Foreign direct investment in industrial transition : a case study of Vietnam
Creators: name: Tran, Tien Quang
Publisher: name: The Australian National University
Year: 2007
Subjects: subject: HG5750.5.A3T73 2007
subject: Investments, Foreign Vietnam
subject: Industrial policy Vietnam

description: The purpose of this thesis is to investigate the role of foreign direct investment (FDI) in the growth and structural adjustment of Vietnamese manufacturing in the process of transition from a centrally-planned to market-oriented economy during the period 1986- 2006. It begins with a comprehensive interpretative survey of the literature on the role of FDI in industrialisation in developing and transition economies, in order to provide the analytical context for the Vietnam case study. The next two chapters survey FDl policy in Vietnam in the context of overall policy reforms, and examine trends and patterns of FDl during the post-reform era from a comparative regional and global perspective. The next three chapters, which form the core of the thesis, are devoted to an in-depth empirical analysis of the impact of foreign-invested enterprises (FIEs) on the performance of Vietnamese manufacturing. These chapters, in turn, probe the implications of the FIE presence for manufacturing productivity, employment generation and export performance, paying attention to both direct effects, and spillover (indirect) effects operating through the performance of domestic firms. The empirical analysis is conducted by applying appropriate econometric techniques to a new firmlevel panel data set constructed from unpublished returns to the Annual Enterprise Survey conducted by the Vietnamese General Statistical Office. This is supplemented by relevant unpublished data from other official sources. The fin al chapter summarises the key findings, makes policy inferences and identifies areas for further research. The findings suggest that the performance of FIEs is generally characterised by higher factor productivity growth and greater export propensity compared to local firms, both state-owned enterprises (SOEs) and purely private firms. FIEs pay higher wages and they adjust faster to changes in labour market conditions compared to local firms. There is evidence of a strong positive correlation between employment growth in manufacturing and the persistent shift in the FIE presence away from domestic-market oriented (import substituting) production and toward export-oriented production since the late 1990s. The overall spillover effects of FIEs on productivity and export performance of domestic firms were found to be negative. This finding seems to reflect the early stage of industrial transition and the unfinished reform agenda. Spillover effects were found to be highly correlated with the stage of development of the domestic private sector. Moreover, there is evidence that the nature and extent of spillover effects vary across industries and with the geographic location of firms. All in all, this study provides ample support for the view that both the rate of FDI involvement in the economy and the national developmental gains from FDI depend crucially on the speed of economic transition. The latter is reflected in the extent of privatization/restructuring of state-owned enterprises, market-based decision making and the creation of a legal and institutional framework for foreign and private domestic investment. The findings make a strong case for further policy reforms to remove institutional and policy constraints impacting on the performance of domestic private firms, in order to enhance. national economic gains from foreign direct investment. Liberalization of foreign investment regimes alone is unlikely to be sufficient for achieving this objective.