin Williams (2015) and constraints on the executive and high debt 05), OLS, FE, RE discourage FDI to non-LAC. Market size, Trade openness, Quality Six ASEAN countries: Vietnam, infrastructure, Human capital, Labour Hong Hiep Hoang and Indonesia, Malaysia, Philippines, productivity: +; Exchange rate policy, Real Duc Hung Bui (2015) Singapore, and Thailand, panel interest rate, Political risk and Corruption also data (1991-09) affect FDI inflows; Cheap labour does not help to attract FDI. Cultural distance factors, Relative labour Linear regression model endowments, Trade agreements: +; There is Bruce A. Blonigen and (Bayesian Model Averaging), little support for Multilateral trade openness, Jeremy Piger (2014) OECD and some non OECD Host-country business costs, Host-country countries infrastructure and Host-country institutions. Ordinary Least Squared to a panel Hem C. Basnet and of time-series and cross-sectional No significance to remittances in explaining Kamal P. Upadhyaya data for 35 middle-income cross-country variation in FDI. (2014) countries for the period of 1980- 10. Yutaka Kurihara Panel data in ASEAN countries Economic growth, Domestic prices in ASEAN (2012) and US (2002-11) and US prices promote FDI into ASEAN Energy intensity: -; Investment in human Ozkan-Gunay, E. Nur Panel data Model for EU-15 and resources, Innovation, R&D, Infrastructure, and Bogazici U (2011) EU-12+2 (1998-08) Gross capital formation, Domestic market size: + Dynamic Panel Data (1999-06), Good economic perspectives, Human capital, Alfredo Jiménez GMM, north African countries Development of infrastructures, Greater levels (2011) and new European Union member of political risk: + states Chee-Keong Choong GDP of Malaysia and China, Literacy rate, and Linear regression model, time and Siew-Yong Lam Openness level promote FDI in both the long- series (1970-06) in Malaysia (2010) and short-run. 525
4. Mohamed Amal, Panel data model of economic and Economic stability, Growth, Trade openness, Bruno Thiago Tomio institutional determinants of FDI Improvement in the institutional and political and Henrique Raboch in eight Latin American countries environment are determinants of FDI (2010) (1996-08) Narayanamurthy Vijayakumar, Market size, Labour cost, Infrastructure, Panel data (1975-07) in Perumal Sridharan and Currency value and Gross Capital formation BRICS countries, FE, RE Kode Chandra Sekhara are the potential determinants of FDI Rao (2010) GDP of the host and home countries, GDP per capita of the host and home countries, Industry Gravity model, 5 ASEAN imports from home country, Industry exports Piyaphan countries (1999-03), Indonesia, to home country, Industry tariff rates, and Changwatchai (2010) Malaysia, Philippines, Thailand Industry output levels all have a positive effect and Vietnam on FDI.Distance, Wage and Education have a negative effect on FDI. Improving the institutional quality, Market Masron and Abdullah Panel data (1996-08) size, Human capital, Opening of the economy: (2010) + Christian Bellak, Augmented gravity model, panel Infrastructure Endowment and Corporate Markus Leibrecht and data (1995-04) Income Taxes are determinants of FDI Joze P. Damijan (2009) Presents a review of nine theoretical models of foreign direct investment: early studies of determinants of FDI (1) as well as determinants of FDI based on the FDI should be explained more broadly by a neoclassical trade theory (2), combination of factors from a variety of ownership advantages (3), theoretical models such as ownership aggregate variables (4), the Isabel Faeth (2009) advantages or agglomeration economics, ownership, location and market size and characteristics, cost factors, internalization advantage transport costs, protection, risk factors and framework (5), horizontal and policy variables. vertical FDI models (6), the knowledgecapital model (7), diversified FDI and risk diversification models (8) and policy variables (9) Panel data of 24 developing Recep Kok and Bernur countries (1983-05) for FMOLS Total debt service/GDP and Inflation: -; Acikgoz Ersoy (2009) and (1976-05) for cross-section Communication variable: + SUR. 526
5. Market size of host and source country, shorter the Distance, common in Language, Border, A semi gravity model (1995-03) extended Market relative to distance, lower of 18 source countries and 9 Ismail (2009) Inflation rate, higher in Exchange rate, good ASEAN countries except Government budget, good Telecommunication Cambodia and Infrastructure, Transparency and Trade policy: + Comprehensive theoretical Market-seeking; Resource-seeking; Efficiency- Dunning and framework relatively of the seeking; Strategic asset-seeking are factors Lundan (2008) determinants of FDI inducing FDI inflows The differential between labour productivity and the cost of labour has been an important determinant of FDI in Spain during the period 1993-2002. Factors related to demand, the Xose´ A. Rodrı´guez Panel data (1993-02) in Spain, evolution of human capital, the export potential and Julio Pallas (2008) GLS (cross-section weights) of the sectors and certain macroeconomic determinants that measure the differential between Spain and the European Union average, also play a very important role in attracting flows of FDI. Location factors (especially Host-market size), Klimis Vogiatzoglou Panel-gravity model, South and Trade, Vertical specialization, and (2007) East Asia (1994-03) International integration are related location determinants. Trade flows, Political and economic stability Kimino, Satomi; Saal, are determinants of FDI; Exchange rates, Pooled panel data (1989-02) of 17 David S.; Driffield, Relative borrowing costs, and Labour costs are countries, FE, RE Nigel (2007) sensitive to the econometric specification and estimation approach. Cross-section data of bilateral foreign direct investments (FDI) Hubert P. Janicki and between the members of the Size of the host economy, Host country risk, Phanindra V. Wunnava European Union and eight central Labour costs in host country, and Openness to (2004) and east European candidate trade: + (CEEC) economies in transition in 1997, Regression (WLS). Time-series data (1975-91) of Marios B. Obwona Market size: +; GDP growth: +; Inflation: -; Uganda, a two-stage least squares (2001) Trade account balance: - (2SLS) estimation Ownership-specific advantages (“O”); Dunning (1981, 1988) OLI paradigm Location-specific advantages (“L”); Internalization (“I”) are factors promoting FDI Panel Data (1995-11) of 17 FDI Hoang Chi Cuong, WTO: +; AKFTA: +; AANZFTA: -; partners of Vietnam, Gravity Tran Thi Nhu Trang, Institution: +; GDP partner: +; Distance: -; Model, Hausman-Taylor Dong Thi Nga (2015) GDP vn: - Estimation 527
6. Panel GMM Arellano-Bond Nguyen Van Bon & market-size (GDP per capita), labour force estimation and the PMG Nguyen Minh Tien (labor age 15-64/total population) and trade estimation method in the duration (2014) openness ([EXP+IMP]/GDP): + 1990-11 of 11 Asian Countries Pham Thi Hong Hanh Panel data (1990-08) in Vietnam, WTO: +; Distance: -; (2011) Gravity Dynamic panel data model with The one period lagged FDI inflows, GDP per fixed effect capita, and the degree of openness, the Asian Hsieh (2005) including Cambodia, Laos, financial crisis is found to have deterred FDI Myanmar and Vietnam, for the inflows in these countries. period of 1990 to 2003 Survey of subsidiaries of political stability, government policies, size of Mirza and Giroud transnational corporations (TNC) the local market and quality of the labour (2004) in ASEAN (22 firms) force: + Model of FDI determinants for the openness (measured by Nguyen and Haughton sixteen Asian countries for the export of GDP), Real exchange rate, (2002) period 1991-99. government budget deficit, domestic savings: + Quantitative and qualitative Parker et al (2002) USBTA increases FDI to VN analysis, Vietnam Source: The author’ compilation. The next section will first give an overview about FDI inflows into Vietnam recently. 3. An overviewabout fdi inflows into vietnam during 1995-2015 Note: Including supplementary capital to licensed projects in the previous years Figure 1:FDI Registered and Implemented Capital in Vietnam during 1995-2015 ($ millions) Source: Vietnamese General Statistics Office (GSO), 2017 528
7. Figure 1 shows the overall trends of FDI inflows into Vietnam by the number of projects, the amount of registered and implemented capital during 1995-2015. Generally, both the number of newly licensed projects and registered capital declined dramatically in the second half of the 1990s. FDI picked up in the early years of the new millennium, and then suddenly rocketed after Vietnam’s accession to the WTO. Specifically, after the launch of Asian financial crisis, in 1997, FDI inflows to Vietnam reduced slightly. Although it remained a relatively closed economy during the time crisis happened, a large portion of FDI came from the region caused a drop of FDI flows (Nguyen and Nguyen, 2007). The FDI registered capital bottomed out in 1998. In the second haft of the 1990s, there were 1,724 investment projects with registered capital of around $26,259 million. Implemented capital was some $12,944.8 million. The FDI inflows started to rebound as countries in the region recovered after the 1997 Asian financial crisis together with the signing of the US-Vietnam Bilateral Trade Agreement (USBTA) in 2000. FDI flows have grown up steadily from $3,142.8 millionin 2001 to $6,839.8 millionin 2005. The total FDI capital flowed into Vietnam in duration of 2001-05 was $20,702.2 million. Implemented capital was about $13,852.8 millionat the same period. In duration of 2007-2011, Vietnam attracted the total FDI capital of about $143,950.3 million. Total implemented capital of this duration was $51,530 million. Duration of 2007-2011 referred to as the “second investment boom” period of Vietnam due to the euphoria of Vietnam’s accession to the WTO. After the 2008 global financial and economic crisis, FDI inflows into Vietnam reduced slightly then increased again since 2012. In the period from 2012 to 2015, Vietnam attracted 6,780investment projects with total registered capital of around $84,736.9million. The implemented capital was about $48.546 million. 4. Specification of economic model and decrypting the data This paper uses a panel of annual data on the foreign direct investment inflows into Vietnam from 17 main FDIsource countries for the period of 1995-2014. It includes Australia, Belgium, Canada, China, France, Germany, Hong Kong, Japan, Malaysia, the Netherlands, the Philippines, Singapore, the Republic of Korea, Taiwan, Thailand, the United Kingdom, and the United States. The year 1995 is chosen as the starting year for the reason of available data in Vietnam.The empirical specification, suggested by Zheng (2011) and with some modifications, takes the following form: FDIit = βjXVNjt + εit (1) Where FDIit is the foreign direct investment inflows into Vietnam from country i at year t (implemented capital in U.S. dollars). This is the dependent variable in the equation (1). XVNjt is the matrix of independent/exogenous variables in year t. βj is the vector of coefficients of the independent variables. εit is the vector of random disturbances/standard errors.To identify the best determinants of foreign direct investment inflows into Vietnam, a log-linear model isemployed. Thus, equation (1) in logarithmic form is: LnFDIit = β0 + β1LnGDPGVNt + β2LnINFLVNt + β3LnOPENVNt + β4LnAIRPVNt + β5LnLABOVNt + β6LnEXCRVNt + β7LnINSTVNt + β8LnLANRVNt+εit (2) 529
8. In which: FDIitis the foreign direct investment inflows from country i at year t into Vietnam (implemented capital in U.S. dollars) GDPGVNt is the real GDP growth rate (2005 price) of Vietnam at year t (%) INFLVNt is the inflation rate, GDP deflator, of Vietnam at year t (%) OPENVNt is the merchandise trade as a share of GDP of Vietnam at year t (%), taken by the sum of merchandise exports and imports divided by the value of GDP. AIRPVNt is the registered carrier departures worldwide of Vietnam at year t. They are domestic takeoffs and takeoffs abroad of air carriers registered in the country. LABOVNt is the total labour force comprises people ages 15 and older of Vietnam at year t, who meet the International Labour Organization (ILO) definition of the economically active population (all people who supply labour for the production of goods and services during a specified period). It includes both the employed and the unemployed. EXCRVNt is the real effective exchange rate between VND with currency of country partner jat year t. the real effective exchange rate is the nominal effective exchange rate divided by a price deflator or index of costs. INSTVNt is the institutional variablecalculated from the average of five indicators (Political Stability, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption)of Vietnam at year t.The lowest scale is zero and the highest scale is 100. LANRVNtis the lending interest rate of Vietnam at year t (%). The lending interest rate is the bank rate that usually meets the short-and medium-term financing needs of the private sector. This rate is normally differentiated according to creditworthiness of borrowers and objectives of financing. εit is the vector of random disturbances/standard errors. Table 2 below presents the variables and the resources of data. Table 2: The Variables and the Resources of Data Variables Resources of Data FDIit Ministry of Planning and Investment (MPI), GSO of Vietnam, 2016 The World Bank, accessed on February 27, 2016, website: GDPG VNt The World Bank, accessed on February 27, 2016, website: INFL VNt The World Bank, accessed on February 27, 2016, website: OPEN VNt The World Bank, accessed on February 27, 2016, website: AIRP VNt The World Bank, accessed on February 27, 2016, website: LABO VNt The World Bank, accessed on February 27, 2016, website: EXCR VNt 530
9. The Worldwide Governance Indicators, accessed on Feb. 27, 2016, website: INST VNt www.govindicators.org The World Bank, accessed on February 27, 2016, website: LANR VNt 5. The empirical results and discussions Table 3, Table 4, and Table 5 below present the estimated results using the Stata 11 and the OLS, FE and RE estimation techniques.Mentioning the OLS technique, an important assumption for the multiple regression models is that independent variables are not perfectly multicolinear. One regress should not be a linear function of another. When multicollinearity is present standard errors may be inflated. The author uses variance inflation faction (VIF) to analyze the multicolinearity. If Mean VIF > 10 or 1/VIF F = 0.5589, we fail to reject the null hypothesis or there is no autocorrelation. Regarding the heteroskedasticity, a non-graphical way to detect heteroskedasticiy is the Breusch-Pagan test. The null hypothesis is that residuals are homoskedastic. In this case we fail to reject the null because Prob > chi2 = 0.9247 or insignificant Breusch-Pagan test. To ensure the OLS model is appropriate or not, after running the RE model, the author uses Breusch and Pagan Lagrangian multiplier test for random effects. The null for xttest0 is var(u) = 0. If that is the case then there are no random effects. A significant result rejects var(u)=0 in favor of var(u) > 0, in which case the OLS model thatassumes that the error process has vce = \sigma^2 I_{NT} is not the appropriate model. So, a rejection (significant test result)implies that we should not use the OLS model. In this case, Prob > chi2 = 0.0000, we reject the null and conclude that the OLS model is not appropriate. The author, then, uses the Hausman test with the null (Ho): difference in coefficients not systematic. Under the null the coefficient vectors from FE and RE should not differ significantly for the common coefficients. Under the alternative X is correlated with u, RE is inconsistent and we should use FE. Therefore, a significant Hausman test statistic implies FE. In this case, the Prob>chi2 = 0.9823 we fail to reject the null and conclude that RE is appropriate. 531
10. Table 3: The Estimation Results of the LnFDIit Equation Independent Dependent variable: LnFDIit Variable FE RE OLS -0.6800 -0.6837 -0.6890 LnGDPG VNt (0.5327) (0.5335) (0.8774) 0.1854 0.1861 0.1871 LnINFL VNt (0.2381) (0.2385) (0.3922) 2.6535 2.6351 2.6091 LnOPEN VNt (1.3601) (1.3620) (2.2397) 2.5938* 2.5692* 2.5342 LnAIRP VNt (0.6487) (0.6494) (1.0674) -18.8075* -18.2717* -17.5120 LnLABO VNt (5.9075) (5.9034) (9.6794) 0.0226 -0.1045 -0.2849* LnEXCR VNt (0.1444) (0.1122) (0.0462) 3.6374 3.5315 3.3814 LnINST VNt (2.1419) (2.1436) (3.5223) -1.5522 -1.5360 -1.5129 LnLANR VNt (0.7472) (0.7482) (1.2303) Constant 300.0204* 292.3004* 281.3548 (92.1607) (92.1269) (151.12) R-sq: within = 0.0871 R-sq: within = 0.0849 between = 0.1570 between = 0.1570 R-squared = 0.1290 overall = 0.0151 overall = 0.1017 Prob > F = 0.0003 Prob > chi2 = 0.0002 Prob > chi2 = 0.0000 Note:*, , indicate the coefficient is significant at the level of 1%, 5%, 10% respectively; Values in parentheses are standard errors. Table 4: The Summary of the Statistics (Period: 1995-2014; Countries: 17; Observation: 340) Standard Variables Mean Min Max Deviation LnFDIit 18.13326 1.884371 10.60485 22.20339 LnGDPGVNt 1.880623 0.1799037 1.563098 2.255544 LnINFLVNt 2.118747 0.5311711 0.9847279 3.121189 LnOPENVNt 4.69792 0.2782671 4.183684 5.081228 LnAIRPVNt 10.93128 0.5913977 10.20729 11.88194 LnLABOVNt 17.62713 0.1227529 17.41048 17.80833 LnEXCRVNt 7.969087 2.119055 2.247857 10.45733 LnINSTVNt 3.684313 0.0370052 3.602777 3.746912 LnLANRVNt 2.50034 0.2496412 2.159292 3.00072 532
11. Table 5: The Correlation Matrix Corre. LnFDIit LnGDPGVNt LnINFLVNt LnOPENVNt LnAIRPVNt LnLABOVNt LnEXCRVNt LnINSTVNt LnLANRVNt LnFDIit 1 LnGDPGVNt -0.0232 1 LnINFLVNt -0.0117 0.2355 1 LnOPENVNt 0.0812 -0.4423 0.1007 1 LnAIRPVNt 0.1151 -0.4715 0.0717 0.9120 1 LnLABOVNt 0.0837 -0.5512 0.0097 0.9746 0.9523 1 LnEXCRVNt -0.3002 -0.0952 0.0068 0.1593 0.1529 0.1634 1 -0.1257 0.0537 0.4135 0.4341 0.4039 0.0551 1 LnINSTVNt 0.0769 LnLANRVNt 0.0023 0.3764 0.6744 -0.3566 -0.1996 -0.4011 -0.0672 0.1335 1 As above argument, we favor the RE model to explain the determinants of FDI inflows into Vietnam recently. The estimated results of the RE model in Table 3 above suggest that the most important determinants of FDI inflows into Vietnam recently are the institutional reform, openness to trade, and improvement of infrastructure. The financial policy for a lowlanding interest rate is also a factor attracting FDI inflows.This is consistent with theoretical model. However, the exchange rate policy has not supported for magnetizing FDI inflows as expected. Moreover, surprisingly, the labour force has had a negative impact on FDI attraction.Those results can be explained as the followings. In the context of Renovation and to attract foreign resources, the Foreign Investment Law was issued in 1987. Since then, investment activities in Vietnam were regulated by four main legal instruments including the Enterprise Law (1999), Law on State Enterprises, Law on Domestic Investment Promotion, and Foreign Investment Law. Nonetheless, in the late 1990s, many regulations and requirements were imposed on foreign invested enterprises (e.g., achieve a certain localisation rate, export with certain proportion, self balance the foreign currency from exports to meet the demand of imports, and so on) in investment licensing. These regulations violate the provisions of Article III (National Treatment) and XI (Quantitative Restriction) of the General Agreement on Tariffs and Trade (GATT) 1994. Upon complaints made by foreign investors and to qualify the provisions of the signed FTAs and the WTO, the 2005 Investment Law (Luat Dau tu 2005) and the 2005 Enterprises Law (Luat Doanh nghiep 2005) were promulgated. It is undeniable that the WTO and the signed FTAs have, in many ways, affects the domestic legal system. Experiences drawn from recent members reveal that how soon a country can access these organizations depends largely on how it implements policies/regulations/legal reforms towards a market economy. Recognizing the importance of the legal system for the operation of a market economy and the responsibility of FTAs and WTO member, Vietnam has made tremendous efforts in the creation of a legal framework to implement what it has committed to trading and FDI partners. The agenda for legal reforms expresses the changes of trade and FDI policies (including tax reforms, the elimination or the loosening of quotas, and abolishing prohibited subsidies/regulations, etc.) to make the trade regime and investment environment of Vietnam compatible with the 533
12. requirements of the FTAs and the WTO. The country has enacted and revised a large number of laws and sub-law documents since the launching of the WTO accession negotiation process and the signed FTAs. Particularly, the Investment Law (2005) and the Enterprise Law (2005), which entered into force on 1 July 2006, have been applied to investors and enterprises of all economic sectors, in the direction of: (i) expanding the business autonomy (such as selecting the investment fields, the form of investment, investment scale, investment partners), the access to using investment resources (such as land capital and resources), the import and export rights as well as rights to buy technology, mortgage, access public services on the principle of non-discrimination; (ii) removing the barriers related to investment as the provisions relating to the localisation rate, export proportion, and the raw materials purchased domestically; (iii) diversifying the forms of investment; (iv) strongly reforming investment procedures in the direction of expanding the decentralisation on the granting of investment certificates and state management of investment activities; simplifying the verification procedures for granting investment certificates, etc (Invenco, 2012). To some extent, the issues mentioned not only match international standards but also qualify for the provisions under the TRIMs of the WTO.The dual price policy was also removed as mentioned in Article 10 of the 2005 Investment Law.The new laws and regulations are more transparent and accessible to the public. Evidently, these have three main objectives. The first objective is to attract FDI capital of overseas investors by creating a secure and healthy business environment. The second objective is to promote the country’s foreign trade by liberalizing trade within the Committed Schedule to the signed FTAs and the WTO members. Last but not the least is speeding up economic reforms in Vietnam. In turn, it attracts more overseas investors. On November 26, 2014 the National Assembly of Vietnam adopted new laws on Investment and Enterprises (2014 Law on Investment and Law on Enterprises) which took effect on July 1, 2015 and replaced the 2005 Investment Law and Enterprise Law. Under these new laws, there are many changes designed to open opportunities for foreign investors through new provisions on licensing procedures applicable to certain common investment forms, including investment along with setup of enterprise and investment under the way of capital contribution or shares purchase in enterprises in Vietnam.130 As indicated in the estimation results that the improving of the infrastructure of Vietnam recently is also a factor inducing FDI capital into the country. This is a new finding in this study. This is because the infrastructure development of a country is an important factor to be considered when foreign investors make their choices to invest in. Better infrastructure in terms road, seaport, airport, water and electric system can make the business activities run simultaneously and stably without interruptions and shortages so that businesses and factories can work unimpeded. It is undeniable that, even there exist some concerns such as traffic-jam in big cities like Hanoi and Ho Chi Minh, the Government of Vietnam has tried its bests to use ODA and other financial sources,for 130For further details, please see these two laws. 534
13. instancenational target or calling for inward FDI capital through BOT, BTO, BT contract,to improve the country’s infrastructure.131 Figure 2presents Vietnam’s foreign trade flows recently. It is obviously that, since opening “the door” to the world in the 1990s, Vietnam’s exports and imports have been increasing dramatically and usually higher than the growth of GDP, around 20% annually. Total exports and imports reached to $ 328,000 million as of 2015, 1.72 times higher than normal GDP at the same year. Figure 2: Vietnam’s Trade flows during 1995-2015 Source: Vietnamese General Statistics Office (GSO), 2016 An economy that is open to trade is attractive to overseas investors for two main reasons: (i) the openness signals that the government has policies in place that welcome both trade and competition; and (ii) it may help reassure investors that they can repatriate their profits. The financial policy for a low landing interest rate is also an important factor attracting FDI inflows. Low interest rate means low business costs. In turn, it induces investment in the country. The labour force has had a negative impact on FDI attraction. It seems that foreign investors consider the low labour costs and the labour productivity are more important than the scale of labour in Vietnam. In this case, FDI projects may seek for the effectiveness in businesses resulting from the cheap labour force and the low tax rates. At the moment, FDI sector absorbs about over 2 million labours in Vietnam, around 3.8% of total labour force. 131ODA: Official Development Assistance; BOT: Building-Operating-Transfer; BTO: Building-Transfer- Operating; BT: Building-Transfer. 535
14. As stated, the exchange rate policy has not supported for magnetizing FDI inflows as expected due to its insignificant coefficient in the regression model. Theoretically, an increase/decrease of the real effective exchange rate means the devaluation/overvaluation of VND may affect to FDI flows. Specifically, an increase of the real effective exchange rate (the devaluation of VND) may attract FDI flows and vice versa.Unfortunately, in this study, the author could not find the relationship between the exchange rate regime and the FDI inflows. 6. Concluding remarks and recomendations Foreigndirect investment has taken a crucial role in Vietnam’s development process since the launch of Renovation in 1986. Over the past two decades, the country has attracted a considerable amount of FDI capital, up to $314,707 million.By employing a multiple regression model and a panel dataset during 1995-14, the author find thatthe most important determinants of FDI inflows into Vietnam recently are the institutional reform, openness to trade of the economy to the world, and improvement of the infrastructure. The financial policy for a low landing interest rate is also a factor attracting FDI inflows. The exchange rate policy has not supported for magnetizingFDI capital. Moreover, the labour force has had a negative impact on FDI attraction. The followings are some policy implications. First, the business environment should also be further improved emphasizing on regulatory reform, administrative procedures reform, apparatus reform, capacity enhance for cadres and civil servants, and administration modernization. These are to reduce the obstacles (bureaucracy, corruption), and to create a clear business environment, transparent/stable legal framework to satisfy foreign investor’s requirements.Second, Vietnam should use effectively ODA and other capital sources to perfect its infrastructure in terms of road, airport, seaport etc.Third, Vietnam should use the trade openness within signed FTAs to attract moreadvance technology FDI projects from developed economies like the U.S., Japan, the Republic of Korea, and the EU. The country should also maintain a low interest rate to induce FDI inflows into the country.Besides, using the marketing methods to polish Vietnam’s images in international community will make its soft power stronger then lobby and promote the FDI inflows. Not only the Ministry of Planning and Investment, but also the Ministry of Culture, Sport and Tourism as well as other authorities, cities, and individuals should conduct this. Generally, foreign investors are usually attracted by three broad groups of factors: (i) the profitability of the projects; (ii) the ease with which subsidiaries’ operation can be integrated into investors’ global strategies; (iii) the overall quality of the host country’s business environment (Christiansen and Ogutcu, 2002).In line with Dunning’s eclectic theory of FDI, works should be highlighted that an analysis on the specific advantages of the host country based on the economic, institutional, and political characteristics willbe more attractive than other alternatives. In conclusion, this research can partially contribute to the existing literature about the determinants of FDI inflows into a developing country in terms of testable implication 536
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