Tác động của đầu tư trực tiếp nước ngoài đối với hoạt động xóa đói giảm nghèo tại Việt Nam

Nội dung text: Tác động của đầu tư trực tiếp nước ngoài đối với hoạt động xóa đói giảm nghèo tại Việt Nam

1. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 THE IMPACT OF FOREIGN DIRECT INVESTMENT ON POVERTY REDUCTION IN VIETNAM TÁC ĐỘNG CỦA ĐẦU TƯ TRỰC TIẾP NƯỚC NGOÀI ĐỐI VỚI HOẠT ĐỘNG XểA ĐểI GIẢM NGHẩO TẠI VIỆT NAM MA, Do Quynh Anh - Assoc. Prof. Dr. Le Quoc Hoi - MA, Nguyen Thi Thanh Duong National Economics University doquynhanh1510@gmail.com Abstract The purpose of this paper is to analyze the impact of foreign direct investment (FDI) on poverty reduction in Vietnam. This study uses the provincial-level panel data and employs the fixed-effects regression with Driscoll and Kraay standard errors to investigate empirically the impact of FDI on poverty reduction in Vietnam. The study finds that FDI has not only directly contributed to reducing poverty but also indirectly reducing it through human capital. Meanwhile FDI has also indirectly contributed to increasing poverty through international trade. Based on the main findings, the study has some policy implications to decrease the negative effects of FDI on poverty reduction in Vietnam. Keywords: Foreign Direct Invesment (FDI); poverty reduction; Vietnam JEL Classification Codes: F21, F23, O11, C23, I32 Túm tắt Bài viết này nghiờn cứu tỏc động của đầu tư trực tiếp nước ngoài (ký hiệu là FDI - Foreign Dỉrect Investment) đến giảm nghốo tại Việt Nam. Nghiờn cứu sử dụng dữ liệu mảng cấp tỉnh và ỏp dụng phương phỏp ước lượng mụ hỡnh hồi quy tỏc động cố định với sai số chuẩn của Driscoll & Kraay (1998) để kiểm định mối quan hệ giữa FDI và giảm nghốo tại Việt Nam. Nghiờn cứu đó tỡm ra FDI cú tỏc động trực tiếp giỳp giảm nghốo tại Việt Nam; bờn cạnh đú, FDI cũn tỏc động giỏn tiếp giỳp giảm nghốo thụng qua vốn nhõn lực/trỡnh độ giỏo dục của địa phương. Tuy nhiờn, FDI lại giỏn tiếp làm tăng đúi nghốo tại cỏc vựng thụng qua thương mại quốc tế. Trờn cơ sở kết quả nghiờn cứu, bài viết đưa ra cỏc khuyến nghị để giảm tỏc động tiờu cực của FDI đến giảm nghốo tại Việt Nam. Từ khúa: Đầu tư trực tiếp nước ngoài (FDI); xúa đúi giảm nghốo; Việt Nam 1. Introduction The ultimate goal of the economic development process is to bring social progress to people, so the aim of poverty reduction is always put in the first priority in order to achieve the economic development. To achieve this goal, developing countries need to take advantage of domestic and foreign resources to boost the economic growth, increase people’s income, thereby reducing poverty. Foreign direct investment (FDI) plays an important role in improving the well- being of the host country, which not only helps to remedy a capital shortage, but also serves as a 524
2. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 channel for transferring new technology, new management techniques and skills, improving the qualifications of the workers, leading to the economic growth, job opportunities and increasing the state budget for host countries. (Haddad & Harrison, 1993; Markusen & Venables, 1999). Theoretically and empirically, most economists believe that FDI can affect poverty reduction positively through job creation, knowledge transfer, which makes contribution to economic growth (Gohou & Soumare, 2012; Shamim et al., 2014; Fowowe & Shuaibu, 2014; Soumare, 2015). However, there are conflicting arguments on this issue. Some economists believe that economic growth (supported by FDI) does not necessarily lead to poverty reduction. Growth can even aggravate the poverty if it is accompanied by increased social inequality (Reuveny & Li, 2003; Choi, 2006; Basu & Guariglia, 2007). Thus, although there has been an increase of studies on the effects of FDI on poverty reduction in the world, their results are still inconclusive. In addition, studies on the effects of FDI on poverty reduction in Vietnam are still limited. In recent years, Vietnam’s poverty rate has decreased significantly, but the speed at which poverty is reduced is slowing down, while the rate of re-impoverishment has fluctuated. In addition, poverty reduction achievements still have a large disparity among socio-economic regions, in which the poor are still mainly concentrated in rural areas and in ethnic minority communities. This fact shows the difficulty in poverty reduction in the future so it is urgent to find more effective ways to reduce poverty. Meanwhile, FDI enterprises in Vietnam not only contribute a large amount of capital to the operating economy, create jobs for workers, improve workers’ income, disseminate technological knowledge to domestic enterprises, but also increase import and export, contributing to economic growth and macroeconomic stability, expanding international investment cooperation, promoting integration with other countries all over the world. In Vietnam, there are also a few quantitative studies on the impact of FDI on poverty reduction such as Hoa (2002), Hung (2006) and Dat (2017). However, these studies only assess the direct impact of FDI on poverty reduction and the indirect impact of FDI on poverty through economic growth, without considering the other moderating factors. Therefore, in addition to building a model to test direct effects of FDI on poverty reduction, this study will examine the indirect effects of FDI on poverty reduction through international trade and human capital. 2. Literature review Based on studies on the impact of FDI on poverty reduction, FDI could have positive or negative impact on the poverty . FDI even has no impact on the poverty. The theoretical and emprical research on the impact of FDI on poverty reduction can be divided into two sides as follows : FDI has positive impact on poverty reduction According to Dunning (1993)’s “OLI” theoretical framework (OLI stands for Ownership, Location, and Internalization), because of the ownership advantage of multinationals, FDI brings capital, technology and other intangible assets of the company to developing countries. Therefore, FDI does not only contribute to the growth and economic development but also affects income through contributing to economic development and the impact on employment and salary struc - ture of developing countries. On the positive effect of FDI to developing countries, FDI stimulates 525
3. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 the growth of developing countries through job creation and capital formation, technology transfer and diffusion of knowledge . T hese benefits then spread to the entire economy. Therefore, the de - velopment efficiency of FDI for economic growth may ultimately contribute to poverty reduction in the developing countries. Theoretically, the study also pointed out the channels through which FDI has positive im - pact on poverty reduction. Firstly, FDI can help reduce poverty if FDI creates employment op - portunities for a large number of unskilled workers with low incomes or the poor. In addition, the growth effects of FDI could increase employment in the entire economy, which would reduce the poverty rate. Secondly, FDI has a positive impact on reducing poverty in the host countries through economic growth. Klein et al. (2001) argues that FDI promotes economic growth in de - veloping countries, while economic growth is the most important channel for poverty reduction. The researchers indicate that FDI is an important way to transfer knowledge, skills and manage - ment experience from developed countries to developing countries , leading to the increased labor productivity in developing countries , which makes a great contribution to the growth and econo - mic development in those countries . Thirdly, Tambunan (2005) added a channel of transfering technology , business skills , knowledge of local businesses . Through this channel, FDI has positive impact on poverty reduction. In addition, according to Klein et al. (2001), FDI also has a positive impact on poverty re - duction through the following four channels: (i) FDI contributes tax sources to the state budget, which helps government to have more resources to support poverty reduction programs; (ii) FDI in the private sector often leads to better quality of public management which in turn supports the government’s aid process for the poor more effectively; (iii) FDI also improves working conditions and working environment, thereby allowing workers (including mainly low-income workers) in society to improve the quality of life; (iv) FDI can help alleviate the adverse shocks suffered by the poor in the event of financial crises such as financial crisis in 1997 of Asian countries . On the basis of the theory mentioned above , a large number of empirical studies have found positive effects of FDI on poverty reduction. There are some typical emprical studies completed by Gohou & Soumare (2012), Mahmood & Chaudhary (2012), Shamim et al. (2014), Fowowe & Shuaibu (2014), Soumare (2015) and Uttama (2015). In Vietnam, numerous studies have been conducted on the effects of FDI on poverty reduction, all of which displaying a positive influence. Hoa (2002) pointed out that the two mechanisms by which FDI affects poverty reduction are direct and indirect mechanisms. The author points out that in the short run, FDI has a positive impact on growth, leading to poverty reduction. The study also shows that FDI in labor-intensive industries will help reduce poverty in host countries. Hung (2006) also pointed out that FDI directly affects poverty alleviation through job creation and tax revenues from FDI firms strengthening the Social Security system. FDI also indirectly affects the poverty reduction process when it is the most important factor affecting growth. FDI has negative or no significant impact on poverty reduction Theoretical and empirical studies have shown mechanisms through which FDI can have a 526
4. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 negative or no significant impact on poverty reduction. First, FDI can aggravate income inequality and, in turn, have a negative or no effect on poverty reduction. FDI can increase income inequality in developing host countries as foreign firms tend to be established in areas that require more skills than domestic firms and thereby improve the position of skilled workers in better levels compared to unskilled workers. According to Feenstra and Hanson (1997) ‘s general trade equi - librium model theory, some jobs can be considered low-skilled in one country but considered highly skilled in others. The authors argue that FDI requires new activities with more skills com - pared to the existing ones in the host country, meaning that capital flows into developing countries increase the need for skilled labor in stead of low-skilled unskilled labor. Consequently, unskilled workers will be unemployed while the demand for skilled workers increases. In this case, FDI may not have a positive effect on poverty reduction but instead have no negative impact or effect, aggravating poverty. Besides, FDI accessing opportunities will affect the economic structure transformation of the host country. FDI enterprises often invest in profitable areas such as industry and service, taking advantage of industries benefiting investment incentives from the investment policies of the government and local authorities. This will affect income inequality among industries in the economy, possibly causing imbalances between sectors and fields of the economy. Unskilled workers in less FDI-funded industries such as agriculture may not benefit from FDI enterprises, leading to an inability to reduce poverty in host countries majoring in agriculture. In addition, Mihaylova (2015) suggests that although FDI may initially lead to an increase in wages in traditional sectors, it is likely accompanied by a more capital intensive production, leading to to higher unemployment rates in the traditional sectors, thereby contributing to increa - sed poverty. In the case of increased imports of advanced machinery and technology by FDI firms, this may not reduce poverty in host countries. The empirical studies showing that FDI has negative effects on poverty reduction including Mohey-ud-din (2006), Huang et al. (2010) and Ali & Nishat (2010). The results of these studies show that FDI inflows lead to an increase in poverty. Besides, some other studies show that FDI does not have a significant impact on poverty such as Tsai & Huang (2007), Akinmulegun (2012) or Ogunniyi & Igberi (2014). In summary, it can be seen that the results of studies on the direct effects of FDI on poverty reduction differ regarding the country / region, the proxy variable of poverty, and the method and the period of studies. 3. The current situation of Foreign direct invesment and poverty reduction in Vietnam 3.1. Current situation of foreign direct investment in Vietnam During the ten-year period from 2009 to 2019, the total number of licensed FDI projects was 22,694, the total registered stock was 280.805 billion USD and the total implemented stock was 153.285 billion USD. Currently, there are 135 countries and territories investing in Vietnam. South Korea is the biggest partner, followed by Japan, Singapore and Taiwan. Beside economic benefits, FDI also has a positive impact on exchanges between different cultures through the process of mutually beneficial cooperation between Vietnamese people and many ethnic groups around the world. 527
5. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 (Source: GSO) Chart 1: Foreign direct investment stock in Vietnam, from 2009 to 2019 However, the distribution of FDI is uniform and has large disparities between regions. Oc - cupying mainly is the Southeast, followed by the Red River Delta and the lowest is the Central Highlands. Considering the accumulation of valid projects to December 20 th , 2019, the Southeast is the economic region having the most FDI with the stock of 153,769.52 million USD (account - ing for 42.74% of the total FDI). Following this, it is the Red River Delta with the capital of 105,159.95 million USD (accounting for 29,23%). The lowest in the country is the Central High - lands with the capital of 924.52 million USD (accounting for 0.25% of the total national FDI). The statistics show that FDI mainly focuses on areas with favorable socio-economic development conditions (Ho Chi Minh City, Hanoi) and this source of capital is very limited in areas with dif - ficult socio-economic development conditions, and the limited investment - attracting environ - ment (Central Highlands). Source: Foreign Investment Department Chart 2: Licensed FDI stock by economic regions of Vietnam (Accumulation of valid projects to December 20th, 2019) 528
6. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 In order to fulfill the commitment with WTO, the regulations on incentives for projects with high export rates have been abolished by Vietnam and FDI enterprises are not required to adopt localization rates and use domestic materials. Therefore, FDI is poured into industries by a diversified way in the economic structure of our country, projects in the field of oil and gas ex - ploration and exploitation, high-tech production, electrical products and electronics, iron and steel production, textile and garment production continue to be invested and contribute to the economic growth, creating more jobs and income sources for residents. From December 20 th , 2019, the processing and manufacturing industry is the economic sector that attracts the most FDI with 14,422 projects and the registered capital 214,174.89 million USD, accounting for 59.07% of the total. This capital source enhances the value of exported goods, absorbs advanced technologies, contributes to improving infrastructure in localities. Besides, one of the important features of FDI in Vietnam is the huge influence of FDI on international trade, reflecting the contribution of FDI in import and export turnover. According to the statistics of the General Department of Customs and the Ministry of Industry and Trade, from the beginning of 2019 to October 15 th , 2019, the total import and export value of the whole country reached 403 billion USD, increasing of 30.02 billion USD compared to the same period in 2018. Noticeably, the group of FDI enterprises has import and export value reaching to 255.3 billion USD, accounting for 63.3% of the country’s total import-export turnover. Particularly in the high-tech sector, exports of the FDI group dominate absolutely. Export turnover of commodity groups such as computers, electronic products and components is in FDI enterprises. Especially, the export turnover of some traditional exported products of Vietnamese enterprises such as tex - tiles, footwear is currently strongly competed and dominated by the group of FDI enterprises. Exports of FDI enterprises in leather and footwear account for nearly 80% of the industry’s exports. Even in the agricultural sector, the FDI sector’s export turnover of aquatic products, coffee, vegetables, and pepper also increased significantly recently with hundreds of millions of USD per commodity group. From the above results, it can be seen that the difference in size and influence on exports of FDI enterprises in the economy is very large. 3.2. The recent situation of poverty reduction in Vietnam From 2015 and earlier, Vietnam still used the unidimensional poverty measurement method according to the income or average expenditure poverty line. Since 2016, the Government of Vietnam has adopted a multidimensional approach to poverty measurement. Accordingly, multi - dimensional poverty is measured by the level of lack of access to 5 basic social services, including health care; education; accommodation; clean water and sanitation; and information, and is meas - ured by 10 indicators. Households are considered multidimensional poor if they lack 3 or more indicators (in 10 indicators mentioned above). According to the General Statistics Office (GSO), the proportion of poor households in the country following the unidimensional approach decreased rapidly from 37.4% in 1998 to about 5.8% in 2016, on average of 1.8 percentage points a year. Especially, before 2006, the average annual poverty rate decreased by 5 percentage points. In general, the trend of poverty reduction in rural and urban areas is quite similar. In particular, the achievement of poverty reduction in rural areas was particularly impressive in the 1998-2004 period. In 1998, nearly 45% of rural 529
7. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 households were poor, but by 2004 this figure decreased to less than a half (21.2%). From 2004 to now, the poverty rate continued to decrease, but at a slower rate than the previous period. This decline in poverty reduction may stem from the fact that a significant proportion of the remaining poor households is extremely poor, and it takes more effort to support these households out of poverty. According to data from GSO, the poverty rate, no matter measured by which method, de - creased in the period 2010-2018. The rates of income and expenditure poverty as well as multi - dimensional poverty plummeted significantly. The unidimensional poverty rate decreased from 14.2% to 5.8% in the period 2010 - 2016, the multidimensional poverty rate decreased from 9.2% in 2016 to 6.8% in 2018. Table 1: Proportion of poor households by regions The rate of poor households According to the Govern - according to the poverty standard ment’s multidimensional of the Government in the period poverty standard in the 2011 - 2015 period 2016 - 2020 Year 2010 2012 2014 2016 2016 2017 2018 Red River delta 8.3 6.0 4.0 2.4 3.1 2.6 1.9 Northern Midlands 29.4 23.8 18.4 13.8 23.0 21.0 18.4 and Mountains North Central 20.4 16.1 11.8 8.0 11.6 10.2 8.7 and Central Coast Central Highlands 22.2 17.8 13.8 9.1 18.5 17.1 13.9 South East 2.3 1.3 1.0 0.6 1.0 0.9 0.6 Mekong River Delta 12.6 10.1 7.9 5.2 8.6 7.4 5.8 Total 14.2 11.1 8.4 5.8 9.2 7.9 6.8 Source: GSO 4. Estimating the impact of FDI on poverty reduction in Vietnam 4.1. Estimated model Based on the “OLI” framework of Dunning (1993), and the general equilibrium trade model theory by Feenstra and Hanson (1997), and previous empirical studies (such as Ogunniyi and Ig - beri, 2014; Huang and partners, 2010, Mahmod and Chaudhay, 2012), we estimate the impact of FDI on poverty reduction in Vietnam by using the following empirical model: β β5 Pov it = β0 + β 1 .FDI it + β2.PGDP it + 3.Trade it + β4.HC it + .EMPLOY it + β6.CPI it + c i + εit (1) in which: i (i=1,2, 63) and t (t=2010,2011, .2016) denote province i and year t. 530
8. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Pov it is the rate of poor households according to the income of the province/ city (referred as province after) i in year t. This is a variable that represents the poverty in the unidimensional approach. is the ratio of FDI inflows to GDP of province/ city i in year t. Control variables in the model related to poverty reduction, which were significantly ver - ified in previous studies including: (1) Regarding the level of development, the previous work of Tsai (1995) and Figini and Gửrg (2011) proposed to use the criterion of GDP per capita. This variable is the most common representation for level of economic growth. The expected indication of GDP per capita is positive or negative. Economic growth leads to an increase in a country’s poverty if everyone cannot satisfy with its results equally. On the other hand, economic growth can lead to poverty reduction if there are labor absorbing economic growth and better policies related to the distribution of income. The variable PGDP is the GDP per capita of the province in year t at constant 2010 prices (million VND/ person). This variable is the most common representation of the level of the eco - nomic development and growth to observe the impact of economic growth and development on the poverty reduction. (2) Variable Trade originated from the work of Francois and Nelson (2003) and Heckscher and Ohlin (1991), who argue that increased trade in countries with a majority of the unskilled workers reduces poverty. On the other hand, trade may increase the demand for skilled labor instead of unskilled ones, leading to no improvement in poverty (Feenstra & Hanson, 2003; Velde, 2003). The variable Trade is the percentage of total trade (both import and export) to the GDP of the province I in year t, reflecting the trade openness from a macro perspective (% of total export + import/ GDP). (3) The variable HC is human capital accumulation which is reflected through the labor quality of the province. In this research, Human capital can be defined in many different ways, the proportion of students enrolled in schools to the population, the proportion of students enrolled in secondary school to the population, the proportion of students enrolled to higher education to the number of students enrolled in secondary education, the percentage of trained workers or investment in education, the provincial human capital is represented by the percentage of trained workers in the total number of employees working in province i in year t. (4) The inflation variable is measured by the consumer price index (CPI). This index is used to capture the macroeconomic stability; reflect each relationship between economic fluctu - ations and poverty. (5) The variable EMPLOY is the proportion of employed population measured by the per - centage of employees working in the labor force of province i in year t. ci: reflects local specific effects and is assumed to remain unchanged over time, geograph - ical location, and local culture. : is an error term of the model. The study continues to test whether there is an indirect effect of FDI on poverty reduction through international trade by adding the interaction variable between FDI and trade (FDI ì 531
9. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 TRADE) into the model. As being analyzed above, FDI has a great influence on international trade, reflecting through the rate of FDI in import-export turnover in Vietnam. Because foreign investment in Vietnam increased the trade openness of the economy, FDI can have a negative ef - fect on poverty reduction through its activities that dominate international trade. Finally, since human capital is a factor influencing FDI’s impact on poverty reduction, we conduct a test on the indirect effect of FDI on poverty reduction through local human capital/ education by adding the interaction variable between FDI and human capital (FDI ì HC) into the model. The model to test the indirect effects of FDI on poverty reduction through international trade and human capital as following. β4 Pov it = β0 + β 1.FDI it + β2.PGDP it + β3.Trade it + .FDI it * Trade it + β5.HC it + β6.EMPLOY it + β7.CPI it + c i + εit (2) β Pov it = β0 + β 1.FDI it + βi2 .PGDP it + β3.Trade it + 4.HC it + β5.FDI it * HC it +β6. EMPLOY it + β7.CPI it + c i + εit (3) The study uses data from 63 provinces and cities of Vietnam in the period 2010 - 2016. Data are collected from the General Statistics Office. 4.2. Estimated results and discussion iDescriptive Statistics, Panel Data Estimation Table 2: Descriptive Statistics, Panel Data Estimation Variables Observation Mean Std. Dev. Min Max POV 441 12.95918 9.95728 0 50.8 FDI 441 4.95896 6.53593 0 36.00478 PGDP 441 30.34294 32.06507 0.0708078 270.0642 HC 441 15.58912 6.68271 5.1 42.7 TRADE 441 111.1991 213.3727 0.0223155 3902.686 CPI 441 6.986901 6.177663 -0.8 30.7 EMPLOY 441 58.6941 3.931488 47.3 71.3 As shown in Table 2, the average poverty rate (POV) is 12,95918, the standard deviation is 9,95728 . This shows that the poverty rate in Vietnam is very different among localities. The stan - dard deviation of the ratio of foreign direct investment to GDP at each locality (FDI) is also rel - atively large 6,53593, showing that there has been great variation in the foreign direct investment capital among provinces. To choose a suitable model, the study used Breusch and Pagan Lagrangian and Hausman tests. The test results show that the fixed effects model is appropriate. The study applies the fixed- effect regression estimation method with standard errors of Driscoll & Kraay (1998) to obtain heteroscedasticity, autocorrelation consistent standard errors and consider cross-sectional corre - lation. 532
10. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Table 3: Regression results Model Model 1 Model 2 Model 3 Variable name POV POV POV FDI -0.191 -0.633 0.403* (0.079) (0.056) (0.205) lnPGDP -11.758 -13.719 -12.716 (1.816) (1.121) (1.485) TRADE -0.195 -0.400 -0.023 (0.079) (0.041) (0.067) HC -0.163 -0.097* -0.128 (0.045) (0.057) (0.054) EMPLOY -0.714 -0.651 -0.681 (0.153) (0.169) (0.161) CPI 0.171 0.160 0.164 (0.08) (0.072) (0.074) FDIxTRADE - 0.002 - - (0.000) - FDIxHC - - -0.051 - - (0.016) Constant 94.24 96.01 94.97 (14.01) (12.15) (13.25) Observations 441 441 441 Number of groups 63 63 63 Driscoll and Kraay standard errors are reported in parentheses p<0.01, p<0.05, * p<0.1 Column 1 in Table 3 shows the results of model 1 estimation - Model of testing direct ef - fects of FDI on poverty reduction. Estimating the fixed effects data (FE) regression model with Driscoll & Kraay standard errors of shows that FDI has a positive effect on poverty in Vietnam. That means attracting FDI into Vietnam contributed to reducing the poverty rate in Vietnam. The results of this study are consistent with the studies of Hoa (2002), Hung (2006) and Dat (2017). The positive effects of FDI on poverty reduction in Vietnam can be explained by the following reasons. Firstly, according to World Bank analysis, FDI in Vietnam concentrated in manufactur - ing, processing, labor-intensive industries that require low skills. Therefore, FDI enterprises con - tribute to creating jobs and income for unskilled workers and the poor. Beside the direct impact through labor recruitment, FDI also has an indirect effect on employment through economic growth - localities also create jobs for workers due to economic growth contributed by FDI. The second is the spillover effect. When workers are hired by FDI enterprises return to their home - towns and localities and set up their own businesses, they can bring knowledge and skills from 533
11. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 FDI enterprises. This not only promotes the dissemination of knowledge from FDI enterprises to the local economy, but also increases local people’s income and contributes to poverty reduction. Thirdly, FDI contributes to local economic growth and its benefits eventually spread to the entire economy, helping to solve the problem of poverty. The findings of the study underline the im - portance of FDI inflows to poverty reduction at the provincial level in Vietnam. Secondly, the trade openness variable (TRADE) is significant at 5% and the positive sign indicates that provinces with a large trade openness will reduce poverty rates. Thirdly, the variable economic growth (PGDP) is significant at 1% with a negative sign implying that economic growth in Vietnam contributes to poverty reduction and the poor benefit from economic growth. Fourth, the variable human capital (HC) has statistical significance at the 1% and the negative sign shows the trend of positive impact of human capital on poverty reduction. In other words, provinces/ cities with better human capital will lead to more poverty reduction. Fifth, the inflation variable is measured by the consumer price index (CPI) significant at 5% with the positive sign. This con - firms that an increase in inflation leads to an increase in poverty, and macroeconomic stability is conducive to poverty reduction. Sixth, the variable of the proportion of employees working in the economy is significant at 1% and the negative sign indicates the tendency of the higher em - ployment rate to help reduce poverty. Column 2 in Table 3 shows the estimated results of model 2 - Model of testing indirect ef - fects of FDI on poverty reduction through international trade. The main variable to be considered in model (2) is the interaction variable between FDI and trade (FDI ì TRADE). The coefficient of the interaction variable is positive and statistically significant at 1%, suggesting that FDI will have a greater impact on increasing poverty in provinces with higher level of trade openness. Therefore, this result supports our hypothesis that FDI will have a negative effect on poverty re - duction through the FDI sector’s extensive activities in international trade. In fact, while FDI contributes a great deal to Vietnam’s international trade, its role in promoting international trade also negatively impacts poverty reduction in Vietnam. Column 3 in Table 3 shows the estimated results of model 3 - Model of testing the indirect impact of FDI on poverty reduction through human capital. The variable of interest in model (3) is the interaction variable of FDI x HC that is significant at 1% and the negative sign. This shows that FDI has indirect effects on poverty reduction through human capital/ educational level. FDI will have a great impact on poverty reduction in localities with higher educational level and higher quality of human capital. 5. Conclusion and policy implications The main aim of this study is to analyze empirically the direct effects of FDI on poverty reduction and the indirect effects of FDI on poverty reduction through international trade and labor capital. Based on an overview of the theoretical and empirical studies on the relationship between FDI and poverty reduction, the study used panal data of 63 provinces and cities of Viet - nam in the period 2010-2016 and built a quantitative model with the method of estimating fixed effects regression and standard error of Driscoll & Kraay (1998). The study found the following main results. Firstly, research has shown that while FDI has a direct effect on poverty reduction through job creation for unskilled workers, knowledge spillo - 534
12. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 ver effect and contribution to local economic growth, FDI also has an indirect effect on poverty alleviation through improved local education. However, FDI has indirectly increased poverty in provinces with high levels of trade openness. Second, economic growth in Vietnam leads to po - verty reduction as workers benefit from economic growth. Third, provinces with high labor ca - pital, developed education system and an increase in trained labor will help reduce poverty. Fourth, when the macroeconomy is stable, poverty reduction will be better solved. Fifth, a steadily growing economy with a high employment rate helps reduce poverty because it is easier for uns - killed workers to find well-paid jobs. From the research results, the following policy implications can be suggested. First, re - search shows that in addition to improving economic conditions, education and technology, Viet - nam should redesign its FDI policy by shifting from promoting export-oriented FDI into industries and sectors that create more jobs to attract more FDI. Second, Vietnam needs to improve human capital, improve the qualifications of workers, increase the rate of trained workers to meet the human resource requirements of FDI enterprises, this is not only helps to attract modern high- tech projects but also helps to reduce poverty in localities. Finally, curbing inflation and stabilizing the macro-economy should be put in priority to reduce poverty and attract FDI inflows. REFERENCES 1. Akinmulegun S.O. (2012), ‘Foreign direct investment and standard of living in Nigeria, Journal of Applied Finance and Banking , no. 2(3). 2. Ali M., Nishat M. and Anwar T. (2010), ‘Do foreign inflows benefit Pakistan poor?’, The Pakistan Development Review , no. 48 (4). 3. Basu, P., & Guariglia, A. (2007), ‘Foreign Direct Investment, Inequality, and Growth’, Journal of Macroeconomics, 29(4), 824-839. 4. Choi, C. (2006), “Does Foreign Direct Investment Affect Domestic Income Inequality”, Applied Economics Letters , 13(12), pp. 811-814. 5. Dat D. Nguyen (2017), Thesis “The impact of foregn direct investment FDI on poverty reduction in Vietnam” , University of Commerce. 6. Driscoll, J. C., and A. C. Kraay (1998), ‘Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data’, Review of Economics and Statistics, no. 80, 549–560. 7. Dunning, J. (1993), Multinational Enterprises and the Global Economy , Wokingham, England: Addison-Wesley. 8. Feenstra, R. and G. Hanson (1997), ‘Foreign direct investment and relative wages: Evi - dence from Mexico’s maquiladoras’, Journal of International Economics , Vol. 42 No. 3–4, pp. 371–93.9. 9. Fowowe B. and Shuaibu M.I. (2014), ‘Is foreign direct investment good for the poor? New evidence from African Countries’, Eco Change Restruct , no. 47. 10. Gohou G. and Soumare I. (2012), ‘Does foreign direct investment reduce poverty in Africa and are there regional differences’, World Development , no. 40(1). 535
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