Foreign direct investment and its effects on economic growth of Dong Nai

Nội dung text: Foreign direct investment and its effects on economic growth of Dong Nai

1. TẠP CHÍ KHOA HỌC - ĐẠI HỌC ĐỒNG NAI, SỐ 20 - 2021 ISSN 2354-1482 FOREIGN DIRECT INVESTMENT AND ITS EFFECTS ON ECONOMIC GROWTH OF DONG NAI Nguyễn Thị Lý1 Trà Văn Trung2 ABSTRACT At present, Dong Nai Province plays an important role in appealing to foreign direct investment (FDI) in Vietnam. This has brought about a lot of considerable contributions to the economic growth rate of our country in general and Dong Nai in particular in the global context of integration. This paper aims to analyse and assess FDI effects on Dong Nai’s economic growth. Based on the theories of FDI and economic growth, the paper also identifies the factors which affirm FDI attraction into Dong Nai and proposes recommendations so that Dong Nai government can give better policies to manage and strengthen FDI capital effectively, appealing to more FDI for Dong Nai Province. Keywords: FDI effect, economic growth, FDI attraction, Dong Nai 1. Introduction investment occurs when an investor Being one of the localities which from a country (investor country) attract a lot of FDI capital in the whole acquires an asset in another country country, Dong Nai, a key economic (FDI attraction country) along with the region in the Southern Vietnam has had right to manage the asset. The 63 industrial parks so far. FDI management means is used to enterprises in Dong Nai have distinguish FDI from other financial considerably contributed to the instruments. In most cases, both the economic development of the province, investor and the property he or she made much employment for laborers manages abroad are business and increased new competitiveness for establishments. In such cases, investors Dong Nai. are often called parent companies and There are many different views on their assets are called subsidiaries or FDI, depending on the evaluation affiliates‖ [2]. method of FDI inflows: Thanks to the law on foreign The International Monetary Fund investment in 2014 which was valid in defines FDI as ―an investment with July 1st, 2015, FDI has positively long-term relations; whereby, an affected the host country, Vietnam, and organization in an economy (direct its inflows also have many positive investor) derives long-term benefits contributions to Dong Nai Province in from a business located in another particular and Vietnam in general: economy. The purpose of the direct Promote economic restructuring: investor is to have a lot of influence on FDI contributes positively to the managing the business located in that economic restructuring (58.4% of FDI economy‖ [1]. capital is concentrated in the industry- According to the World Trade construction sector). Industry- Organization, ―Foreign direct construction growth rate of the FDI 1 Trường Đại học Đồng Nai Email: lynguyenthi@dnpu.edu.vn 19 2Trường Đại học Kinh tế - Luật – Đại học Quốc gia thành phố Hồ Chí Minh
2. TẠP CHÍ KHOA HỌC - ĐẠI HỌC ĐỒNG NAI, SỐ 20 - 2021 ISSN 2354-1482 sector averages nearly 18% per year, The endogenous growth theory, higher than the industry growth rate. according to Mello (1999), Kim and Seo Contribute to exportation: FDI (2003), says that the effects of FDI on enterprises have made significant economic growth are expected to have contributions to Vietnam's export two parts: firstly, FDI may affect turnover. Before 2012, exports of FDI economic growth through capital only reached 48.6% of the total accumulation by introducing new goods turnover. Since 2018, the FDI sector's and foreign technology; Secondly, FDI exports have become a major factor can promote economic growth through promoting exports, accounting for about research and development in the host 70% of the total exports. country on knowledge transfer. Contribute to the supporting Therefore, FDI can theoretically play an industry: ―Vietnam's supporting important role in economic growth industry is limited. With the presence of through increasing capital accumulation, FDI projects that have contributed technology spread and progress (Herzer significantly to the development of this et al., 2008). This conclusion shows that sector and FDI enterprises that have FDI can contribute to economic shown superiority to domestic development and promise potential enterprises, the supporting industry benefits for development in the host sector has attracted a lot of investment country. In recent years, FDI plays an capital of electricity and electronics increasingly important role in capital with over 12 billion USD, mechanics accumulation and economic growth in with over 6.4 billion USD, and textile developing countries. with over 6.7 billion USD, chemical According to David Begg, Stanley sector with over USD 2.9 billion and Fischer and Rudiger Dornbusch (2005), the leather and footwear industry with ―Economic growth is the rate of real 323.6 million USD‖ [3]. income changes or actual output; the Technology transfer and technology growth rate of a variable is the improvement: Through technology percentage of annual increase. In order transfer contracts, the FDI sector has to determine economic growth, we must contributed to promoting advanced specify both measured variables and technology transfer into Vietnam, measured time‖ [4]. According to improving technological capacity in Banchard (2000), ―GDP is the final many fields. value of goods and services calculated The exogenous growth theory by the final consumption produced in suggests that FDI increases capital in the the economy over a certain period or host country and then promotes GDP is the total value added in an economic growth towards a new steady economy in a certain period‖ [5]. Based state by accumulating capital. According on the theorical foundations of FDI and to this theory, FDI affects economic economic growth, and the previous growth through impact on domestic studies about FDI effects on economic investment (Herzer et al., 2008). growth, the research was conducted to 20
3. TẠP CHÍ KHOA HỌC - ĐẠI HỌC ĐỒNG NAI, SỐ 20 - 2021 ISSN 2354-1482 find out the relationship between FDI - i is industrial zones: 63 industrial and economic growth of Dong Nai zones in Dong Nai Province; t is time, Province, assess the influence of FDI period 2015-2020; inflows on economic growth of Dong - Y is Economic growth, derived by Nai and identify factors attracting FDI actual average GDP price of the inflows into Dong Nai. Accordingly, province/ city. the paper also gives recommendations - Xit: variables in the Cobb- to attract more FDI inflows in Dong Nai Douglas model, including FDI, private and helps Dong Nai government investment, human resources. improve better policies in promoting the - CONTROLit: Control variables economic growth for this province in Fiscal variables the future. Tax collection: To a certain extent, 2. The model and research tax policy has the effect of stimulating methodology economic growth. In contrast, tax 2.1. Model of the impact of FDI collection can also inhibit growth. The inflows on economic growth higher the tax rate is, the more distorted Based on the Cobb-Douglas model, the economy is (Barro, 1990; Zhang the research identifies an analytical and Zou, 1998; Jin and Zou, 2005). framework to confirm that FDI inflows According to Ly Nguyen Thi and Trung become a factor in the model of Tra (2016), ―Tax theory changes tax economic growth, which demonstrates compliance behavior and creates social both prompting impact and shifting losses and is to assess the distortion of impact on economic growth in the taxes in economic growth as well as investment-receiving country, making shows that taxes negatively affect the production capacity curve of the growth‖ [6]. receiving country (new industrial Public investment: The state's country) asymptotic to the production investment resources for economic capacity curve of the investment growth play an important role, directing country (developed country). other investment resources, especially 2.2. Experimental model in social areas of low economic From the analytical framework, efficiency. That is also the reason that based on models of empirical research public investment may not promote (Wei K., 2008; Elboiashi, Hosein Ali, positive growth and be sometimes 2011; Sajid A., Lan N. P, 2011; Chien contrary to growth, especially in et al., 2012; ), the research on the developing countries. Chien et al. impact of FDI inflows on Dong Nai's (2012) the author shows that public economic growth has a dynamic model spending has the same impact on as follows: economic growth, and has ―Adverse 2effects on growth‖ (Elboiashi Hosein Ali, 2011). Yit 0 1Yit 1 2Xit 3CONTROLit eit Regular spending: According to In which: Bose et al. (2007), education, science, 21
4. TẠP CHÍ KHOA HỌC - ĐẠI HỌC ĐỒNG NAI, SỐ 20 - 2021 ISSN 2354-1482 technology, environment and health derivation for trade openness in care are important for future economic assessing the impact on economic prosperity. growth. Other control variables Consumer price index: Empirical Infrastructure: Many studies show studies on FDI and economic growth that infrastructure contributes show that consumer price index significantly to economic growth. negatively affects economic growth Trung Tra and Ly Nguyen Thi (2016) in (Adeolu, 2007; Wu Jyun-Yi, Hsu Chih- the study of factors attracting FDI into Chiang, 2008). Dong Nai for growth and investment in Technology gap: is calculated by infrastructure investment shows the the distance ratio between per capita same direction. income of the research object and the Trade openness: The total import- GDP per capita of the refernce object export turnover against GDP is like a (Elboiashi, Hosein Ali, 2011). Table 1: Variables in the empirical model of economic growth and expected signs Independent variables in the empirical model of economic growth expected signs I. Variables in the Cobb-Douglas model 1. Private investment + 2. Foreign direct investment + 3. Human resources + II. Fiscal variable 1. Collect taxes +/- 2. Public investment +/- 3. Regular spending +/- III. Control variables 1. Infrastructure + 2. Trade openness + 3. Consumer price index +/- 4. Technology gap + (Source: The author’s synthesis) 2.3. Determinants of FDI inflows Human Resources The infrastructure Skilled labor Macroeconomic policy Macroeconomic stability 22
5. TẠP CHÍ KHOA HỌC - ĐẠI HỌC ĐỒNG NAI, SỐ 20 - 2021 ISSN 2354-1482 Table 2: Variables in the empirical model of FDI attraction and Expected signs Independent variables in the empirical model attract FDI inflows Expected sign 1. Human resources + 2. Trade openness + 3. Infrastructure + 4. Skilled labor + 5. Macroeconomic policy + 6. Macroeconomic stability +/- (Source: The author’s synthesis) 2.4. Method of estimation (Judson et al., 1996; Roodman, 2006). Arellano-Bond's GMM differential Methods for dynamic table data use method is appropriately designed for appropriate latencies of instrumented panel data with small T and large N variables to create instruments. 2.5. Data and data attribute test Table 3: Describing how to calculate and interpret variables in the model of economic growth Variable name ymbol Calculation and interpretation Economic growth GDP Logarithm of real GDP per capita Private investment PINV Logarithm of real private investment Foreign direct investment FDI Logarithm of real FDI inflows Public investment / GDP, including local Public investment GIVN spending and support from the Central Government Human resources LABO Number of people in working age / population Budget tax collection / GDP, derived from local Tax collection BREV revenues and transfer of the Central Government Ordinary expenditure CBEXP Regular spending / GDP Trade openness OPEN Total export and import / GDP Logarithm of the average number of postpaid Infrastructure TELE and mobile phone subscribers Consumer price index CPI Logarithm of consumer price index Technology gap GAP (Local GDP - national GDP) / GDP of the whole country (Source: The author’s synthesis) 23
6. TẠP CHÍ KHOA HỌC - ĐẠI HỌC ĐỒNG NAI, SỐ 20 - 2021 ISSN 2354-1482 3. Findings T is the time. According to the research 3.1. Granger causality test topic, T = 16, latency <5 is reasonable. The results indicate a two-way 3.2. Test of correlation coefficient causal relationship between FDI and Based on the Pearson correlation private investment, human resources, coefficient theory, statistical results of tax revenues, infrastructure, trade correlation coefficients among variables openness and technology disparities. in the experimental model show that This shows that FDI inflows create a most of the pairs of variables have a pervasive effect on factors that statistically significant relationship of contribute to economic growth through less than or equal to 0.5%. In particular, impact on private investment as well as the pairs have strong correlations human resources improvement, create (TELE, PINV) and (TELE, GDP) revenues for the state budget, promote reflecting the private investment used in the development of infrastructure, infrastructure to promote economic expand trade openness, and improve the growth, and in the remaining pairs of level of development. variables, the correlation level is In addition, the latency of the average. Therefore, the use of all of dependent variable (economic growth) these variables in the model is is based on Christophe Hurlin (2004): 2 appropriate (Evans, 1996). * K + 5 <T, in which: K is the latency, Table 4: Statistics of Pearson correlation coefficients of variables GDP 1 PINV .62* 1 FDI .65* .49* 1 LABO .08* .33* .10* 1 GINV -.22* - .19* -.15* -.11* 1 BREV .54* .30* .49* -.13* .06 1 CBEXP -.22* -.11* -.30* .30* .33* -.12* 1 TELE .72* 0.82* .54* .30* -.05 .41* .06* 1 OPEN .45* .40* .54* .14* -.16* .42* -.17* .40* 1 CPI .28* 0.27* .15* .35* .01 .07* .16* .38* .11* 1 GAP .73* .12* .40* -.27* -.20* .37* -.30* .23* .21* -.00 1 (*): Meaning at <, = 5% 24
7. TẠP CHÍ KHOA HỌC - ĐẠI HỌC ĐỒNG NAI, SỐ 20 - 2021 ISSN 2354-1482 3.3. Stationarity test GAP. So the study continues to use the Based on the theory of stationarity Fisher test for stationarity teast at the test, the stationarity test of Fisher table difference of GDP variable and GAP data with the latency of 2 with and variable. The results showed that the without the tendency of Augmented difference of GDP and GAP variables Dickey Fuller test attribute and Phillips- was at 1% significance level in both Perron test attribute is shown in Table cases of using Fisher test with 3.2. Accordingly, most of the original Augmented Dickey Fuller and Phillips- variables stop at the significance level Perron attributes. of 1% and 5%, except for GDP and Table 5: Testing the staionarity of variables Augmented Dickey Fuller Phillips Prob > chi2 Prob > chi2 Variables Without tendency With tendency Without tendency With tendency GDP 1.0000 0.8620 1.0000 0.1276 PINV 0.2373 0.0000 0.5054 0.0000 FDI 0.3361 0.0000 0.0002 0.0000 LABO 0.9314 0.0001 1.0000 0.0000 GINV 0.0018 0.0190 0.0111 0.0549* BREV 0.3450 0.0004 0.0005 0.0216 CBEXP 0.0000 0.0000 0.0000 0.0000 TELE 0.0093 1.0000 0.0000 1.0000 OPEN 0.0000 0.0000 0.0000 0.0069 CPI 1.0000 0.9978 0.0000 0.0000 GAP 0.9999 0.9267 1.0000 0.9932 ( ): Statistical significance 1%; ( ): Statistical significance 5%; (*): Statistical significance10% Table 6: Regression with GMM Arellano-Bond method Dependent variable: Economic growth Model 1 Model 2 Model 3 Model 4 Variables Coeff Coeff Coeff Coeff Economic growth (-1) .2766722 .2674109 .2679663 .2249946 Economic growth (-2) .1082713* .1072814 * .1048672* .141283 25
8. TẠP CHÍ KHOA HỌC - ĐẠI HỌC ĐỒNG NAI, SỐ 20 - 2021 ISSN 2354-1482 Private investment .2779348 .2750409 .2805962 .2767417 FDI flows .0272221 .0328316 .0319368 .0254382 Human resources .4645269* .4602516 * .4542675* .5075249 Public investment -.2197045 - .2029524 -.2055994 - .1823935 Tax collection -.121127 - .1327604 -.1374301 - .0812087 Ordinary expenditure .2896991* .2777896 .2656103 .2499709 Infrastructure .0322443* .0292126 .0281526 .0311138 * Trade openness .0197188 .0197031 .0213423 Consumer price index -.1340043 - .1236057 -.1256067 - .1087054 Technology gap -.0019343 - .0087073 -.0082026 .0292234 FDI for development .0026228 - .0211176 WEALTH*GEO*∆FDI .0067636* Obs 541 541 541 541 Sargan test 0.245 0.209 0.251 0.167 AR(2) 0.320 0.372 0.369 0.473 ( ): Statistical significance 1%; ( ):Statistical significance 5%; (*):Statistical significance 10% 3.4. Estimating the dynamics of FDI inflows and economic growth by PMG method Table 7: Estimating short-term and long-term dynamics by PMG method Long-term co-link vectors. Dependent variable: Economic growth Variables Coeff Std Prob Private investment .857587 .0341448 0.000 FDI flows .2261728 .0111446 0.000 Human resources 1.979529 .4777566 0.000 Public investment -.9955448 .1043565 0.000 Tax collection 1.281256 .1958856 0.000 Short-term dynamics. Dependent variable: Economic growth Adjustment coefficient .077029 .0369953 0.037 FDI flows .0027944 .0059165 0.637 ( ): Statistical significance 1%; ( ): Statistical significance 5%; (*): Statistical significance 10% 4. Discussions for estimated results identify the positive impact of FDI The effect of FDI on economic inflows on the economic growth of growth: The research result helps Dong Nai Province, Vietnam. 26
9. TẠP CHÍ KHOA HỌC - ĐẠI HỌC ĐỒNG NAI, SỐ 20 - 2021 ISSN 2354-1482 The effect of private investment on level. This shows that tax collection at economic growth: The research result the acceptable level stimulates confirms the positive impact of private economic growth. investment on economic growth as The effect of private investment on shown in the Cobb - Douglas theoretical economic growth: The regression result research model, as well as the empirical shows that public investment has a studies related to FDI and economic negative impact on economic growth, growth affirm the positive impact of not as the expected sign of the study private investment on growth. with both estimation methods. The effect of human resources on The estimated result by PMG FDI flows: FDI is the project where method shows that in the long term, 1% investors are the companies in increase in public investment has an investment countries while investment impact on reducing economic growth of recipients are other countries. During 0.99% (1% significance level). This the operation of companies, FDI needs result shows the public investment in local human resources in the host Vietnam has not been ineffective over country. Therefore, the role of human the past time, and many experts also resources is very important in attracting identify inefficiencies of many the flow of FDI. investment projects from the state In Dong Nai's condition, human budget. ―The reality of public resources have a positive and investment management in recent years significant impact to attract FDI has showed that wastes and losses have inflows. The experimental result with many different causes, such as loose PMG method shows that human management, spreading investment, resources have a positive impact on corruption, appropriation in attracting FDI inflows, with a construction, etc.‖ – Bui Quang Vinh, significant level of 1%. This shows that the Minister of Ministry of Planning the role of human resources is crucial to and Investment of Vietnam, presented attracting FDI flows into Dong Nai in the report on the Public Investment Province. Law Project before the National The effect of human resources on Assembly on November 16, 2015 [7]. economic growth: The result shows Recently, empirical studies in that human resources promote Vietnam on FDI and economic growth economic growth. This is suitable to have recorded the same impact of many previous studies (Elboiashi public investment on economic growth Hosein Ali, 2011; Mahnaz Rabiei and (Nguyen Phu Tu and Huynh Cong Zohreh Ghavam Masoudi, 2012). Minh, 2010; Chien et al., 2012), The effect of tax collection on confirming that public expenditure is economic growth: The estimated result not statistically significant to explain with PMG method shows that tax the impact on economic growth when collection is positively correlated with studying FDI and growth in Vietnam. economic growth at 1% significance 27
10. TẠP CHÍ KHOA HỌC - ĐẠI HỌC ĐỒNG NAI, SỐ 20 - 2021 ISSN 2354-1482 The effect of ordinary expenditure research conditions in Vietnam in on economic growth: The regression general and Dong Nai in particular, this result with the GMM model shows that observed variable has results consistent ordinary expenditure has a positive with research expectations, reflecting impact on economic growth with a 10% the positive impact of macroeconomic significance level. policy on FDI. The effect of trade openness on Thirdly, biotechnology and new economic growth: The research result is materials technology currently suitable to the reality of the past time significantly contribute to global when Vietnam implemented the economic growth. As mentioned above, economic open-door policy in 1986, one of the important characteristics and Vietnam's economy has made great related to FDI is the increase in progress. advanced technology. Therefore, FDI The effect of infrastructure on channel plays an important role in economic growth: The research result transferring advanced technology to the shows that infrastructure has a positive investment recipient country. impact on economic growth with 10% Fourthly, in addition to the factors significance level. However, Vietnam is of market size, conditions of human a developing country with the resources, macroeconomic policies and incomplete infrastructure, so the labor quality, the test results also show process of infrastructure improvement that trade openness has an impact on is very significant to economic growth. FDI attraction. However, the estimated 5. Conclusion results do not give the expected sign of The research shows the meaningful the research topic. Actually, Vietnam impact of the factors, such as private has been an open economy since 1986, investment, human resources, trade but many countries today, including openness, ordinary expenditures, and large countries (the United States, some infrastructure on economic growth in EU countries) have not considered Dong Nai Province, helping Dong Nai Vietnam to have a market economy. government find better solutions in the Therefore, trade openness has not really tax management in the future. attracted FDI inflows into Vietnam in Firstly, the quality of labor, general and Dong Nai in particular, including skills, knowledge and especially in the short term. Therefore, discipline of the workforce is the most Vietnam needs to implement an important factor of economic growth. appropriate trade opening to promote However, a country's human resources FDI inflows in the coming time. are finite; to use advanced technologies, Fifthly, the stability of the economy labors need to be trained. has an important impact on FDI Secondly, the rational attraction, so economic shocks often macroeconomic policy of the show a negative impact on FDI inflows. investment recipient country has a Research results in Vietnam show that significant impact on FDI attraction. In economic shocks have a negative 28
11. TẠP CHÍ KHOA HỌC - ĐẠI HỌC ĐỒNG NAI, SỐ 20 - 2021 ISSN 2354-1482 impact on attracting FDI inflows, which mechanical population in order to meet is in line with research expectations, the labor needs of FDI enterprise This showing an increase in consumer price also increases the pressure on urban index, with negative impacts on technical infrastructure and causes attracting FDI inflows in Vietnam environmental pollution for the locality, regions, including Dong Nai. especially Dong Nai Province. Without Finally, to appeal to more FDI, effective measures, this will result in a Dong Nai should choose suitable lot of big losses for economy. Thus, projects with its effective management Dong Nai government has to ―say no‖ to guarantee the sustainable to investment projects with outdated development of economy. However, technology which causes environment foreign direct investment also has pollution. This brings good orientation negative effects, such as environmental for the management of FDI capital pollution, price transfer activities, etc. resources to promote positive effects According to the experience of many and limit negative impacts on the countries in the world, attracting FDI business environment in general, will promote the process of contribute to the improvement of industrialization - modernization of the technical and social infrastructure and host country, leading to the process of maintain the sustainable economic urbanization and the increase in growth of Dong Nai Province. REFERENCES 1. The International Monetary Fund (2008), ―Impact of WTO integration on FDI inflows into Vietnam’’, Foreign Economic Journal, 58, 42-38 2. The World Trade Organization (2013), ―Is there strong bidirectional causality between FDI and economic growth? New evidence on Vietnam’’, Journal of Transformative Entrepreneurship, 1, 25-38 3. Ly Nguyen Thi and Trung Tra (2016), ―The satisfaction level of FDI enterprises at industrial zones in Dong Nai’’, The Scientific Conference on the Economic Position of Vietnam in ASEAN, December 2016 in Vietnam 4. David Begg, et al. (2005), ―On the Causality between Foreign Direct Investment and Output: A Comparative Study’’, The International Trade Journal, 15, 122-132 5. Banchard (2000), ―FDI, exports, and GDP in East and Southeast Asia—Panel data versus time-series causality analyses‖, Journal of Asian Economics, 17, 1082- 1106 6. Ly Nguyen Thi and Trung Tra (2016), ―Factors affecting tax compliance of FDI enterprises in Dong Nai‖, NIDA International Conference, April 2017 in Thailand 7. The Minister of Ministry of Planning and Investment of Vietnam (2015), ―The report on the Public Investment Law Project before the National Assembly‖, November 16, 2015 29
12. TẠP CHÍ KHOA HỌC - ĐẠI HỌC ĐỒNG NAI, SỐ 20 - 2021 ISSN 2354-1482 ĐẦU TƯ TRỰC TIẾP NƯỚC NGOÀI VÀ HIỆU QUẢ TĂNG TRƯỞNG KINH TẾ CỦA ĐỒNG NAI TÓM TẮT Hiện nay, tỉnh Đồng Nai đóng vai trò quan trọng trong việc thu hút đầu tư trực tiếp nước ngoài (FDI) vào Việt Nam. Điều này mang lại rất nhiều đóng góp đáng kể cho tốc độ tăng trưởng kinh tế của Việt Nam nói chung và Đồng Nai nói riêng, trong bối cảnh hội nhập kinh tế toàn cầu. Bài viết nhằm phân tích và đánh giá hiệu quả FDI đối với tăng trưởng kinh tế của Đồng Nai. Dựa trên lý thuyết về FDI và tăng trưởng kinh tế, xác định các yếu tố khẳng định thu hút FDI vào Đồng Nai và đề xuất các khuyến nghị để tỉnh Đồng Nai có thể đưa ra các chính sách tốt hơn trong quản lý và tăng cường vốn FDI hiệu quả, thu hút nhiều vốn FDI. Từ khóa: Đồng Nai, hiệu quả FDI, tăng trưởng kinh tế, thu hút FDI (Received: 11/4/2020, Revised: 23/6/2020, Accepted for publication: 8/3/2021) 30