Inward Foreign Direct Investment and Trade Openness in Vietnam: A Nonlinear Autoregressive Distributed Lag Approach

Jen-Yao Lee,Ya-Chuan Hsiao,Ngochien Bui,Tien-Thinh Nguyen

doi:10.3390/economies9030120

Jen-Yao Lee, Ya-Chuan Hsiao + Show 2 more

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https://doi.org/10.3390/economies9030120

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Journal: Economies	Publication Date: Aug 24, 2021
Citations: 8	License type: CC BY 4.0

Affiliation: National University of Kaohsiung

Abstract

This study aims to examine the asymmetric relationship between trade openness and FDI (foreign direct investment) inflows to Vietnam by using NARDL (nonlinear autoregressive distributed lag) during the period from 1997 to 2019. Our findings show that the influence of FDI on trade openness is asymmetric in the short-run and long-run. But the influence of trade openness on FDI is symmetric in the short-run and asymmetric in the long run.

Highlights

Since the Government of Vietnam implemented the “Doi Moi” policy in 1986 and the Foreign Direct Investment Law in 1987, Vietnam’s economic growth has achieved remarkable development, so foreign direct investment (FDI) has always played an essential role in Vietnam’s economy
This study indicated the impact of macroeconomic factors on foreign direct investment and trade openness, based on endogenous growth theory, and followed Ding et al (2017) a study based on the following equation: FDI = f (TO; TAX, political stability (PS))
The results show that the political stability does not affect the decisive impact of foreign investors, and the expansion of the economy in the long run

Summary

Introduction

Since the Government of Vietnam implemented the “Doi Moi” policy in 1986 and the Foreign Direct Investment Law in 1987, Vietnam’s economic growth has achieved remarkable development, so FDI has always played an essential role in Vietnam’s economy. What makes Vietnam a destination for attracting foreign investors? The Vietnamese government has argued that tax rate reform and political stability are typical factors for attracting foreign investment. Some studies have realized that tax incentives preferences have completely positive effects on foreign investment in Vietnam and contributed to improving Vietnam’s comparative advantage in attracting FDI (Le 2004; Mai 2002; Yui 2006; Van 2019). Some studies stated that political stability is one of the dominant and necessary factors to create gravitation for foreign investors in Vietnam (Leung 2009; Ratnasingam and Ioras 2009; Delaunay and Torrisi 2012)

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