Dynamic spatial effects of determinants of foreign direct investment: A case of the southern key economic region of Vietnam

Abstract

ABSTRACTThe determinants of foreign direct investment (FDI) always attract the attention of researchers and policymakers. However, the spatial spillovers of FDI have not been given due attention. This study analyses the dynamic spatial effects of determinants of FDI in emerging markets: a case of the southern key economic region of Vietnam. The model employed in the research is the Dynamic Spatial Durbin Model for testing hypotheses of data collected from the General Statistics Office of Vietnam in the period of 2005–2016. The results show that there is a spatial interaction in FDI attraction to the above‐mentioned region. At the same time, factors such as market size, trade openness, population growth, agglomeration and institutional quality affect FDI inflows in the short and long term. In particular, the population growth of a locality reduces FDI inflows of that locality and neighbouring localities. Enterprise agglomeration of a province increases the FDI inflows of that province and reduces FDI inflows in adjacent provinces. This paper's findings highlight the determinants of FDI and spatial spillovers of FDI in emerging markets. In addition, previous models have not fully identified the spatial effects of FDI in the short and long term, which may skew policy decisions. Therefore, the article contributes to redefining the key factors to attract FDI inflows into emerging markets like Vietnam.