Problemstatement
- growthhavemuchrecognizedinmanycountries intheworldthroughouttheoreticalandempiricall i t e r a t u r e T h e newgrowththeori eshaveshowedtheimportanceo f investmentandopennesstotradeineconomicdeve lopment.Throughthesefactors,thes t r a t e g i e s f o r f o r e i g n d i r e c t i n v e s t m e n t a n d e x p o r t s p r o m o t i o n a r e ne c es s a r y proposedtop r o m o t e economicg r o w t h e s p e c i a l l y ford e v e l o p i n g countries,socalled‘ F D I - l e d g r o w t h ’ o r ‘ e x p o r t - l e d g r o w t h ’ T h e o r e t i c a l l y , internationalf r e e tradehasbeencalled“engineo fgrowth”,whichisprovedclearlyfromtheclassicaleconomistst o t h e m o d e r n econom ists.M o r e o v e r , m a n y e c o n o m i c s t u d i e s h a v e indicatedthat countriesadoptinternationalfreetrade enjoyhigher growthratesthanthosecloset h e i r economiestot r a d e (SachsandW a r n e r , 1 9 9 7 ;
The implementation of an open economy and free trade can significantly enhance economic growth, leading to increased income levels and improved living standards (Frankel and Romer, 1999) By focusing on exports, countries can generate higher profits, boost savings, and create foreign exchange earnings along with job opportunities in the export sector (Azam, 2010) Economic output growth can be achieved not only by increasing labor and capital but also by expanding exports Furthermore, competitive export markets encourage the adoption of export-oriented policies, which positively contribute to economic growth and facilitate countries' integration into the global economy Thus, the export-led growth hypothesis supports the idea that export expansion is a key determinant of economic growth Additionally, productivity growth, improvements, and cost reductions in production positively impact exports (Krugman, 1984).
Foreign direct investment (FDI) is experiencing an upward trend, significantly contributing to trade and economic growth It enhances the economic development of host countries by improving productivity, generating employment, advancing technology, and alleviating poverty, particularly in developing nations Research indicates that FDI inflows play a crucial role in economic development by introducing unique technological assets not available locally Additionally, trade serves as a conduit for FDI flows, facilitating the transfer of capital, technological progress, and managerial skills Overall, the interplay between foreign direct investment, exports, and economic growth has garnered increasing attention from policymakers and researchers alike.
Fromthepasttonow,manyeconomistsandresearchershaveagreatinterestintherel ationshipbetweenFDI, exports,andeconomicgrowth.Alargernumberofempiricalstudieshaveusedtimeseri es,crosssection,andpaneldatatoinvestigatetheimpactofFDI, exportsoneconomicgrowthortheFDI-ledgrowthand export— ledgrowthhypothesis.Themethodsisappliedtoexploretherelationshipofexportsandeconomi cgrowthintheearlystudiesincludesexaminingthesimplecorrelationcoefficientbetwee nthem(Balassa,1978andTyler,1 9 8 1 ) orestimatingregressionequationsbased o n theNeoclassicalg r o w t h withe x p o r t s is anexplanatoryvariables.I n t h e r e c e n t s t u d i e s , t h e c a u s a l i t y b e t w e e n F D I , e x p o r t s g r o w t h , a n d econo micg r o w t h i s e m p h a s i z e d b y u s i n g c o i n t e g r a t i o n t e c h n i q u e s a n d
G r a n g e r causalityfort i m e serieso r p a n e l data.Somee m p i r i c a l studiesh a v e u s e d t h e methodsthati s abovementionedt o examinetheca usal l i n k ofFDI,exports,and
Africaregions,developingcountriesandsoon,forinstanceoftimeseriesdata,Ekana yake(1999),IsmaidandHarjito(2003),Bahmani-Oskooee(2009),S i n o h a -
( 2 0 1 2 ) a n d f o r e x a m p l e f o r pan el d a t a , Hsiao andHsiao(2006),Wonetal. (2008),MehraraandFirouzjaee(2011),Safdarieta1.
The relationship between Foreign Direct Investment (FDI), exports, and economic growth is complex and varies by country or region, necessitating attention from policymakers and researchers Understanding how these variables interact is crucial for formulating effective policies to foster economic growth, particularly in developing nations Malaysia and Thailand exemplify successful developing countries that have maintained significant economic growth through increased exports and FDI, particularly in the manufacturing sector Similarly, Vietnam shares comparative advantages and economic conditions akin to Malaysia and Thailand, making their growth-promoting policies valuable lessons for other nations This thesis aims to explore the causal relationships among FDI, exports, and economic growth using cointegration and causality techniques on time series and panel data from 1989 to 2010 across Malaysia, Thailand, and Vietnam, contributing empirical evidence to the literature with modern methodologies.
Researchobjectives
• Toexaminethecausalityrelationship b e t w e e n f o r e i g n direct investment , exports,andeconomicgrowthinthesecountries
Researchquestions
• IsthereacausalrelationshipbetweenFDI,exports,andeconomicgrowthinMala ysia,Thailand,andVietnamcountries?
• Whatpolicyi m p l i c a t i o n s c o u l d helpimproveex p o r t s an denvironm entf o r FDIinthesecountries?
Researchmethodology
Thispaperusesannualtimeseriesdataandpaneld a t a ofthreecountriesinS outheastAsiaregionincluding Malaysia,Thailand, andVietnamovertheperiod of1989-2010.
Fuller(ADF)testandthePhillipsandPerron(PP)test,Johansen’scointegration te chnique,Grangercausalityt e s t a n d f o r p a n e l d a t a i n v o l v e s I n n , P e r a s a n , a n d S h i n ( I P S ) t e s t a n d AugmentedDickey-FullerFisher( A D F -
Structureofthethesis
This thesis is organized into six chapters Chapter 1 defines the problem that leads to the study, outlines the objectives and research questions, and briefly describes the methodology Chapter 2 presents a theoretical and literature review Chapter 3 provides an overview of the issues related to foreign direct investment, exports, and economic growth Chapter 4 details the methodology used for conducting the study Chapter 5 presents empirical results corresponding to each estimation technique The final chapter concludes with a summary of the empirical results, discusses policy implications, and addresses the limitations of the thesis.
Thec h a p t e r firstly presentstheoreticalliteraturebetweenforeigndirectinvestmenta n d economicgr owth,exportsan deconomicgrowth Then,empiricalliteratureforthecausalrela tionshipbetweenforeigndirectinvestment,exports,andeconomicgrowthismentioned.
TheoreticalLiterature
Relationshipbetweenforeigndirectinvestmentandeconomicgrowth
Foreign direct investment (FDI) plays a crucial role in capital formation, complementing domestic private investment and leading to new job opportunities and enhanced technology transfer, which ultimately boosts economic growth in host countries FDI contributes to economic growth in various ways; the neoclassical growth model views technological progress and labor force as external factors, suggesting that FDI increases investment volume and promotes growth However, its effects are primarily short-term due to diminishing returns on capital In contrast, the new endogenous growth theory posits that long-term growth is driven by technological change, indicating that if FDI positively impacts technology, it can significantly enhance growth rates in the host economy through technology transfer and spillover effects.
I h a v e a p o s i t i v e impacto n e c o n o m i c growthb o t h i n t h e s h o r t r u n a n d t h e l o n g r u n ( H e r z e r e t a l , 2 0 0 6 ) M a k k i a n d Somwaru(2004)alsohavepoi ntedo u t thatFDIhasasignificancethroughtechnologytransferviadiffusionprocessfro mdevelopedtodevelopingcountries.
Ontheot he rhand,e c o n o m i c g r o w t h i s oneofthedeterminants o f for eigndirectinvestmentinflowsinthehostcountry.Thelevelofeconomicgrowthp laysani m p o r t a n t r o l e i n a t t r a c t i n g F D I , t h e e n h a n c e m e n t o f e c o n o m i c g r o w t h m a y createi n c r e a s e d o m e s t i c m a r k e t s a n d b u s i n e s s e s ( A g i o m i r g i a n a k i s e t a 1 , 2 0 0 6 ) Rapideconomicgrowthleadst o l a r g e aggregatedemandwhichstimulatestoincreasedemandforinvestmentsincl udingFDI.Inaddition,bettereconomicperformancesi n thehostco u n t r i e s a ls o co ntributei n c e n t i v e FDIthroughabetter
6 infrastructuralfacilitiesand greateropportunitiesformakingprofits(Zhang,2001).Johnson(2006)statethatFDIinflowsenhanceeconomicgrowthofahostc ountryandthegrowthofeconomicinturnmayattractFDIinflowsandthecyclecon tinues.
Relationshipbetweenexportsandeconomicgrowth
Ascommonlyperceivedexportsandeconomicgrowthcanhavecorrelation , eachotherandexportsare avitalf a c t o r inpromotinge c o n o m i c g r o w t h i n devel opingcountries.Thereareseveraltheoreticalargumentssupportingexport- ledgrowthh y p o t h e s i s
Research by Balassa (1978) demonstrates a strong positive correlation between export growth and economic growth, suggesting that an increase in exports can significantly contribute to a nation's economic development This paper also highlights the positive relationship between exports and domestic savings, indicating that expanding exports may attract foreign capital and boost labor productivity Supporting this view, Tyler (1981) examined the growth-export relationship across 55 developing countries and found a similarly strong correlation However, it is important to note that correlation alone does not account for the influence of other variables, prompting the need for a model based on the Cobb-Douglas framework to better understand these dynamics.
WhereX;is countryi’s GNP,Aisatechnologicalconstant,K,is countryi’scapitals t o c k s e r v i c e s , L , i s aco un tr y i ’ s laborf o r c e i n p u t s a n d E; i s country i ’ sexports.
Thisr e g r e s s i o n e s t i m a t e m a d e c a p i t a l a n d e x p o r t s p l a y s i g n i f i c a n t r o l e i n contributetogrowthcompared tothemodelonlyhavecapitalinformation andlabor force.Andheprovedthat17 5% increaseinexportsis associatedwith1%increaseingrowth.Consequently, t h i s paperres ul ts i n d i c a t e thatexportstakeonanimportantroleineconomicgrowthindevelopingcountries.
Exporto r i e n t a t i o n a n d e x p o r t promotion a r e beneficialf o r bothd e v e l o p e d andd e v e l o p i n g c o u n t r i e s ( M e d i n a -
S m i t h , 2 0 0 1 ) H e a d v o c a t e d t h a t e x p o r t s t a k e advantageofeconomiesofsc ale andt e c h n o l o g i c a l progressleadst o i n c r e a s e productivitya n d createem ployment.I n addition,exports expansiond e c r e a s e s thepressureso f currenta c c o u n t f o r foreigncapital goodsbyi n c r e a s i n g t h e country’s externalearning sandattractingforeigninvestment.Konya(2002)alsoarguesthatthepromotion o f exportactivityleadstoeconomicgrowthbaseontradetheory.Itdirectlyencoura gestheproductionof goodsforexportsleadtothespecializationofeconomicofscaleandthenation’scomparative advantages.
Export expansion is crucial for economic growth, as it leads to increased foreign demand for domestic products, which in turn creates employment opportunities and raises income for workers in the export sector This growth in exports facilitates the efficient reallocation of resources and leverages economies of scale, resulting in higher productivity Additionally, increased exports can stimulate advancements in technology, skill enhancement, and improved management techniques due to competition in foreign markets This process not only generates foreign exchange for importing capital and intermediate goods but also creates a cycle where output growth fosters further export growth Ultimately, exports drive employment and income, leading to greater productivity and a continuous increase in exports.
Besides,therearealsotheoreticalreasonstosupportthegrowth- lede x p o r t Particularly,Neoclassicaltrade theorysupportstheideathateconomicgrowth leadstoh i g h e r e x p o r t s E c o n o m i e s o f s c a l e c o n t r i b u t e t o c o s t r e d u c t i o n , c o m p a r a t i v e advantageandhenceexportsincrease.Moreover,economicgrowthenhancesskillsa ndtechnologyi n thevariouss e c t o r s ofaneconomytoboostproductivity (Kru gman,1984).T h i s p o i n t o f v i e w s i m i l a r l y , R a m ( 2 0 0 3 ) a l s o s t a t e t h a t t h e advancementskills andtechnologycreateacomparativeadvantagefortheco untryinproductiono f anumberofproductswhichcanleadtoexpandexportsforthos e
, commodities.M a j e e d a n d Ahmad( 2 0 0 6 ) provedt h a t G D P an dG D P growth h a s positivee f f e c t s o n e x p o r t s w i t h h i g h l y s i g n i f i c a n t i n d e v e l o p i n g c o u n t r i e s Therefore,i t i s i m p o r t a n t t o m a i n t a i n ah i g h a n d s u s t a i n a b l e e c o n o m i c g r o w t h whichi s avitalf act or topromotee x p o r t s becausebid irectionalc a u s a l i t y betweenexportsandoutputgrowthcanexist.
Relationship betweenFDIandexports
FDIismotivatedm a i n l y by thepossibilityo f highprofitabilityi n growi ngmarkets.
Foreign Direct Investment (FDI) significantly impacts a host country's export performance in two main ways Firstly, multinational corporations (MNCs) leverage their affiliates' abundant resources and lower labor costs to enhance export competitiveness in global markets Secondly, local firms benefit indirectly from FDI as MNCs improve their competitiveness through technology transfer, management practices, and skill development, leading to increased production efficiency Additionally, the shift of MNCs from higher to lower labor cost countries further boosts their export competitiveness and enhances overall export performance.
( 2 0 0 3 ) , t h e h i g h i n c o m e p e r c a p i t a , t h e o r i e n t a t i o n o f o u t w a r d t o i nternationaltrade,infrastructuredevelopmentandhighrateofreturnoninvestmentarethes i g n i f i c a n t f a c t o r s f o r FDIi n f l o w s S i m i l a r l y , L i m ( 2 0 0 4 ) f o u n d t ha t t h e marketsize,i n f r a s t r u c t u r e quality,economicstabilityandfreet r a d e z oneare importantf o r FDIa n d the i n v e s t m e n t d e c i s i o n s a r e a ff ect ed b y f i s c a l i n c e n t i v e s , investmentenvironment,laborcostandtradeopenness.
Empiricalstudies
2 0 0 9 Thep a p e r s h o w t h a t h a v i n g s i x cointegrationv e c t o r s a m o n g F D I , c a p i t a l f o r m a t i o n , d e g r e e o f o p e n n e s s , i m p o r t , andtermsoftradebasedonth eresultsofJohansencointegrationtest.Thevariableshadt h e relationship i n l o n g - r u n a n d playeda n i mp or ta nt r o l e i n thee c o n o m y i n Nigeria.
( 2 0 1 2 ) a l s o e x a m i n e d t h e r e l a t i o n s h i p a m o n g F D I , t r a d e , a n d economic growth infourSouthAsiancountriesIndia, Bangladesh,S r i LankaandPakista novert h e p e r i o d of1973-
2010u s i n g GeneralizedMethodofM o m e n t (GMM).Theresultsshowthatexports have positiveimpacton economicgrowthinalln a t i o n s a n d s i m i l a r l y f o r F D I b u t e x c e p t S r i -
Mangir( 2 0 1 2 ) usedcoi nt eg ra ti on a n d Grangercausalitytes ttoanalyz etherelationshipbetweenexportandeconomicgrowthinTurkeyfortheperiodof2002
2011withquarterlytimeseriesdata.Cointegrationisfoundbetweenexportandeco nomicg ro wt h whicht hese variables havel o n g runrelationship G r a n g e r cau salitytestresultsshowthatthereisaunidirectionalc a u s a l i t y relationshipfr om e xportt o e c o n o m i c g r o w t h i n t h e s h o r t r u n a n d b i d i r e c t i o n a l int h e l o n g r u n i n Turkey.
Hossain( 2 0 1 2 ) a n a l y z e d b o t h t h e s h o r t - r u n a n d l o n g - r u n r e l a t i o n s h i p betweenFDIandeconomicoutputinSouthAsiancountriesusingdataf rom1972to2008.Thestudyusedthreeeconometricmodel(ADFtest,Engle-
Grangertest,andVECM)a n d Grangerc a u s a l i t y t o findtheimpactofFDIoneco nomicoutputandinverse.Theresultsindicate thatthereisnocointegrationbetweenFDIandGDPinthebothshortrunandlongrunfo rBangladesha n d India.Nonetheless,t h e cointegrationi s foundinPakistaninthesho rtrunaswellaslongrun.Thereisno
2010.FDIandeconomicgrowth iscointegratedbasedoncointegration test.Grangercausality test showsthatChina’seconomicgrowthmakesFDIincrease.
Erecakar(2011)investigatedtherelationshipamonggrowth,FDI,tradeand inflationin Turkeyfortheperiod1 9 7 0 -
2 0 0 8 Cointegrationtestalsoisusedinthisstudyt o e x p l o r e t h e l o n g - r u n r e l a t i o n s h i p ofv a r i a b l e s a n d f o u n d o u t o n l y o n e cointegrationvec torexistsamongofthem.Besides,theresultsindicatedthatFDI,inflationandtrades urplushavepositiveeffectoneconomicgrowth.
Tekin(2011)exploresGrangercausalityamongrealGDP,realExports,andin wardFDIinLeastDevelopingCountriesduring period1 9 9 0 —
2009.Thestudyusea n e w p a n e l — dataa p p r o a c h b a s e d o n S U R s y s t e m s a n d W a l d t e s t s T h e Grangercaus alityrelationshipisfoundamongthesevariables.Theempiricalresultssupportexport- ledgrowth,FDI-ledgrowth,FDI-ledexports,inversely.
( 2 0 1 1 ) t e s t e d t h e c a u s a l i t y r e l a t i o n s h i p b e t w e e n e x p o r t a n d economi cgrowthinAsiandeveloping countries overfrom1 9 8 8 to2008.Apaneldatao f thirteenc o u n t r i e s a n d th e variables o f G D P a n d e x p o r t s a r e measuredi n constant2000 USdollarswithGDP deflatorisappliedinthispaper.Thestudyusesfourpanelu n i t rootsofLevineta1.
(LLC,2002),Imeta1.(IPS,2003),Breitung(2000)andF i s h e r - t y p e testbyMaddalaandWu(1999),andChoi(2001)t o investigateforstationary.Pan elcointegrationtestproposedbyPedroni(1999,2004)andKao(1999)isappliedtocheckcointeg rationbetweenexportandoutputgrowth.Apanel-
VECMcausa li ty basedonWaldtestisusedfor examinecausalrelationofreale x p o r t a n d r e a l G D P T h e r e s u l t s s h o w t h a t e x p o r t i s n o t G r a n g e r c a u s e o f economicgrowth,butonewaycausalityfromgrowth toexportinthethirteenAsiandevelopingcountriesisselectedinthispaper.
Eusufa n d A h m e d ( 2 0 1 0 ) e x a m i n e d c a u s a l i t y b e t w e e n e x p o r t a n d g r o w t h usingEngle-Granger’serror correctionmodelwithannualtimeseriesdatainSouthAsiancountries.Sevencount rieswiththedifferenttimeperiodforeachcountryisstudiedi n thispaper i n c l u d i n g I n d i a ( 1 9 6 5 - 2 0 0 5 ) , N e p a l ( 1 9 6 5 - 2 0 0 5 ) , S r i Lanka(1965-
This study utilizes indices such as the consumer price index, unit value index for exports, and GDP deflator to analyze the relationship between exports and economic growth in South Asian countries The ADF and PP tests are employed to assess stationarity, while the Engle-Granger procedure examines the long-run relationship between exports and GDP Causality is tested using the F-test and error correction term Results indicate that real exports and real GDP are cointegrated in Bangladesh, Pakistan, and Nepal Export-led growth is observed in Pakistan, Sri Lanka, and Bhutan in both the short and long term, while growth-led exports are found in India, Nepal, and the Maldives However, data for Bangladesh did not support a feedback relationship for export-led growth Overall, the findings present mixed results and do not conclusively support export-led growth across South Asian countries.
Bahmani-Oskooeea n d Economidou( 2 0 0 9 ) investigated e x p o r t - l e d g r o w t h andg r o w t h - l e d exportsu s i n g annualdata overt h e p e r i o d 1960-
1999f r o m 6 1 countrieso f L D C s T h e p a p e r u s e s f i v e v a r i a b l e s g r o s s d o m e s t i c p r o d u c t , g r o s s capitalformation,exports,imports(inconstant1 9 9 5 U S$)andtotallaborforceinthousands.F o r t e s t i n g s t a t i o n a r y o f a v a r i a b l e a n d g i v i n g t h e n u m b e r o f cointegrationv e c t o r s u s e s Johansen’sc o i n t e g r a t i o n t e c h n i q u e ( 1 9 8 8 ) Theresultsshowt h a t n o cointegrationvectorisfound for14c o u n t r i e s (Cote d’Ivoire,Mauritania,M a u r i t i u s , M o r o c c o , C h i n a , M a l a y s i a , P a k i s t a n ,
11 t h e P h i l i p p i n e s , Guyana,H a i t i , J a m a i c a , P a r a g u a y , P e r u , a n d U r u g u a y ) a n d t h e n u l l o f nocointegrationisrejectedintheremainingcountriesshowingtheexiste nceofatleastonecointegratingvectorsamongthesevariables.Therelationshipbetw eenexportsandoutputisdividedi n t o fourgroupsinthispaper.Th e first,therei s afeedback
1 2 betweene x p o r t s andoutputinthelongrunforAlgeria,G a m b i a , Ghana,Mala wi,Senegal,Hungary,ElSalvador,andHonduras.ThesecondgroupincludescountriesBurk inaF a s o , B u r u n d i , G a b o n , K e n y a , L e s o t h o , M a l i , N i g e r , N i g e r i a , T o g o ,
I n d i a , Korea,Thailand,Egypt,Israel,Argentina,Bolivia,Brazil,CostaRica, DominicanRepublic,
Guatemala,M e x i c o , T r i n i d a d , a n d T o b a g o h a v e n o l o n g r u n r e l a t i o n betweenoutput andexports.Thethirdgroupthattheincreasingofexportsstimulateoutputint h e longr u n w h i c h iso c c u r r e d inC o n g o , SouthA f r i c a , Swaziland,Tunisia,Ecuador,a ndNicaragua.Thefinallygroup,havingaoneway relationfromoutputgrowthtoexportgrowthinthelongrunforBenin,Guinea,Bis u,Rwanda,Zambia,B a n g l a d e s h , I n d o n e s i a , P a p u a NewG u i n e a , C h i l e , a n d Colombia T h u s, theresultsarecountryspecific.
(2009)studyestablishedcointegrationandcausalityrelationship,bothatthepanellevelan dindividuallevel, betweenFDIandeconomicgrowthoffiveASEANc o u n t r i e s , nam el y, I n d o n e s i a, Ma lays ia, S i n g a p o r e , Philippines,a n d Thailandover period1 9 7 0 -
2 0 0 7 T h e resultsindicatethathavecointegrationbetweenFDIandeconomicgro wthforfivecountrieshave thepresenceoflongrunrelationbetweenthematthepanellevel,butonlyhadSingaporeandT hailandattheindividualc o u n t r y level Besides,bi- directionalc a u s a l i t y a l s o hasf o u n d betweentwovariables b o t h t w o l e v e l s f o r a l l c o u n t r i e s e x c e p t M a l a y s i a t h r o u g h G r a n g e r causality.
(2009)exploredthecausalrelationshipbetweenFDI,exportsandGDPinboththeshort runandlongrunf o r sixemergingc o u n t r i e s c o n s i s t ofIndia,Pakistan,Malaysi a,T h a i l a n d , Chile andMexicod u r i n g 1 9 7 0 - 2 0 0 5 periods.ADF,PP, andZivot andAndrewstestswereemployedtocheckforthestationary ofthev a r i a b l e s withone structureb r e a k Thep a p e r alsou s e d cointegrationandGrangerc a u s a l i t y b a s e d o n V A R o r VECMt o e x a m i n e t h e c a u s a l l i n k betweenthesevariables T
1 2 h e export- ledg r o w t h h y p o t h e s i s i s s u p p o r t e d i n bothI n d i a a n d Pakistan.GDPgrowth alsodrivesgrowthFDIinIndiaandexportsforthecaseofPakistan.InMexicoandCh ile,exportsarecauseofFDIandoutputinthelongrun.
Forthecase ofThailand,bidirectional c a u s a l i t y i s foundbetweenG D P an dFDI,however,nocausalityrelationshipisfoundinMalaysia.
(2008)studyt h e impactoft r a d e opennessandF D I oneconomicgrowthinMalaysia fortheperiodof1975—
(2001).Theresultsshowthattheeffectoftradeopennessongrowthisstatisticallysignif icantpositively,bo th intheshortrunasthelongrun.FDIispositiveeffectonecono micgrowthintheshort runandnegativelyinthelongrun.
Pham( 2 0 0 8 ) a p p l i e d t h e s t r u c t u r a l V A R m o d e l s t o e x a m i n e t h e e f f e c t o f investmento r e x p o r t o n V i e t n a m ’ s e c o n o m i c g r o w t h s i n c e the R e n o v a t i o n ‘ D o i Moi’in1 9 8 6 Thestudy useda n n u a l datafrom1 9 8 6 to200 7withf o u r variablesGDP,investment,export,andproductivity.Theresultsindicatet hatinvestmenthasaffectedtoeconomicgrowthandsupportedtheinvestment- ledg ro wt h butexport- ledgrowthdidnotsupportinVietnam.Inaddition,exportalsodidnot contributetoimproveproductivityaswellasinvestment.
Maneschiold(2008)carried outastudyinvestigatedtheexport- ledgrowthinArgentina(1993Q1—2006Q1),Brazil(1991Q1—
This study examines the relationship between economic growth and exports in Argentina, Brazil, and Mexico from 1980 to 2006 using cointegration and causality tests Quarterly data on GDP and exports at constant prices are analyzed, employing ADF, PP, and Zivot-Andrews tests to identify unit roots and structural breaks The Johansen procedure is utilized to assess cointegration among the variables Findings reveal a cointegration relationship in Argentina and Mexico during both pre- and post-break periods, while Brazil does not exhibit this relationship In the post-break period, a bidirectional causality is identified for Argentina and Mexico, whereas a unidirectional causality from export growth to economic growth is observed in Brazil.
14 epre-break p e r i o d Moreover,u n d i r e c t i o n a l linkfrom exporttoGDPisfoundinshortruncausalitytestforBrazil.So,thepaper indicatest h a t e x p o r t s c a u s e e c o n o m i c g r o w t h s u p p o r t toe x p o r t - l e d g r o w t h hypothesis.
This study examines the causal relationships between exports, foreign direct investment (FDI), and GDP in East and Southeast Asia, including countries such as Korea, Taiwan, Hong Kong, Singapore, Malaysia, the Philippines, Thailand, and China Utilizing various statistical methods, including ADF, DF-GLS, and KPSS unit root tests, Johansen cointegration tests, and Granger causality tests based on VAR in time series, the research reveals that each country exhibits unique causal relationships Notably, exports and FDI are identified as drivers of economic growth, with a unidirectional causality from FDI to exports Additionally, GDP shows a weak impact on exports among the panel countries.
IsmailandHaijito(2003)examinedthecausalityrelationshipbetweene xportsa n d e c o n o m i c g r o w t h i n t h e A s e a n c o u n t r i e s u s i n g a n n u a l d a t a o f r e a l exportsandrealGDPduring19 66 - 20 00 per io ds Similarlyothermanyresearches,thisp a p e r a l s o u s e s A D F t e s t , E n g l e a n d G r a n g e r ( 1 9 8 7 ) a n d J o h a n s e n (1988)cointegrationt e s t , a n d G r a n g e r c a u s a l i t y t e s t T h e r e s u l t s s h o w t h a t e x p o r t s a n d economicgrowt h arecointegratedleadstoexistalongrunrelationbetweentheminIndonesiaandSingapore. Theyfindthatthereisabidirectional,fee db ack causalityrelationshipb e t w e e n t w o v ariablesf o r thePhilippines a n d Indonesia a n d a undirectionalcausallinkrunnin gfromexportstoeconomic growth inSingapore.InthecaseofM a l a y s i a andThailandhavenocausallinkbetweenexp ortsandeconomicg r o w t h
(2002)investigatedtherelationshipbetween e x p o r t s andeconomicgrowth o v e r theperiodo f 1 9 6 0 - 2 0 0 0 intheS o u t h Asiaregion,namely India,P a k i s t a n ,
The study examines the relationship between real exports and real GDP in Sri Lanka, Bangladesh, Nepal, India, and Pakistan using annual time series data Employing ADF and PP tests for stationarity, it identifies a long-run relationship among all countries through Johansen’s cointegration technique Granger causality tests reveal bidirectional causality for Bangladesh, Nepal, and Sri Lanka, while India and Pakistan show a unidirectional causality from exports to growth in the long run In the short run, a one-way causal relationship from exports to GDP is observed in Bangladesh and Sri Lanka, with India and Nepal showing no causal link, and Pakistan having no causal relationship at all Overall, the findings support the export-led growth hypothesis for these five South Asian countries.
Ekanayake( 1 9 9 9 ) testedthecausalrelationbetweene x p o r t s andecono micgrowthi n Asian d e v e l o p i n g c o u n t r i e s u s i n g a n n u a l d a t a f o r thep e r i o d o f 1 9 6 0 -
1997.Eightcountries wereanalyzedinthispaperw it h theperiods p e c i f i e d inth eparenthesesincludingIndia( 1 9 6 0 - 1 9 9 6 ) , Indonesia(1965-
1997).T h e dataongrossdomesticproduct( G D P ) andexportsforthispaperareth eGDPdeflatorandexportpriceindex(19900).Thisstudyusestheco- integrationanderrorcorrectionmodelsto examinethecausalrelationshipoftwovariables.A D F t e s t is usedto testf o r unitr o o t s i n thispapera n d ther esu lt s showthepresenceofunitrootsinallseriesforallcoun triesinfirstdifference.Thenext,twomethodsEngle-GrangerandJohansen-
Juseliusisappliedto check causalrelationb e t w e e n e x p o r t s an d economic growthf o r eachof eightAsian c o u n t r i e s Grangercausalitycouldb e d e t e c t e d w h e n t w o v a r i a b l e s arec o i n t e g r a t e d
T h e resultsi n d i c a t e t h a t b i d i r e c t i o n a l c a u s a l i t y e x i s t s b e t w e e n e x p o r t s a n d e c o n o m i c growthinallcountriesexceptMalaysia.ThestronglongrunGran gercausalitywasfoundf r o m e x p o r t g r o w t h t o e c o n o m i c g r o w t h i n a l l c a s e s T h e r e i s s h o r t r u n Grangerc a u s a l i t y f r o m e c o n o m i c g r o w t h t o e x p o r t s i n a l l n a t i o n s e x c e p t e d SriLanka.O n t h e c o n t r a r y , e v i d e n c e o f s h o r t r u n c a u s a l i t y f r o m e x p o r t g r o w t h t o economicgrowthonlywasf oundinIndonesiaandSriLanka.
Table2.1summarizes e m p i r i c a l s t u d i e s onthecausalrelationshipbet weenforeignd i r e c t i nv est men t, e x p o r t s , andeconomicg r o w t h which a r e m entionedi n thispaper.
I.il›lc2.I:.$’iifiiziiiir'‹›/t•ziiJiir/c'/i/.slift//‹.'s‹iii‹'‹insii/r/_;'/ic'rằ'c'i'ztIfl/,i't/i‹irf.s,iiiii/cc'‹iitiiiiiit‘r ‹ › i ‹ ' / / i
Previousstudies (times e r i e s and Countries Time period Variables Methodology Results p a n e l d a t a )
(2012) 1960-2009 GDP, openness, Cointegration Sixcointegrationv e c t o r s Ex.rate, Javedetat 4SouthAsian 1973-2010 Trade,F D I
2-2011 EX,GDP Cointegration,Gr angerc a u s a l i t y
Hossain(2012) countriesBa ngladesh, 1972-2008 FDI,GDP Cointegration,Gr angerc a u s a l i t y FDI0GDP(B)FDI-
Sun(2011) China 1985-2010 FDI,GDP Cointegration, GDP -•FDI
Panelc o i n t e g r a t i o n (Pedroni,Kao)P anelc ausal ity (Gr anger)
FDI •GDP, Inflation,tradesurplus • GDP
Sina o r e , I ndonesia,Ph ilippines, Th ailand,
1970-2007 FDI,GDP Cointegration,Gr angerc a u s a l i t y
EX—-›GDP( I ) GDP -•FDI(I)EX•-•GDP( P )
GDP0FDI0EX( M ) FDI•-•GDP(T) EX -›FDI(Mexico,C) EX -•GDP(Mexico,C)
Baharom(2008) Malaysia 1975-2005 FDI,G D P Roundstestin g approach
GDP, investment, ex port,a n d produ ctivity
VARmodel l—-•GDP,EX9GDP.EX0FDl, EX0productix'ity
Maneschiold Argentina, I993Q1- Cointegration and EX‹ •GDP(A,M)
Brazil 2006QI GDP,EX Grangerc a u s a l i t y Ex GDP(B)
Panelunitroots (IPS,AD F- fisher), Grangerc a u s a l i t y
1966-2000 EX,GDP Cointegration,Gran gerc a u s a l i t y
EX•-• GDP(P,I) EX •GDP(S) EX0GDP(M,T)
1960-2000 EX,GDP Cointegration, EX GDP(ByNdS)
EX——•GDP(1.P) India, Pakistan 8Asian
India,Philippin es,Indonesia,Ko rea,Pakistan,Sri Lanka,
1960-1997 EX,GDP Cointegration,Grang erc a u s a l i t y
Thedifferent r e s u l t s m i g h t d e p e n d o n stageof development, p e r i o d o f study, cou ntriesofconsideration,policiesandinstitution,modelspecifications,qualityofdatasets,andmight non-economicfactors.
Conceptualframework
Aconceptualframeworkiswithdrawnfromliteraturereviewasmentionedinfigure2 1.Thisf i g u r e s h o w s t h a t t h e r e l a t i o n s h i p b e t w e e n foreignd i r e c t investment, exports,a n d e c o n o m i c g r o w t h R e s e a r c h m e t h o d o l o g i e s u s i n g t i m e serieso r p a n e l datat o e x a m i n e t h e c a u s a l linksb e t w e e n thev a r i a b l e s isa l s o presentedinf igure2.1 Conceptualframeworkhas givenasummaryaboutcontentsofthisstudy.
Economies of scale Create employment lmproving income Technological progress
Increasing domestic markets and businesses Good infrastructure
Cost reduction Advancement skills and technology
Thisc h a p t e r p r e s e n t s t h e c h a r a c t e r i s t i c s o f f o r e i g n d i r e c t i n v e s t m e n t , exports,andeconomicgrowth variablesf o r theperiodo f 1 9 8 9 -
2 0 1 0 inMalaysia,Thailanda n d V i e t n a m i n o r d e r t o s e e t h e i n t e r r e l a t i o n b e t w e e n t h e v a r i a b l e s i n thosec o u n t r i e s Thisc h a p t e r h a s t w o s e c t i o n s Sectiono n e p r e s e n t s economicgrowth,F D I a n d e x p o r t s c h a r a c t e r i s t i c s i n M a l a y s i a a n d T h a i l a n d S e c t i o n t w o providessimilarproblem sforVietnam.
Foreigndirectinvestment,exports,andeconomicgrowthinMalaysia
Malaysiaa n d Thailanda r e naturalr e s o u r c e based c o u n t r i e s thathavee xperiencedabove- averageGDPgrowthratesforovermanydecades.TheirannualaverageGDPgrowthrat eisveryhigh9.4%and9.1%respectivelyf o r theperiodof1989-
1996.Inparticular,forthecaseofMalaysia,percapitagross nationalproductreached$3,843in1996.
However,the onsetoftheAsianf i n a nc i a l a n d economiccrisisin1 9 9 7 ha dseverelyimpactedtoeconomicgrowtho f Malaysiaand Thailandcountries T heirGDPgrowthratehaddec rease d to-7.4%and-
10.5%respectivelyi n 1 9 9 8 Surprisingly,Malaysiaa n d Thailandwerealsoam ongthefirstcountriesrecoveryfromtheeconomiccrisis.
Malaysia’sG D P g r o w t h h a s a t t a i n e d t o 8 9 % i n 2 0 0 0 a n d a v e r a g e a b o u t 5.9%inayearduring2002—2007periodsandforthecase ofThailand,GDPgrewapproximately5 0 % pery e a r i n 1 9 9 9 -
2 0 0 7 periodsw i t h G D P per c a p i t a a t US$3,643(2007).Onceagain,theglobalc risis in2008hasdrawnMalaysia’seconomywithd o w n w a r d t r e n d i n e c o n o m i c g r o w t h w h i c h i s d e c r ea se d t o -
1 6 % i n 2009 Nevertheless,o n l y oney e a r aftert h e crisis,t h e growthrateofM a l a y s i a andThailandhadreached7.2%and7.8%in2010.
Economicg r o w t h c a n b e a n a l y z e d f r o m t h e c o m p o s i t i o n o f total d e m a n d includinghouseholdconsumptionCp),governmentconsumption( Cl ), grossfixedcapitalformation(I),exports(E)andimports(M).Theircontributio ntoeconomicgrowthispresentedintable3.1.
Table3.1showsthatexportsaremainsourceofeconomicgrowth,especiallyforthec aseofMalaysia.Besides, privatec o n s u m p t i o n a n d investmenta l s o contribut etoeconomicgrowth.
Asisseenfromtable3.2,thecorrelationc o e f f i c i e n ts o f thegrowthrateso ftherealG DP andprivatec o n s u m p t i o n , i n v e s t m e n t , e x p o r t s , an dimports
21 areveryhighimplyingthatMalaysiaandThailande c o n o m i c gr ow th hadbeen moredependento n theg r o w t h rate o f thesevariables H o w e v e r , th eg ove rn m en t
CybCyb, E,Marethegrowthratesofgovernmentconsumption,householdconsumption,investment,exportsandimports,respectively.
Thei n c r e a s e o f i n v e s t m e n t s t i m u l a t e s e c o n o m i c g r o w t h b y c r e a t i n g m o r e capitalss t o c k a n d e x p a n d i n g p r o d u c t i o n capacity.Int h e r e , f o r e i g n d i r e c t investmenthasa v i t a l rolei n t h e c o n t r i b u t i o n toe c o n o m i c growthasw e l l asexports.
Asd e p i c t e d i n f i g u r e 3 2 , f o r e i g n d i r e c t i n v e s t m e n t i n f l o w s h a d s t r o n g l y increaseda f t e r thefinanciala n d economic crisesin1 9 9 7 , andhi ghestin2007.Inthepe r i o d o f 1 9 8 9 -
In 1992, Foreign Direct Investment (FDI) contributed significantly to the GDP, with Malaysia at 8.8% and Thailand at 6.5% Despite currency depreciation, FDI inflows to Thailand grew remarkably However, the global economic crisis severely impacted FDI in both Malaysia and Thailand, reducing their contributions to GDP to approximately 0.7% and 1.8% in 2009, respectively By 2010, FDI contributions rebounded, accounting for 3.9% of GDP in Malaysia and 3.0% in Thailand.
FDI(%GDP)inMalaysia FDI(%GDP)inThailand
Sourceso f FDIi n Malaysia a n d Thailandhave g e n e r a l l y bee nq u i t e di versified,includingJapan,theUnitedS t a t e s , Singapore,HongKong,theUnited
KingdomandSwitzerland.JapanisusuallythelargestsourceofFDIsincethelate19 70sinThailanda n d automotivesectoristhemaincontributors f o r theindustr ysector.
Figure3.2alsoshowthat,exportsandeconomicgrowthhavecorrelationin bothMalaysiaandThailand.Reinhardt(2000,p 5 9 ) statest h a t ‘exportsw e r e dividedintofivecategories:primary(unprocessedrawmaterialsexcluding:naturalres ourceandun— skilledlaborintensive),mineral(nonferrousores:naturalresourceandcapitalintensive),semi
-manufactures(simplyprocessedmanufactures: natural- resourcei n t e n s i v e , b u t h i g h e r v a l u e - a d d e d t h a n u n p r o c e s s e d p r i m a r y p r o d u c t s ) , manufactures( l o w natur alresourcevalueasshareoftotalvalue),andothergoods(worksofartetc.)’.
I'iJ;iire3.4:F,.xptirt.sti-iir-tizrt'lit 1fri/fly.s/ri,I 989-2ttfID(yt'rtt'iiffiya)
manufactures omineral afood ■agriculture ■others
Figure3 4 a n d 3 5 pr esen ts t h e d e v e l o p m e n t o f e x p o r t s t r u c t u r e s b etween 1989-
2010inMalaysiaa n d T h a i l a n d T w o yeara v e r a g e i s usedt o minimizet h e e ffecto f year-to- yearv a r i a t i o n s T h e data s h o w that, i n bothc a s e s , m a n u f a c t u r e
89-90 96-97 2003-2004 2009-2010 manufactures •'mineral efood ■agricultural ■others
Manufacturede x p o r t s grewmorerapidlythanoverallexportsin1996- 1997andthee x p o r t s h a r e o f m an ufa ct ur es w a s r e l a t i v e l y s t a b l e i n thel a t e r yea r T h e changeofexportstructureinMalaysiaandThailandhasbeenstronglyatt ributedtoforeigninvestments O n thecontrary, theexports h a re ofagriculture andfoodaresteadilyfallinginbothcountries Asformineralin2009- 2010,theshareofmineralincreasedcomparetothelastyearsforMalaysiaandThailand.
Exportvalueindexhasfluctuatedf r o m 25.5and29.1in1 98 9 to220.4and 283.3inMalaysiaandThailand,respectively(figure3.6)
Table3 3 presents t h a t a g r i c u l t u r a l s e c t o r produceda sm a l l s h a r e o fG D P whichi s onlyl e s s than1 5 % inbothMa l a ys i a a n d Thailandf o r theperiod1 9
2010.Industrys e c t o r hasa cc o u n t e d f o r over400o f totalG D P inbothcountri es andattainedtoapproximately50%in2006inMalaysia.
Aswellas industrysector,servicessectorhas playedasignificantroleintheshareofGDP,contributingmorethan41%inGDPandes peciallysignificanceforThailand.
Ingeneral,Malaysia a n d Thailandhavemanys i m i l a r characteristics i n thegrowthanddevelopmentprocessing.Thomsen(1999)presentedthatMalays iaandThailandhaveasimilarrankingofi n v e s t o r s , thefavorofsectorsb y foreigni nvestors,anddominantlymanufacturingsector.B a o (2003,p 3 1 ) p r o v e d that'Malaysiaand Thailandcrises (1997)havefivesimilar characteristic:
4.8 large number ofe n t e r p r i s e s w e n t bankrupt; (4)therew e r e a n i n c r e a s e ofemploymentrates;and(5)economicgrowthisseverelysloweddown’(Appendix1).Insummary,
FDIandexportshavea vitalroleineconomicgrowthandthevariablesh a v e c l o s e l y r e l a t e d f o r Mala ysia a n d T h a i l a n d c o u n t r i e s i n th e period 1989- 2010.T h e contributionof manufacturingi n exportsisv e r y si gn if ic an t, account ing forover7 0 % induring 1996-2010bothMalaysiaandThailandcountries.Fortwothesecountries,industry and
Foreigndirectinvestment,exports,andeconomicgrowthinVietnam
The‘ D o i Moi’r e f o r m l a u n c h e d i n 1 9 8 6 hasm a d e V i e t n a m a s u c c e s s f u l exampleoftransitionalec on om ies whichis generallyrecognizedasawatershedinthecountry’seconomicandsocialdevelopment.T heVietnam’seconomyistheoneofthefastestgrowingeconomiesintheworld(Ishii,2007).
Theaverage g r o w t h r a t e i s about7 4 % an nu al ly f o r period 1994—
1 9 9 8 financialandeconomiccrises.GDPgrowthin1998was5.8%,lowerthan1996by3.6% Thefollowingyear1999,GDPgrowthwasdecreasedapproximately1 % comparetolastyear. Vietnameseeconomyhadrecoveredso quicklyfromtheeconomiccrisisandGDPgrowthhadreached7.1%in2002.
I:iblr3.4:?'/ft' c'‹›zr7ri/›/r//r›z/r//cr›/7f/›rằf‹'z//.sr›/mural‹/‹²ztfr//rr/in‹'‹'r›/irằrric'z r›n'//ziằI²i‹•//›rrz›r
Theg r o w t h o f f i x e d c a p i t a l formation roset o 2 4 2 % i n 2 0 0 7 a n d f i x e d capitalinvestmenttoGDPratioattainto38.3% inthesameperiodandover30.0%forl a s t d e c a d e ( W o r l d B a n k , 2 0 1 2 ) I n v e s t m e n t g r o w t h h a s b e e n d r i v e n b y a n increaseindomesticcredit,fallingin flation,andinterestrate.Table3.4showsthatconsumptione x p e n d i t u r e , b e c o m i n g t h e l a r g e s t c o n t r i b u t o r tothec o u n t r y ’ s G D P growth.H o u s e h o l d c o n s u m p t i o n a c c o u n t e d a b o u t 7 1 % o f G D P i n t h e p e r i o d o f 1989-
Notes:C , Illpif›E,Marethegrowthrat es ofconsumption,g o v e r n m e n t investment,publi c i n ve st m e n t , foreigninvestment,exportsandimports,respectively.
2 01 0, foreign,privateinvestmentandeconomicgrowthhaveastrongpositivec o r r e l a t i o n Inversely,forgovernmentinvestmentandGDPgrowthhaveanegativecorr elationin1998-
2010.Therefore,inthefirstperiodafter‘DoiMoi’reform,governmentinvestment , promoteseconomicgrowth,nevertheless,inthelateryears,ithasnegativeeffectoneconom icgrowthand Vietnam’sec o n o m y g ro w dependentonforeigninvestmentande xports.Inshort,nationale c o n o m y g r o w s mainlyb a s e d o n externalf o r c e i nthisperiod.
Thei n c r e a s e o f i n v e s t m e n t s t i m u l a t e s e c o n o m i c g r o w t h b y c r e a t i n g m o r e capitalstockandexpandingproductioncapacity Thecontributionofin vestmenttoeconomicg r o w t h d e p e n d s o n therateo f investment ( I /
Table3.6showsthat,themajorcontributiont o economicgrowthistherateo fi n v e s t m e n t r a t h e r t h a n i n v e s t m e n t e f f i c i e n t i m p l y i n g t h a t e c o n o m i c g r o w t h i s mainlybasedonthenumberofinvestors
29 thanthequalityofinvestment.Investmentrateincreasedt o over42%i s toohigha n d t endstosaturation.I n ad di ti on , ICOR
Figure3.8alsoindicatesthat,thecorrelationbetweenrealGDP,exportsandinve stmentisrelativeclearly.
Asc a n b e s e e n i n table3 7 , t h e V i e t n a m e s e e c o n o m y h a s gone thro ugha majortransformation w h i c h h a s c h a n g e d f r o m t r a d i t i o n a l a g r i c u l t u r a l t o industryandservices.Thedeclineofagriculturalsectorcanbeexplainedbyther eductionofagriculturalpricesandagriculturaltermsoftradeininternationalmarkets.
Moreover,thedemandforfoodrisesslowlycomparedwithothergoodsandser vices.TheshareofindustryinGDPismoreandmore increasingandattainsover
Asd e s c r i b e d i n f i g u r e 3 9 , a f t e r ‘ D o i moi’ r e f o r m , V i e t n a m e s e e x p o r t s h a d increasedrapidlyandattainedtoroughly30%in1991.Exportsgrowtho naverage grewa b o u t 190of o r d u r i n g t h e p e r i o d o f 1 9 9 0 -
2 0 0 5 H o w e v e r , e x p o r t s g r o w t h decreasedstronglyto -10.lOoin2006 thatthecausesoffalling dependedonexportquotas,barriers,anti-dumping dutiesinseafood,andleatherproducts.
JoininginWTO in2007hadhelpedexportsbackgrewandreachedto11.3%(2007).Nevertheless,Vietname seexportsalsohavesufferedthestrongestnegative impactandtheexportof growthisdeclinefrom11.290oin2007to5.05%in2008 bytheglobalcrisis(WorldBank,2012).
Thed e c l i n e o f e x p o r t r e v e n u e s h a s c a u s e d g r e a t d i f f i c u l t i e s f o r exporting companies,especially,manufacturedexportsincludinggarments,footw ear,furniturea n d s e a f o o d , a g r i c u l t u r a l p r o d u c t s , m a n y o f thema r e a t risk o f cl osi ng down.
In the post-reform period, Vietnam consistently experiences a trade deficit, with exports falling short of imports Several factors contribute to this imbalance Firstly, domestic consumption relies heavily on imported goods, which often have a higher value, while Vietnam's exports generally lack added value Secondly, many countries impose trade barriers on Vietnamese products, which Vietnam has not effectively countered Lastly, the competitiveness of Vietnamese goods in both domestic and international markets remains low.
Vietnamisstillanagriculturalandnaturalresourcebasedeconomy.So,them ajore x p o r t s o f Vietnami s agricultural p r o d u c t s , r a w m a t e r i a l s , p r o c e s s i n g a n d assemblywithlowaddedvaluebecauseusingtheunskilledl a b o r , inaddi tion,theexportvalueindexincreasedslowlyintheperiodof1989-
Moreover,Vietnameseexportsdependedonrawmaterialsandintermediat egoodsw h i c h w e r e i m p o r t e d f r o m f o r e i g n c o u n t r i e s w i t h h i g h p r i c e T h e m a j o r exportsofVietnamweremineralandfoodin1 9 9 7 , afterwardsthes ecommodities exportr e d u c e d a n d m a n u f a c t u r e s exportsi n c r e a s e d I n 2 0 0 9 , m a n u f a c t u r e s h a d cont
0% manufactures smineral afood agricultural ■others
2 0 1 0 years,c a n b e s e e n t h a t V i e t n a m h a d receivedFDIinflowsequivalentt osomecountriesint h e sameareas u c h asMalaysia,IndonesiaandthenFDIinflowshadi ncreasedsignificantlyincomparisonwiththeformeryears (figure3.11).
Figure3.11:I-"IIfiiiJ/tin'.v’iiit7ii'Sr›iiffrc'iivt‹v›tttitri‹•.s(St’Smill/i‹in)
Registeredinvestmentist h e amountofinvestmentpledgedbyforeigninve storsandtheirdomesticpartners.Actualinvestmentimplementationisusuallybelo wcommitments.
(disbursements) andp r o j e c t n u m b e r alsoi n c r e a s e d w i t h f o r e i g n c a p i t a l i n f l o w s T h e p e a k w a s followedbya sharpfallinFDIinflowswhentheAsianeconomic c r i s i s beg antoseriouslyimpacto n V i e t n a m andt h e u n a t t r a c t i v e n e s s ofV i e t n a m ’ s i n v e s t m e n t environmentrelativetoothercountriesintheregionaswellas.In2002,then umberofregisteredcapitalwasasitminimums,despitethepeakinnumberofprojects.Inth el a t e r y e a r s after
2003,t h e r e isa t e n d e n c y forc a p i t a l bothregisteredandimplementationt o g r o w T o 2 0 0 8 , t h e n u m b e r s o f p r o j e c t s a n d t h e i r c a p i t a l , o r investmentco mmitmentsordisbursementsisreachedthepeakoftheperiod1 9 8 9 - 2010.
Fii i rc3.l2:?‹›r‹.igu‹/ir‹•ô/u›'‹•,ằ7 i ‹ • ằ iiiI/ciiuằi,189-2tilii
Vietnamhasalsochangedits FDIpoliciesd r a m a t i c a l l y A n d thehighi n c r e a s e inFDIi n f l o w s intheperiod 2 0 0 3 -
2 0 0 8 f o r Vietnamr e s u l t e d p a r t l y f r o m theimprovementini n v e s t m e n t e n v i r o n m e n t O n c e a g a i n , t h e g l o b a l c r i s i s i n 2 0 0 8 affectedconsiderabl ytothenumberofprojectsandbothinvestmentcommitmentsanddisbursementsth atbringaboutlotofdifficultiestomultinationalco r p o r a t i o n s
V i e t n a m Especially,r e g i s t e r e d capitalh a d d e c l i n e d over6 5 % i n 2 0 0 9 c o m p a r e t o 2 0 0 8 implyingthatthedisbursementsofFDIhasbeenpostponedorevencan celled.
Table3.10s h o w s t h a t mostofr e g i o n s andp r o v i n c e s ofV i e t n a m h aveattractedFDI,however,foreigninvestmentsareconcentratedpredominatelyinke yeconomicareasinwherehavemoreadvantageconditions.Inthere,theSouthEastr egionaccountfor54.8%and31.4% in2005,2010respectivelyisthehighestofthetotalF D I i n v e s t e d i n V i e t n a m ( t a b l e
Vietnamincludingthelargemarketsizeintermsof incomepercapitaandintermso f populationd e n s i t y , richnaturalmineralresources,convenienttransportation an d infrastructure,andamenityoftheareas.Withal ltheadv an tag es of location,i nfrastructure a n d strategies havebeenquicklyincreasingthenumberofprojectsfrom theforeigninvestors.
Foreign Direct Investment (FDI) plays a crucial role in the industrial sector, significantly contributing to the shift towards industrialization In 2005 and 2010, FDI in the industrial sector accounted for 73% and 49% of the total registered capital, respectively In contrast, FDI in agriculture, forestry, and fishery has been modest, as these sectors have struggled to attract substantial investment Additionally, FDI inflows are primarily focused on mining, quarrying, and industries aimed at import substitution.
9 0 s andFDIinprocessinga n d export- orientedi n d u s t r i e s hasrisenuprapidlyslnce2000(Nguyenetal,2006).
Particularly,inr e c e n t y e a r s , flowsh a v e m a i n l y gonei n t o m a n u f a c t u r e s industryw h i c h w a s d o m i n a t e d b y t h e l a b o r - i n t e n s i v e s e c t o r s ( f o o d products a n d beveragesprocessing,footwear,textiles andgarments,leatherandrelated products,chemicals,metalproducts).Ascanbeseentable3.12,manufacturingaccountedf orover90%oftotalf o r e i g n c a p i t a l i n industryf o r theperiodo f 2008-
Inmany developing countries,thepolicy ofe x p o r t - o r i e n t e d
Thei n v o l v e m e n t ofF D I hasstronglyimpactedont h e growthofV i e t n a m e s e exports.Andf or ei gn investedfirmsinVietnamhaveavitalroleinpromotingt heexportofthenation.
Theratioofforeigninvestmentsectorin totalexportfollowsupturntimebytime,f r o m 27 0% i n 1 9 9 5 to5 4 2 % in2010.T h e s h a r e of theex po rt s o f foreign investedfirmshasaccountedforover50%oft hecountry’stotalexportsinperiod2003-
2010andhighestreachedapproximately 5 8 % in2006(table3.13).Hence,itispro bablysaythatFDIprojects contributesignificantlytoexportsofVietnam.
Asdescribeinfigure3.13,t h e contributionofe x p o r t s t o GDPi s v e r y signif icantforeconomicgrowth thatis higher5 5 % forlasttenyearsan d reachto77.5%i n 2 0 1 0 F o r m a n y developingcountries,FDImeanscapital,advancedtechnolog y,p r o d u c t i o n k n o w - h o w a n d m a n a g e m e n t s k i l l s w h i c h t h e y c o n t r i b u t e 10%toGDPin2008.
"I:ilile3.13:?:.x/iiir/slip;-/‹›r‹'// i /iii'‹•s/incite.sc‹furfitIẵef iiittit
Hence,s t r a t e g i e s a n d p o l i c e s f o r t h e e x p a n s i o n o f e x p o r t s a n d p r o m o t i n g FDIinflowshasintroducedi n theprogramo f thereform.Theattraction ofalargeinflowofinwardforeigndirectinvestmentandtradeliberalizationhasc ontributedsignificanttotheeconomicgrowthofVietnam.
SinceVietnam,whichisanewemergingeconomy,joinsinWTOinJanuary2007,that hasbeenasurgeinforeign directinvestmentinflow,trade,andeconomicgrowthisabove8%intheperiodof 2005— 2007.Nevertheless,G D P growthhasbeentrendingdownwardagaininVietnamonlyaft eroneyearofitsWTOaccessionbecausethe globalcrisis2008.Itisshowthatthemacroeconomicisinstableandtheeconomyhasbeensuff eredfromtwindeficits(fiscalandtradedeficit)andsurginginflation.
RealGDPgrowth Exports%ofGDP-w-FDI%ofGDP
Inshort,forVietnamcountry, realGDPincreasedgraduallywithanannual averageincreaseof7.30ointhe periodof1989-
1990-2010.T h e shareofa g r i c u l t u r a l sectorinGDPhasdecreasedwhile thatof industrya n d s e r v i c e s s e c t o r s i n c r e a s e d E x p o r t s a n d i n v e s t m e n t i s c o n t r i b u t e t o economic growthsignificantly,however,importsandICORinVietnamisstillquitehighleadtonegati veimpacttoGDP.Manufacturessec to r hasanimportantroleinexports,contributin gaccountforover50%intheperiod2003-
• abundantr e s o u r c e s h a d a t t r a c t e d a m o u n t o f f o r e i g n d i r e c t i n v e s t m e n t i n f l o w s , particularlyinS o u t h a n d SouthE a s t r e g i o n ofV i e t n a m Thes h a r e o f i n d u s t r y inFDIha sd o m i n a t e d t h a n d i f f e r e n t s e c t o r s I n there, m a n u f a c t u r i n g i s a b o u t 9 1Ooi n recentthree years2 0 0 8 -
Insummary,foreigndirectinvestment,exports,andeconomic growth have acloselyr e l a t i o n s h i p I n thischapter, thereciprocali n f l u e n c e s betweent h e s e variablesarefound,itmeansthatFDIandexportshavepositiveimpactsoneconomi cg r o w t h a n d i n v e r s e l y , i n a d d i t i o n , F D I a n d e x p o r t s h a v e a c o r r e l a t i o n witheachother.Toexamineclearlythecausalrelationshipbetweenf o r e i g n d irectinvestment,e x p o r t , andeconomicgrowth,themodemm e t h o d s i s usedtoa nalyzethisrelationinnext chapter.
Thischapterco n s i s ts of threes e c t i o n s T h e firstisthein tr od uc ti on o f datasourcesi n e m p i r i c a l m o d e l s T h e s e c o n d p r e s e n t s models p e c i f i c a t i o n t o c o n s i d e rthelongrun relationshipbetweenforeigndirectinvestment,exports,andeconomicinMalaysia,
Fuller(ADF) andPhillipsandPerron(PP)tests,Johansenco i n t e g r a t i o n testand Grangercausalitytestusingtimeseriesdatafortheindividuals;
Fishertests;KaoandJohansenF i s he r cointegration tests;panelG r a n g e r caus alitytestusingpaneldataforthepanelofthreecountries.
Datasources
Thet h e s i s f o c u s e s o n t h e c a u s a l i t y r e l a t i o n betweenforeignd i r e c t investment,e x p o r t s , a n d economicgrowthinthreec o u n t r i e s c o n s i s t ofMalaysia,Thailanda n d Vietn ami n Southeast Asiaa r e a since1 9 8 9 upto2010.T he dataofthispaperisobtaine dfromWorldDevelopmentI n d i c a t o r s ofWorldBank.Duetothelacksofdatafor Vietnamesei n d i c a t o r s are availableonlyafter1 9 8 9 So,bothannualtimeseriesd ataandpaneldatafortheperiod1989—
2010areconsideredforthispaper.T h e variablesi n c l u d e d i n thea n a l ys i s a r e real gr oss do mes tic product(GDP),realexportsofgoods andservices(EX)andforeigndirect investment(FDI).Variablemeasuredinconstant2000USdollars.
ModelSpecification
Toe s t a b l i s h t h e c a u s a l i t y r e l a t i o n s h i p b e t w e e n f o r e i g n d i r e c t i n v e s t m e n t , exports,a n d e c o n o m i c g r o w t h , t h e V e c t o r A u t o r e g r e s s i o n (VAR)m o d e l i n t h e form:U(VAR)(GDP,EX,FDI)wasused.Thevariablesofrealexports,realFDIandr e a l G D P a r e t r a n s f o r m e d intol o g a r i t h m f o r m a s l n F D I , l n E X a n d l n G D P before
40 thea n a l y s i s T h e m o d e l estimatet h e l o n g - r u n r e l a t i o n s h i p amongt h r e e variables inthreecountriesofSoutheastAsiaregionisthusspecified
EXistotalexportvaluesofgoodsandservices;FDIisforei gndirectinvestmentinflows; §;and§r e p r e s e n t s t h e longrunelasticityo f economicgr ow th withrespec ttoforeigndirectinvestmentandexportsrespectively;and §i s theconstanttermands,istherandomerrorterm.
Estimationtechniques
Unitroottestsforstationarytimeseries
The unit root tests developed by Fuller (ADF) and Phillips and Perron (PP) are essential for determining the existence of unit roots in time series data These tests assess the stationary properties of variables by analyzing their levels, first differences, or second differences Non-stationary time series data can lead to ineffective forecasting and the risk of spurious regression, which can produce misleading results (Gujarati, 2011) Therefore, conducting unit root tests is crucial for non-stationary time series to prevent such erroneous conclusions, as a variable is considered stationary after differencing it a certain number of times.
, tobeintegratedoforderd,writtenbyI(d),mosteconomicvariablesare integratedoforderone(AsteriouandHall,2007).
AugmentedDickeyFullertestbasesonrejectinganullhypothesis(Ho:=0)ofuni troot(theseriesarenon- stationary)i n favorofthealternativehypothesls(Ha•6