Examining the Effect of Foreign Direct Investment and Economic Activities on Urban Land Expansion in Transitional Vietnam

Abstract

Despite abundant literature studies on the economic impact of foreign direct investment (FDI) on developing countries, few studies have investigated the impact on spatial urbanization. This study explored the spatiotemporal distribution of FDI inflows and its impact on urban land expansion in Vietnam, a transition country in Southeast Asia. While previous research was limited to specific case studies due to data limitations, this study used panel data from provincial-level regions nationwide on FDI inflows and urban land change between 2000 and 2018. The study applied panel and spatial panel models to examine the direct and indirect impact of FDI on urban land growth in the host and neighboring provinces. FDI inflows in Vietnam were most prominent in the manufacturing and real estate sectors and spatially concentrated in the metropolitan regions and coastal areas. The estimated model revealed that an increase in FDI inflows positively affected urban land expansion in the host province and that regions had spatial autocorrelation and were spatially grouped. On the other hand, it negatively affected urban land expansion in neighboring provinces. The results showed that the positive effect of FDI was significant in provinces with high-rank FDI inflows compared to surrounding areas. However, in some provinces with relatively small inflows of FDI, the negative indirect effect is greater than the direct effect, and urban land expansion may decrease due to FDI into neighboring provinces. This result implies that FDI inflows have influenced deepening regional disparities in urban growth. It needs an institutional response for regional management of the economic and environmental spillover effects of FDI inflows.