Foreign direct investment and new economic geography: Evidence from Vietnam

Abstract

This thesis examines the determinants and effects of foreign presence in 60 Vietnamese provinces for the period 2000–2010. Unlike its predecessors, this thesis formulates its research questions on foreign presence in Vietnam through the lens of new economic geography (NEG). These questions include: (i) what are the provincial determinants of foreign presence; (ii) does foreign presence contribute to provincial wage disparity; and (iii) can foreign presence explain changes in provincial productivity? In the extant literature, this thesis represents the first systematic inquiry into foreign presence across the Vietnamese provinces since the turn of this century. This thesis begins with an interpretative survey of the main aspects of NEG and related literature on the determinants and effects of foreign presence in its host economy. This survey provides the investigative context for choosing Vietnam as the case study in this thesis. It is then followed by an in-depth discussion on key reforms in the Vietnamese economy, with explicit emphasis on those that are pertinent to the research questions addressed in the later part of this thesis. The next three chapters form the analytical core of this thesis, each corresponding to a specific research question. In order to maintain consistency of the empirical results, these chapters make use of provincial data collected and compiled by the Vietnamese General Statistical Office (GSO). The final chapter summarises the key findings and provides recommendations to policy makers in Vietnam. This thesis reaches three major conclusions. Firstly, similar to other studies on Vietnam, it reports that foreign presence is positively associated with market access and industrial linkages, but negatively associated with trade costs. However, it finds no discernible pattern between labour-market pooling and provincial distribution of foreign presence. Secondly, it shows that cost-of-living and industrial linkage effects exert positive effects on provincial wage in Vietnam, whereas trade costs depresses it. Importantly, it fails to find any systematic relationship between foreign presence and provincial wage during the period investigated. Finally, while it concludes a negative foreign presence–provincial productivity nexus in Vietnam, it also demonstrates the deterministic role of provincial absorptive capacity in influencing the nature of this nexus. In short, the findings in this thesis make a strong case for encouraging a more balanced development of foreign presence across Vietnamese provinces in the near future; and creating a stable macroeconomic environment would be the first step going forward.