Abstract
This paper investigates the dynamic linkages between different types of foreign direct investment (FDI), domestic investment and economic growth in Vietnam. We decompose the aggregated FDI level into its two major components: greenfield investments, and cross-border mergers and acquisitions (M&As). The empirical results reveal that greenfield investments and cross-border M&As exhibit different impacts on economic growth. While greenfield investments appear to complement domestic investment, which subsequently promotes long-run economic growth, cross-border M&As exert a significant crowd-out effect and subsequently impede growth in both the short- and the long-run. These results provide important implications for policies to attract FDI in order to stimulate sustainable growth.
Highlights
This paper investigates the dynamic linkages between different types of foreign direct investment (FDI), domestic investment and economic growth in Vietnam
What is the impact of FDI on economic growth? Why do some studies suggest that FDI is an important element that fosters economic growth, whereas others document a negative FDI-growth nexus, suggesting that policies to promote domestic investment over foreign capital are necessary? This paper attempts to
We break down the aggregated FDI level that a country receives into its major components: greenfield investment and cross-border mergers and acquisitions (M&As)
Summary
This paper investigates the dynamic linkages between different types of foreign direct investment (FDI), domestic investment and economic growth in Vietnam. Using macroeconomic data in Vietnam over the period from 2003 to 2017, we find that cross-border M&As and greenfield investments exhibit different impacts on domestic investment and economic growth. A single-country study is needed because of the heterogeneous characteristics of FDI as well as the various social-economic conditions across nations, which could impose significant constraints on the breadth and accuracy of the empirical results In this context, and by using a rigorous empirical approach in a single-country setting, we contribute to the broad literature on the growth impact of FDI by providing a more creditable empirical result and inference. The rest of this study is organised as follows: Sect. 2 discusses the relevant literature, Sect. 3 presents the data and model specification used in our analysis, and the empirical results are presented in Sects. 4 and 5 concludes
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