FDI Inward Performance Index
From 2000 to 2019, Vietnam consistently demonstrated an inward performance index value exceeding one, indicating strong Foreign Direct Investment (FDI) appeal to foreign investors, except in 2000 and 2006 This attractiveness can be attributed to Vietnam's strategic location in Asia and favorable government policies, including numerous Free Trade Agreements (FTAs) established in the 2000s to enhance FDI inflow.
Figure 1.1.1 FDI Inward Performance Index
The FDI Performance Index experienced significant instability from 2000 to 2005, remaining below 2 throughout this period Initially, the index showed an upward trend in the first half, but it declined in the latter half, ultimately hitting its lowest point in 2006 at 0.85, largely as a result of the lingering effects of the 1997 Asian financial and monetary crisis.
From 2006 to 2009, Vietnam experienced a remarkable economic breakthrough, with the index soaring from 0.85 in 2006 to an unprecedented 3.0 in 2009 This growth was primarily driven by Vietnam's accession to the World Trade Organization (WTO) in 2007, which opened up new export markets and enhanced global service opportunities Additionally, the stable political climate and the dynamic economy, particularly highlighted by the APEC Summit held in Vietnam in 2006, attracted significant foreign investment from the 21 APEC economies, further fueling economic expansion.
The 2009 global financial crisis had a profound impact on economies worldwide, including Vietnam, leading to a notable decline in the Foreign Direct Investment (FDI) Performance Index This downturn in FDI can be attributed to reduced investor confidence, coupled with rising inflation and increased input costs, as well as challenges in site clearance for numerous projects.
2012, a slight increase in FDI inflows led to the rise again of the performance index but in general, this increased amount is insignificant and did not improve in 2016 as well
In 2016, the implementation of several Free Trade Agreements (FTAs) led to a significant rise in Foreign Direct Investment (FDI), reflected in an increased FDI Performance Index The total registered capital from new projects, additional investments, and capital contributions surpassed 24.3 billion USD Although there was a slight decline in FDI inflow value, disbursed capital experienced a 9% increase compared to 2015, achieving the highest disbursement on record This growth contributed to an FDI Performance Index of 2.33 in 2017.
In 2018, Vietnam's FDI Performance Index hit an all-time high, surpassing the previous record set in 2009, largely due to the full realization of the potential of Free Trade Agreements (FTAs) established in 2017 This marked the third consecutive year of increased disbursed FDI, rising from $15.8 billion in 2016 to $19.1 billion in 2018, reflecting a 9.1% growth and showcasing Vietnam's improving capacity in FDI project management Consequently, Vietnam has become an increasingly attractive destination for foreign investment.
Transnationality Index
As we can see, the graph illustrates 2 above-mentioned factors: FDI inflows per Gross fixed capital formation & FDI inward per GDP Overall, the Vietnam
Transnationality Index (average of 2 factors) is relatively high, which demonstrated the very important role of FDI in Vietnam's economic activities.
From 2000 to 2006, the Index remained consistently below 40%, reflecting a downward trend primarily influenced by the 1997 Asian financial crisis During this period, Vietnam's investment environment showed gradual improvement, yet it struggled against fierce competition from countries such as China.
In 2007, Foreign Direct Investment (FDI) gained significant importance in Vietnam, marked by a notable increase in the FDI Index, which peaked at 36.06% in 2008 During this period, Vietnam officially joined the World Trade Organization (WTO), leading to a substantial influx of FDI into its economy Consequently, the share of FDI in total national investment grew, underscoring its critical role in driving economic growth in Vietnam.
The global financial crisis of 2009 severely impacted major economies, including the USA and Japan, leading to a decline in Foreign Direct Investment (FDI) inflows into Vietnam Consequently, Vietnam's Transnationality Index experienced a slight decrease, which persisted from 2009 to 2014 due to the lingering effects of the crisis During this sensitive period, the government adopted a cautious approach, resulting in a lack of significant measures to attract FDI.
Since 2015, the establishment of numerous Free Trade Agreements (FTAs) has led to a resurgence in Foreign Direct Investment (FDI) in our economy, particularly in 2016 and 2017 However, starting in 2018, the Transnationality Index experienced a significant decline of 41.47%, highlighting the drawbacks associated with a high volume of FDI In response, we have implemented strategies to filter and prioritize high-quality FDI, enhancing our capacity to manage these projects effectively.
FDI TRENDS
Period from 2000 – pre COVID-19
Figure 2.1.1 Number of projects and implementation capital
From 2000 to 2003, Vietnam experienced a relatively stagnant influx of Foreign Direct Investment (FDI), with total registered capital fluctuating between USD 2.8 billion and USD 3.2 billion Despite the decline in registered capital, there was a notable increase in the number of new FDI projects during this period.
The number of foreign direct investment (FDI) projects decreased from 391 to 791, leading to a reduction in the average capital scale of these projects However, the total capital of FDI projects in Vietnam experienced a slight increase, rising from over USD 2.4 billion to more than USD 2.6 billion.
In 2005, Vietnam underwent a significant shift in its Foreign Direct Investment (FDI) policy with the adoption of a new Unified Business Law and Unified Law on Investment, effective July 1, 2006, to align with WTO obligations These reforms abolished previous laws that favored domestic companies over international firms, promoting fair treatment in accordance with the WTO's national treatment principle The government emphasized FDI as a key strategy for domestic growth, allowing various entry forms, including Mergers and Acquisitions (MAs) alongside greenfield investments Consequently, FDI inflows surged, driven by an improved business climate and foreign investment opportunities in sectors previously monopolized by the state, such as telecommunications and banking By the end of 2006, Vietnam completed its WTO accession, initiating efforts to integrate its economy into global markets A 2007 decree further enhanced the investment framework, making it more compliant with international standards and attractive to global investors, ultimately transforming trade and investment dynamics in the country.
Vietnam's accession to the WTO in 2007 significantly enhanced its expansion opportunities, resulting in a remarkable increase in foreign direct investment (FDI) inflows New projects surged from 811 in 2004 to over 1,500 in both 2007 and 2008 Total registered capital skyrocketed from over USD 4.5 billion in 2004 to more than USD 12 billion by 2006 Additionally, implemented capital rose dramatically, reaching USD 11.5 billion in 2008, compared to just USD 2.8 billion in 2004 The year 2008 was particularly noteworthy for FDI attraction, highlighted by numerous major projects, each boasting registered capital in the billions of USD.
The global financial crisis and Vietnam's economic downturn since late 2008 have led to a significant decline in new foreign direct investment (FDI) registrations, with many large projects experiencing delays In 2009, the number of FDI projects fell to approximately 1,200, decreasing further to 1,186 in 2011 Total reported capital also dropped, reaching just over USD 23.1 billion in 2009 and USD 15.6 billion in 2011 While capital implemented saw a more moderate decline, totaling USD 10 billion in 2009 and around USD 11 billion in 2010-2011, FDI's share of overall investments in Vietnam decreased to 25.7 percent in 2009, despite a modest rebound to 25.9 percent in 2011.
Table 2.1.1 Vietnam’s primary FDI Stream 1988-2019
Between 1988 and 2019, South Korea emerged as the largest foreign direct investment (FDI) contributor to Vietnam, with approximately USD 68 billion in registered capital, followed closely by Japan at around USD 60 billion Other significant investors included Taiwan, Singapore, Hong Kong, and the British Virgin Islands Despite China's extensive cross-border trade and efforts to enhance bilateral economic ties, its FDI in Vietnam remains relatively modest It's important to note that registered capital reflects only the direct registration of international firms, potentially skewing the perceived rankings, as the actual origins of capital could lead to different results.
Concerns have arisen regarding the impact of new foreign direct investment (FDI) on Vietnam's economic growth, particularly as the implementation rate of FDI has declined significantly This trend is evident in the drop from 63% in 2004 to just 34% in recent years, highlighting a growing disparity between registered and actualized investments.
In 2008, Vietnam experienced a significant decline in foreign direct investment (FDI) ventures, with only 25.6% of registered capital effectively utilized, compared to higher ratios in previous years Many FDI projects were merely registered to secure a foothold in the market Additionally, the country faced challenges in managing capital inflows, as the lack of effective sterilization led to inflationary pressures The government's extensive domestic currency supply to purchase foreign currency during 2007-2008 resulted in costly lessons for Vietnam regarding economic stability.
Vietnam faces significant challenges in its foreign direct investment (FDI) regime, necessitating urgent reforms in the coming years Recent years have seen a slowdown in FDI adoption due to "bottlenecks," including insufficient state institutions, inadequate infrastructure, and limited human capital, despite some improvements Additionally, the government's struggles to stabilize the macroeconomic environment have adversely affected the operations of foreign-owned firms in the short term To enhance the assessment of FDI initiatives, it is crucial to develop administrative capabilities while being cautious of potential social and environmental impacts Furthermore, Vietnam's inability to maintain a stable political climate has deterred foreign investment and imposed substantial transition costs on existing foreign companies.
Foreign investor can choose one of the following form of investment depend on investors’ purpose, financial and managerial ability, etc to make investment decision in Vietnam
Setting up foreign invested company, i.e Wholly foreign Owned Company or Joint Venture Company;
Investing pursuant to a contract such as Business Cooperation Contract (BCC), Build-Operate (BO), Build-Transfer-Operate (BTO) or Build- Operate-Transfer (BOT) or Build-Transfer (BT) Contract;
Investing in Vietnam can be accomplished by purchasing shares or contributing capital to existing companies, allowing for active participation in management Additionally, foreign investors may engage in mergers or acquisitions of companies or branches, provided that they hold more than 51% of the charter capital.
Recent policy changes have eased restrictions on ownership, allowing foreign companies to fully own their subsidiaries in more sectors As a result, there has been a notable shift among foreign investors, who now favor establishing 100% owned subsidiaries over joint ventures This trend is illustrated in the distribution of investment forms within the Foreign Invested Enterprises (FIE) sector, as detailed in Table 2.1.2.
Table 2.1.2 Types of Investments 1988-2001 in Vietnam (Source: EIU 2002)
The majority of foreign direct investment (FDI) in Vietnam is currently channeled through greenfield investments, largely due to historical restrictions on mergers and acquisitions (M&As) within the country's foreign investment legislation To enhance its competitiveness in attracting FDI, Vietnam must adapt its policies to better engage with the M&A segment, which constitutes a significant portion of global FDI flows.
Vietnam's liberalization of Foreign Direct Investment (FDI) policies began with the introduction of the first FDI Law in 1987, which was amended multiple times through 2000 to enhance the investment climate for foreign investors These efforts successfully attracted FDI inflows, albeit initially at modest levels In 2006, the Unified Law on Investment was enacted to replace previous regulations, introducing equal treatment for foreign and domestic investors, aligning with World Trade Organization (WTO) requirements The combination of liberalized FDI policies and WTO membership in 2007 significantly increased FDI inflows into Vietnam.
In 2009, foreign direct investment (FDI) was widespread across Vietnam, impacting nearly every province Notably, FDI concentration was highest in the North-Central, Central-Coastal, South-Eastern, and Red River regions, with ten provinces from these areas accounting for 85% of the total cumulative FDI.
2009 Of these 10 provinces, Ho Chi Minh City (HCMC), Ba Ria–Vung Tau (BRVT), Dong Nai, and Binh Duong of South-Eastern regions stand out with 51% share in total FDI.
Table 2.1 2 Top-ten Vietnamese Provinces with Registered FDI in 2009 (Millions of USD)
(Source: General Statistics Office (GSO) of Vietnam.)
From 2010 to 2018, foreign direct investment (FDI) in key economic regions maintained a stable share of the country's total FDI capital To attract investment, provinces and cities actively developed and executed plans for industrial zone and cluster development, as well as tourism initiatives Local authorities also enhanced transparency by publishing regulations regarding foreign investment online, ensuring investors had access to essential information about procedures and compliance requirements.
Regions Number of projects Registered capital in 2018 ( billion USD)
Table 2.1.4 Foreign Direct Investment in key economic zones accumulated up to
From Covid-19 onward
The COVID-19 pandemic led to a significant decline in global foreign direct investment (FDI), with a 49% drop in the first half of 2020 compared to 2019, reducing FDI to below $1 trillion for the first time since 2005 Projections indicate a further decrease of 5 to 10 percent in 2021, although a recovery is anticipated in 2022 While a rebound could align FDI with pre-pandemic trends, this outcome is considered possible only under optimistic scenarios.
The future remains uncertain, largely influenced by the duration of the health crisis and the effectiveness of policy measures aimed at mitigating the pandemic's economic effects Additionally, ongoing geopolitical and financial threats, along with persistent trade tensions, further amplify this unpredictability.
The pandemic has triggered a significant shock to foreign direct investment (FDI), impacting supply, demand, and policy across various timeframes Lockdown measures have hindered ongoing investment initiatives, while the potential for a deep recession prompts multinational enterprises (MNEs) to reevaluate their new projects In response to the economic downturn, governments have implemented new investment restrictions However, starting in 2022, investment flows are expected to gradually recover, fueled by stability reforms in global value chains (GVC), the replenishment of capital stock, and an overall rebound in the global economy.
The COVID-19 shock would dramatically weaken the profitability of the corporation Real GDP growth slowed dramatically in the first half of 2020 in the sense of heightened global uncertainties
Foreign Direct Investment (FDI) disbursement in Vietnam decreased by 3.2% year-on-year, totaling approximately US$13.76 billion as of September 20 During this period, Vietnam approved 1,947 foreign-invested projects valued at US$10.36 billion, reflecting declines of 29.4% in project numbers and 5.6% in value Additionally, 798 existing projects registered to increase their capital by over US$5.11 billion, marking a 23% drop in project numbers but a 6.8% rise in capital Capital contributions and share purchases from foreign investors plummeted by 20.5% to US$5.73 billion, which is just 55.1% of the amount recorded in the same timeframe in 2019 The manufacturing sector emerged as the most appealing to foreign investors, attracting nearly US$9.9 billion, or 46.6% of total registered capital, followed by power generation and distribution at over US$4.3 billion (20.6%), real estate at US$3.2 billion, and retail and wholesale at US$1.3 billion.
The impact of economic downturns on gross profits varies significantly across industries, primarily influenced by each sector's vulnerability to reduced external demand The hospitality, personal transportation, tourism, and oil industries are projected to experience substantial declines, with gross profits plummeting over 40% In contrast, the manufacturing, retail, and business transport sectors are anticipated to face milder challenges, with gross profits declining by approximately 10% due to lower demand and supply chain disruptions.
The demand shock experienced during the pivotal years of 2020 and 2021 significantly impacted foreign direct investment (FDI), leading to a notable decline Typically, FDI trends respond to GDP growth changes with some delay; however, the unique circumstances of lockdown measures and the demand shock accelerated the feedback loop affecting investment decisions Consequently, the contraction in demand began to impact FDI in the first half of 2020, with its full effects becoming evident in the latter half of 2020 and throughout 2021.
Decreased profitability can lead to significant liquidity challenges for companies, particularly when there is limited ability to reduce operating costs in the short term This cash shortfall puts their capacity to meet short-term liabilities at risk Our research reveals that nearly 50% of small and micro-enterprises are likely to experience negative cash flows, especially in sectors most affected by the COVID-19 pandemic However, the actual number of firms facing liquidity issues may be exaggerated, as companies may respond by laying off employees, cutting salaries, and reducing operational scale, similar to the measures taken in Vietnam.
In an optimistic scenario, effective public health measures implemented over the next 2 to 3 months significantly curb the virus's spread, while newly discovered medications reduce fatalities and severe illnesses Ongoing research aims to prevent future outbreaks Economic policy initiatives prove successful, safeguarding the economy, particularly small and medium enterprises, as well as the travel, tourism, and energy sectors, from severe damage Consequently, economic growth is expected to rebound in the latter half of the year, reaching pre-crisis levels by the end of 2021.
In the middle scenario, public health measures effectively contain the outbreak within 2 to 3 months; however, subsequent outbreaks lead to the reimplementation of strict measures in specific regions before the widespread distribution of a vaccine in mid-2021 Economic policy initiatives yield partial success, resulting in an inconsistent and slow economic recovery.
In a pessimistic scenario, public health initiatives fail to effectively control the virus, leading to prolonged strict measures in many countries Economic policy responses are insufficient to mitigate the damage, resulting in a prolonged recession characterized by increased bankruptcies and defaults.
The COVID-19 pandemic has exacerbated the financial fragility of Vietnam's companies, particularly small and medium-sized enterprises (SMEs), which have poorer balance sheet conditions compared to their counterparts in other Asian nations A recent study highlights that these SMEs experienced significant declines in sales and earnings due to the pandemic In contrast, larger companies maintained profitability but faced challenges leading up to the crisis Furthermore, private firms demonstrated greater vulnerability than foreign direct investment (FDI) firms, struggling with lower liquidity and solvency, primarily due to weaker profitability and higher levels of debt.
ECONOMIC IMPACTS OF FDI IN VIETNAM
Positive impact
3.1.1 Contribution to GDP growth and state budget revenue
Foreign direct investment (FDI) plays a crucial role in the socio-economic development of Vietnam A study by Nguyen Huu Cung (2020) analyzed the impact of FDI on the country's economic growth, utilizing a secondary time series data set.
A study conducted between 1995 and 2018 analyzed the economic impact of foreign direct investment (FDI) in Vietnam using a linear approach The findings reveal a significant positive correlation at the 1% level between net capital inflows from FDI and the country's GDP This indicates that FDI has a robust influence on Vietnam's economic growth Additionally, research by Chinh Hoang Quoc and Chi Duong Thi further supports these results.
A 2018 analysis of Foreign Direct Investment (FDI) and economic growth in Vietnam revealed a positive relationship between FDI and GDP, as indicated by the positive coefficients in the VAR model.
Foreign investors have made significant contributions to the national economy, investing in 19 out of 21 sectors, with the processing and manufacturing sector attracting nearly USD 201.2 billion, representing 58% of total investment capital According to the General Statistics Office, the contribution of foreign direct investment (FDI) to the country's GDP rose from 9.3% in 1995 to 16.9% in 2008, reaching 18.59% in 2016, and steadily increasing to 20.28% by 2018 As of 2019, FDI enterprises accounted for approximately 23.5% of total social investment, contributing over 20% to the GDP.
Figure 3.1.1 GDP Distribution of Different Types of Businesses (2016-2018)
Beside that, the proportion of state budget revenue from the foreign direct investment sector also increased significantly, from USD 1.8 billion in the period
Between 1994 and 2000, foreign direct investment (FDI) contributed USD 23.7 billion, representing nearly 14% of the total state budget revenue during 2011-2015 In 2017, the FDI sector significantly boosted the economy, contributing over USD 8 billion, which accounted for 17.1% of the total state budget revenue Currently, FDI enterprises are estimated to contribute an average of about 20% to the total annual domestic budget revenue, highlighting their crucial role in the national economy.
3.1.2 Increase the proportion of exports
Table 3.1.1 Export share (%) by economic sector of Vietnam from 2010 - 2019
The General Statistics Office data highlights the growing significance of the Foreign Direct Investment (FDI) sector in Vietnam's export activities, with its contribution to exports rising dramatically from 54.2%.
2010 to more than 71% in 2018, at that time, Vietnam's export value in 2010 was nearly USD 7.5 billion and in 2018 it was USD 243.48 billion, 32 times more than
As of mid-March 2020, foreign direct investment (FDI) enterprises in Vietnam achieved a total export value of USD 33.87 billion, marking a 3.4% increase or USD 1.11 billion compared to the same period in 2019 This figure represents 67.3% of Vietnam's total merchandise exports, contributing to a surplus of over USD 5.97 billion in the balance of payments for the FDI sector.
Foreign Direct Investment (FDI) enterprises play a crucial role in Vietnam's import and export sectors, with significant contributions noted in July 2020 Notably, phones and accessories topped the export charts, generating $24.2 billion and comprising over 92% of the country's total export turnover in this category Computers, electronic products, and components followed closely, achieving $19.8 billion and accounting for over 84% of the national total Other significant contributions from FDI include textiles and garments at nearly $9.3 billion and machinery, equipment, tools, and spare parts at $8.6 billion However, Vietnam's heavy reliance on exports and FDI raises concerns about potential economic risks for the nation.
3.1.3 Contribution to labor productivity growth
Foreign Direct Investment (FDI) inflows are closely linked to the labor productivity of the host country, particularly when domestic enterprises can adopt new technologies and effectively supply inputs to FDI firms Numerous theoretical and empirical studies highlight the significant role of FDI in enhancing labor productivity, creating a mutually beneficial relationship For instance, Hidekatsu Asada's 2020 research examines the long-term and short-term effects of FDI and trade on labor productivity growth in Vietnam, utilizing data from 1990 onward.
A 2017 analysis using the autoregressive distributed lag (ARDL) model confirmed a positive relationship between foreign direct investment (FDI), trade, and labor productivity growth The findings indicated that, in the long run, FDI and exports significantly contributed to labor productivity growth, while short-term impacts remain unclear According to the General Statistics Office, the labor productivity in the FDI sector was 186.23 million VND per laborer in 2010, 1.4 times higher than the state sector and 8.6 times greater than the non-state sector By 2018, this figure rose to 225.12 million VND per laborer, approximately 1.3 times higher than the state sector and 6.9 times more than the non-state sector Despite these increases, labor productivity in the FDI sector has experienced instability and a continuous decline since 2016.
A study by Le Van Hung (2017) highlights the significant role of Foreign Direct Investment (FDI) in enhancing labor productivity growth in Vietnam The research indicates that 64% of this growth is attributed to labor transitioning from low productivity sectors to the more productive FDI sector However, the direct contribution of the FDI sector to real labor productivity growth, excluding labor mobility effects, is only 36% While FDI has positively impacted Vietnam's economy, the overall benefits remain limited, primarily due to the low competitiveness, inadequate learning, and weak production linkages of domestic enterprises within the supply chain.
Negative impacts
3.2.1 Tax avoidance and abusive transfer pricing by TNCs
The ongoing conflict between anti-transfer pricing measures and the pricing strategies of foreign direct investment (FDI) enterprises in Vietnam presents a persistent challenge FDI firms employ a range of complex and costly tactics, including hiring specialized consulting companies to navigate transfer pricing In response, tax authorities in the host country must implement effective control measures, which involve investing in modern management systems, developing robust databases, fostering interdisciplinary collaboration, and conducting thorough inspections.
Table 3.2.1 Calculating ICOR coefficient of Economic Sectors for the period 2005-
2013 (Vietnam General Statistics Office, 2014 (Doan, 2015))
Between 2005 and 2013, the Investment Capital Output Ratio (ICOR) for Vietnam's economy revealed that the private sector demonstrated the highest investment efficiency, while the Foreign Direct Investment (FDI) sector exhibited the lowest Interestingly, the state sector, often viewed as less efficient, outperformed the FDI sector This discrepancy in efficiency is attributed to issues related to transfer pricing control among FDI businesses operating in Vietnam during this period.
Table 3.2.2 Tax Stability and Tax Buoyancy of Economic Sectors for the period
2005-2013 (Vietnam General Statistics Office, 2014 (Doan, 2015)
Table 3.2.2 indicates that the state economic sector contributed 4.8% to the budget increase, while the non-state sector contributed 6.1%, and the FDI sector contributed 5.4% Although the FDI sector's contribution is higher than that of the state sector, it remains lower than that of the private sector This analysis highlights the concerning reality of tax evasion among FDI businesses, particularly through transfer pricing violations.
3.2.2 Crowding out local firms and discouraging domestic entrepreneurial development
The report will use the following model (Bao et al, 2016) for illustration purposes: y = b 0 + b 1 FDI _firm + b 2 FDI _ industry + b 3 (FDI _ firm * FDI _ industry)
Table 3.2.3 Market stealing effects of FDI in Vietnam (2001-2010)
Table 3.2.3 indicates that all estimated coefficients for the lagged log of real turnover are significant, highlighting their importance in the analysis Additionally, the presence of a crowding-out effect at the firm level is evidenced by the positively significant coefficients of FDI_firm in both OLS and GMM estimations.
We assess the overall impact of crowding-out and crowding-in effects on foreign direct investment (FDI) intensity at the industry level This relationship can be expressed as Δreal turnover/ΔFDI_firm = b1 + b3 FDI_industry > 0, indicating a positive correlation between real turnover and FDI within the industry.
Overall, there is evidence of the crowding-out effect of FDI presence on firms in Vietnam in the period of study from 2001-2010.
3.2.3 Transfer of polluting activities or technologies
The report will utilize the model proposed by Phuong et al (2018) to examine the bidirectional relationship between CO2 emissions, foreign direct investment (FDI), and economic growth in Vietnam.
Table 3.2.4 Results of pairwise granger causality test
The Granger causality test results indicate one-way relationships between CO2 emissions and Foreign Direct Investment (FDI), as well as between GDP and FDI, while revealing a two-way relationship between CO2 emissions and GDP This suggests that pollution levels are influenced by both FDI attraction and economic growth, while FDI attraction is also affected by the rate of economic growth.
This paper explores the relationship between foreign direct investment (FDI) and economic growth in Vietnam from 1987 to 2019, proposing key policy recommendations To enhance economic development, Vietnam should shift its focus from attracting FDI based on natural resources and cheap labor to high-tech projects, supported by favorable tax policies, land use, infrastructure development, and a skilled workforce Additionally, active participation in international organizations and adherence to trade and investment agreements can help expand export markets and stimulate growth Furthermore, Vietnam must implement reforms to improve investment indices and financial liberalization, promoting increased production and economic advancement Lastly, to mitigate the negative impact of inflation on growth, stringent measures should be adopted to control the annual inflation rate, serving as a foundation for sustainable economic progress.
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