Governance of local government and foreign direct investment - A study for Lam Dong province

Abstract

A foreign enterprise's decision with respect to investing in a certain locality dramatically depends on factors that can help the enterprise increase profits and grow. One of the existing factors that cannot be ignored is the ``hand'' of state agencies. This paper sheds light on the impact of governance on foreign direct investment activities in the locality. The study deploys the quantitative method through a questionnaire survey to all foreign-invested enterprises in Lam Dong province. Regression analysis results from 54 opinions of business managers indicate that governance activities have an important influence on the investment of enterprises. These positive effects are attributed to two main factors called ``conditions on government apparatus'' and ``conditions on civil servants''. These factors comprise respectively transparency, the quality of administrative procedures, intervention from policy stability, the quality of civil servants, accountability, and political will of the entire local government system. This study supports the ``tectonic'' thinking of state agencies in managing foreign investment activities. With this result, the study not only contributes an important part to the theory of foreign direct investment in developing countries with the role of local tectonic government but also offers practical value in terms of promoting governments to regulate governance manners to achieve optimal efficiency.