DETERMINANTS OF FDI INTO DEVELOPING COUNTRIES IN THE CIRCUMSTANCE OF FINANCIAL CRISIS, GLOBAL ECONOMIC RECESSION AND POLICY IMPLICATIONS FOR VIETNAM

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A. INTRODUCTION
1. The necessity of thesis
Foreign investment, especially FDI plays a role more and more important for
economic growth and international intergration. However, the flux of FDI in the world
is influenced by many determinants such as the population, GDP, the education level,
the law on intellectual property right… Analyzing these determinants of FDI could
contribute to find out the trend of global FDI and the solutions for developing countries
to attract more FDI for economic growth.
Though FDI has a decisive role for economic development and economic growth in
recipient countries, and FDI is one of the key for the global economic intergration of
developing countries, we all know that not all FDI could be beneficial for investors and not
all recipient countries could be succesfull in attracting FDI for economic growth.
Meanwile, the flux of FDI, which is determined by long term factors, is considered more
important than portfolio investment. To discover in detail these determinants in the
circumstance of global financial crisis and economic recession is very meaningful for
recipient developing countries, especially when these countries plays more and more
important role in the global economic map. Therefore, Post-granduate has chosen the
subject «DETERMINANTS OF FDI INTO DEVELOPING COUNTRIES IN THE
CIRCUMSTANCE OF FINANCIAL CRISIS, GLOBAL ECONOMIC RECESSION
AND POLICY IMPLICATIONS FOR VIETNAM” for my PhD thesis.
2. Objective of this thesis
- To discover and synthetize main theory on determinants of FDI
- To analyze the actual situation of these determinant of FDI into developing
countries.
- To show the trend, the actual situation of FDI into developing countries before
and during financial crisis.
- To evaluate and measure the impact of these determinants in the flux of FDI in
the circumstance of global economic recession.
- To find out some policy implications and specific solutions for Vietnam in order
to attract efficiently FDI in the next future.

3. Object to study and the sphere to study
3.1. Object to study
This thesis give high attention to all the determinants of FDI flux into developing
countries in the circumstance of global financial crisis and economic recession.
3.2. Sphere to study
• About the contenu: This thesis will discover the determinants of FDI which
include the common determinants, the determinants that have impact on the decision
of investors and the determinants that are important for recipient developing
countries.
• About the space: all the data and object to study is discovered in developing
countries in the world (especially those in Africa, in Asia, in Latin America…)
• About the time: To evaluate the impact of current global financial crisis to FDI, I
uses the data collected during the period 1999-2010. All the policy implications and
specific solutions are for an average term 2013- 2030.
4. Methods to study
- The method of analyze and synthetize


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- The mathematical mehod
- The quantitative methods
The three main data sources used in this thesis are: World Invesment Reports
(UNCTAD), the World Bank database and the database of Foreign Invesment Agency
(Ministry of Planing and Invesment of Vietnam)
5. New contributions of the thesis
- Contributtion to the theories about determinants of FDI in Vietnamese.
- Evaluation of the impact of global financial crisis and recession economic to the
flux of FDI into developing countries.
- The econometric model with newest data colleted and new method to study for

thesis in Vietnamese.
- Some main policy implications and specific solutions for Vietnam in order to
attract more efficiently FDI.
6. Lay out of the thesis
Beside the introduction, the conclusion, and the list of references documents, the
thesis has 3 chapter:
Chapter 1: General Theories about determinants of FDI into developing countries
Chapter 2: Impact of the determinants of FDI in the circumstance of financial crisis
and economic recession.
Chapter 3: Policy implications for Vietnam in order to improve the attraction of
FDI in the next future.
B. GENERALITY OF RESEARCHS RELATING THE OBJECT TO STUDY OF
THE THESIS
1. IN ABROAD
1.1. The theoretical researchs
The theoretical researchs mainly discoved all the factors that could give incentives
to foreign investors. These works researched the reasons why foreign direct investment
is made by a TNC. Although the huge number of theoretical researchs, we could classify
these works by main groups: theories concerning the capital, theories concerning
international trade, theories concerning the cost and firms, theories concerning the cycle
of product…
1.2. The empirical researchs
Generality about empirical researchs in the world that concerns the object of study
of the thesis, especially by the macroeconomic approach, will be discovered in this part.
These studies talks about determinants of FDI such as the market size, the purchasing
power, the quality and price of labor, the economic openness…, and analyzes the impact
of these determinants in econometric models. I synthetizes main results of theses studies
concerning FDI into developing countries, FDI into Vietnam…
2.IN VIETNAM
There is not much studies in Vietnam talking about determinants of FDI. There is

any vietnammese study talking about determinants of FDI into developing countries.
There are some studies that have the close direction than the thesis such as some
graduation thesis of student, some PhD thesis talking about improving the investment
environment (Trieu Hong Cam’s Thesis, Nguyen Thi Ai Lien’s Thesis).


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C. CONTENU OF STUDY
CHAPTER 1: DETERMINANTS OF FDI IN THE SITUATION OF FINANCIAL
CRISIS AND ECONOMIC RECESSION
1.1.GENERALITY OF FDI
1.1.1. Some main notions
- Foreign Investment and foreign direct investment
- Determinants of FDI
- Porfolio investment
- Developing countries
- Corruption
1.1.2. Economic roles of FDI for recipient countries
Economic roles of FDI for recipient countries can be seen through the
contributions of FDI for these countries such as creation of job, contribution to state
budget, economic growht and economic development…
Beside the positive contributions for the recipients economies, there are some
negative effects of FDI for recipient countries, for exemple the pollution of
environment, the poverty and inequality…
1.2.FINANCIAL CRISIS AND THE RELATIOSHIP WITH FDI
Financial crisis is a situation in which the supply of money is outpaced by the
demand for money. This means that liquidity is quickly evaporated because available
money is withdrawn from banks, forcing banks either to sell other investments to make
up for the shortfall or to collapse.

Cause and characterisitics of financial crisis : Global imbalance of lending money
and the relaxation of discipline for financial system managemment. Financial crisis
2008 has some characteristics such as the center of crisis is in developepd countries,
financial systems at developing countries are suffered indirectly from the crisis and one
of the main consequences of fiancial crisis 2008 is the current economic recession.
Fiancial crisis 2008 and economic recession had a lot of negative impact on economic
development of the world, the movement of global financial flux and the flux of FDI into
developing countries.
1.3. GENERALITY OF DETERMINANTS OF FDI
There are common determinants, determinants viewed from investors and
determiants viewed from recipient countries.
- The common determinants which could affect the flux of FDI includes the global
macroeconomic situation, the international intergration, the international politic
situation and some natural disaster with international impact …
- Determinants viewed from the investors : these determinants which represents all
elements affecting the decision of foreign investors, could be differents according to the


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types of FDI. The investor of market seeking FDI makes attention to the market size of
the recipient countries, the purchasing power, the posibility of market access,
geographical position, government policies… while the investors of ressource seeking
FDI refer to the quality and price of labor, the stock of natural ressouces, government
policies…
Table 5: Determinants of FDI viewed from the investors
Market seeking FDI

Ressource seeking FDI

Market size in the
recipient countries
Purchasing power in
recipient countries

High quality labor (%) in
recipient countries
Natural
ressouce
in
recipient countries

Efficiency seeking FDI

Cheap labor cost in
recipient countries
Possibility of technological
application, economic of
scale in recipient countires
Possiblitity of Market access: geographical position, relative policies in home and
host countries…
Other determinants: corruption, political stability, ipr law in host countries.
- Factors related to FDI attraction of host countries can be divided into three
categories: economic factors and non-economic factors and other factors (UNCTAD,
1998). The economic factors include: domestic market size of the host country, natural
resources, macroeconomic situation, abundant labor resources, low cost labor; situation
of international integration and regional infrastructure status of FDI recipient countries.
The non-economic factors including the legal framework of investment in the host
country; geographical location, political stability, corruption situation .... Also there are
some other factors that affect the flux of FDI such as the protection of intellectual

property rights in the recipient country, the instability of the exchange rate, foreign debt,
fiscal deficits, privatization, the promotion strategy investment ...

CHAPTER 2: IMPACT OF DETERMINANTS OF FDI INTO DEVELOPING
COUNTRIES
2.1. THE CURRENT SITUATION OF FDI INTO DEVELOPING COUNTRIES IN
FINANCIAL CRISIS AND ECONOMIC RECESSION
The flux of FDI into developing countries in the world is analyzed according to
main geographical areas : Developing countries in Africa, in Asia, in Latin America and
in Europe. In general, developing countries in the world attracts more and more FDI
since the XXI century. The share of FDI into developing world has acceded more than
50% of the total global FDI. Nevertheless, the financial crisis 2008 has heavy negative
impact on this flux of capital. Indeed, FDI into african developing countries has been
most strongly affected by the crisis, FDI into other develping areas has been also
decreased but which has returned to the pre-crisis level. The crisis has less negative
effects for FDI into developing asean countries when the value of this flux was


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decreased a little in 2009 but it has returned and reached a new record in 2011. All the
available data which are showed by graphs and tables in the thesis.
Table 12: Flux of FDI into developing countries before and during the crisis by
geographical areas (unit: million USD)
Year

2006

2007

2008

2009

2010

World
1.463.351,2 1.975.537,1 1.790.705,7 1.197.823,7 1.309.001,3
Total developing
countries
427.163,4
574.311,5
650.016,8
519.225
616.660,7
Transition
economies
54.318,4
90.800,1
121.040,9
72.386,4
73.754,5
African
developing
countries
36.782,9
51.478,9
57.841,5
52.644,9
43.122,1

American
developing
countries
98.175,4
172,281
209.517
149.402,4
187.400,7
Asian
developing
countries
290.907
349.412,2
380.360,4
315.237,6
384.063
Developing
contries in
Oceania
1.298,2
1.139,5
2.297,8
1.940,1
2.074,9
Developing
countries except
China
354.448,4
490.790,5
541.704,8

424.225
501.926,7
Developing
countries except
LDCs
415.424,7
559.074,1
631.520
500.882,6
599.761,5
Landlocked
developing
countries
11.943
15.637,3
25.010,5
28.016,6
28.190,8
Small Islands
developing
countries
(UNCTAD)
5.566,3
6.477,5
8.640,2
4.431,5
4.230,9
High income
developing
countires

228.898,8
314.931,3
318.728,4
259.057,3
317.197,9
Medium Income
developing
countries
148.312,8
190.326,7
230.795,5
178.247,5
222.544,6
Low Income
developing
countries
49.951,8
69.053,5
100.492,9
81.920,3
76.918,2

Souce: WIR 2011 and World Bank Database

2011
1.524.422,2
684.399,3
92.162,9

42.651,9

216.988,3

423.157

1.602,1

560.414,3

669.388,4

34.836,9

4.142,3

332.983,1

257.223,5

94.192,8


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2.2.CURRENT SITUATION OF DETERMINANTS OF FDI INTO DEVELOPING
COUNTRIES
2.2.1.The common determinants
In the 1st chapter, we have analyzed how FDI inflows and outflows are both
affected by common factors such as economic integration position, macroeconomics
situation. In a nutshell, these global factors have an impact on both host countries and

home countries.
2.2.1.1. Economic Integration
Economic Integration has a critical impact on the value of FDI flows globally.
According to UNCTAD’s annual statement on international investment, in 1991, the
figure was approximately $158.9 billion, which increased to $331.2 billion in 1995 and
$900 billion in 2005, before reaching its peak at nearly $1500 billion in 2007, preceding
the devastating effect by the global economic recession. The increasing trend of FDI
flows advances along with the globalizing trend, signifying the sound decision of
countries to blend in with this international tendency. In developing countries, in
particular, the boosting power of their WTO adhesion is likely to be most apparent,
which also brings in economic growth through FDI attraction. The global economic
integration, specifically the free trade and liberalization of international investment,
impacts significantly on the movement of FDI flows. In time of global economic
downfall, the intensity of liberalization of trade and investment will reduce country risk
as a consequence of global crisis. For example, the EU is currently the trading partner of
Russia, while Russia herself, both politically and economically, is enhancing its
relationship with Asian countries, especially in time of the European debt crisis. The
global economic integration is referred to each country’s commitment preceding its
WTO adhesion, without which, FDI flows might not meet the targeted expectation.
Overall, with its 157 country-and-economic-region members and 27 observers, WTO
has signified the importance of international economic integration. In a nutshell, the
global factors impacting on FDI flows might be summarized into globalization and both
the invested developing countries and their investing host countries might hold some
certain great advantages to attract FDI through liberalization of trade and investment.
2.1.1.2. The Global Macroeconomics Situation
In the first place, the global economy in the recent decades has observed the rises
of China, in specific, the preceding three decades witnessed a rapid growth of the
country, marked by the year of 2010 when its economy replaced Japan’s to be the
second largest economy in the world. China in the new century also successfully
launched a manned-mission space-craft into space, making it the only country to break

the dominance of the US and Russia in the field of manned-mission space exploration.
Secondly, while the largest economies in the world are suffering, new industrial
countries, particularly in Asia, soared to develop and support the recovery of the global
economy, namely, India, Australia – countries having quick recoveries and many others
which climbed to the pre-recession economic growth. These Asian countries have the
economic growth expected to be highest in the preceding 2 decades.
Finally, the macro economy globally is brooded by the elongation of financial crisis,
resulting in challenges for developing countries, government debt crisis, inflation and


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unemployment problems. The recent economic recession of the period from 2008-2009
has been historically recognized as the most deteriorating downfall of global economy
since the Great Depression in 1929-1933.
2.2.1.3. Other factors
Apart from international economic integration and macroeconomic situation,
global flows of FDI are also impacted by several significant factors such as the global
political situation, natural disasters of great global impacts…etc.
2.2.2.Current status of some determinants of FDI into developing countries
2.2.2.1. Economic factors
- Domestic market:
- The market size
The domestic market with some basic characteristics such as size and affordability is the
most important factors affecting foreign direct investment in general and developing
countries in particular. Domestic market size of each country may go along with its huge
advantage in attracting market-seeking FDI. Some countries have significantly developed
domestic market size are China with population of over 1.3 billion people, India with over
1.2 billion people, Indonesia with over 240 million people, etc. This is the important source
of demand for products which are produced by firms in countries that receive FDI

investments.
In general, world’s most populous countries locate in Asia, where there are up to 5 of
the 10 most densely populated countries of all developing countries. Theoretically, the total
value of registered FDI in these countries is also proportional to the size of the market, ie the
size of the population in these countries. This will be verified through econometrics
regression. The most populous country will have some major advantages in attracting FDI.
Table 16 gives us an overview of the theoretical relationship between population size and
FDI in 10 developing countries with the largest population in the world. Out of 10 most
populous developing countries, 5 of them are in the top 11 developing countries to attract the
greatest amount FDI in the world in 2011. Of all developing countries, Vietnam ranked 14th
in the ranking list of registered FDI in 2011 and ranks 11th in population. The remaining
populous countries were also among countries that attract most FDI in recent years or in
another way, the remaining countries are among the top countries attracting FDI. Developing
countries are also countries with large population sizes.
Table 16: Relationship between population size and FDI
Developing countries with the largest
population size
No.
Countries
Population 2011
(people)
1
China
1.344.130.000
2
India
1.241.491.960
3
Indonesia
242.325.638

4
Brazil
196.655.014
5
Pakistan
176.745.364
6
Nigeria
162.470.737
7
Bangladesh
150.493.658
8
Russia
141.930.000
9
Mexico
114.793.341

Developing countries with the largest
amount of registered FDI in 2011
No.
Countries
FDI (million
USD)
1
China
123.985
2
Brazil

66.660,14
3
India
65.788,48
4
Mexico
64.003,24
5
Indonesia
18.906
6
Chile
17.299,02
7
Turkey
16.400
8
Columbia
13.234,16
9
Kazakhstan
12.910,48


8

10
11

Philippines

Vietnam

94.852.030
87.840.000

10
11

Malaysia
Vietnam

11.966,01
7.430

Source: Post-graduante synthesizes from World Bank and UNTAD statistics
- Workforce: skills and labor cost
Workforce investment in the host country affects FDI in two directions. A market with
cheap labor attracts efficiency-seeking FDI through low cost. But cheap labor also means low
quality workers. This is also considered an advantage for developing countries in the
traditional competition of attracting FDI. The second direction is more modern: FDI that is
seeking for a source of high-quality labor. Accordingly, the countries having high quality
workforce will attract more foreign direct investment. And this is the new trend of the current
FDI: FDI will focus more on industry with high level of technique and technology instead of
mining industry. Foreign direct investment affected by the level of the labor force is not a
common phenomenon as we see in the developing countries, industries that process raw
material or the industries that is labor intensive still accounted for an absolute advantage in
attracting the attention of foreign direct investment. The table below compares the rates of
high school graduation per total population in 10 developing countries attracting most FDI in
2011. Vietnam ranks 14th in the top FDI recipient countries in 2011. Among the top FDI
recipient developing countries, Latin America and Eastern Europe have relatively higher

level education, but this does not entirely mean that the level of education can be a leading
factors impacting developing countries’ FDI inflow. In fact, FDI still prefers cheap labor
which is synonymous with low quality and low skill levels. However, in the future, labor
skills will be a key factor in helping increase the competitiveness of FDI recipient developing
countries (see table 17)
Table 17: High school graduation rates per total population in top 10 FDI
recipients in 2011
No.
Countries
High school graduation rates
2008
2009
2010
1
China
22,42
24,35
25,95
2
Brazil
No statistic
3
India
15,15
16,23
17,87
4
Mexico
26,55
27,04

28,03
5
Indonesia
20,20
22,35
23,12
6
Chile
55,01
59,18
7
Turkey
39,62
45,82
8
Colombia
35,50
37,09
39,13
9
Kazakhstan
45,89
40,02
38,48
10
Malaysia
37,46
40,24
14
Vietnam

18,59
19,75
22,29
Source: Post-graduante synthesizes from World Bank statistics
- Income per capita:
Theoretically, a country with relatively high per capita income has more advantages in
attracting market-seeking FDI. This type of FDI prefers markets with large population size,
affordability and high per capita income is a good variable reflecting the purchasing power of
the recipients’ markets. Research on the per capita income in developing countries shows that
although there are similarities in income per capita, there are still differences in the standard
of living or per capital GDP. Table 18 shows that the theoretical correlation of per capita


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income and FDI for the top 10 FDI recipients in 2011, which includes Vietnam, is not clear.
This may indicate that the main reason of the FDI inflows into developing countries is
affected by sources of cheap labor rather than markets with higher affordability. Many
companies with foreign direct investment focus on the industries which process raw material
or produce goods for exporting instead of consuming on the domestic market in the host
country. This is the fact of many companies with foreign direct investment in Vietnam (see
Table 18)
Table 18: Per capita income in top 10 FDI recipients in 2011 (unit: million USD)
No.
Countries
Registered FDI in 2011
Per capital income in
2011
1
China

123.985
5.429,60
2
Brazil
66.660,14
12.593,89
3
India
65.788,48
1.488,52
4
Mexico
64.003,24
10.064,31
5
Indonesia
18.906
3.494,60
6
Chile
17.299,02
14.394,45
7
Turkey
16.400
10.498,31
8
Colombia
13.234,16
7.067,44

9
Kazakhstan
12.910,48
11.244,91
10
Malaysia
11.966,01
9.656,25
14
Vietnam
7.430
1.411,21
Source: Post-graduate synthesizes from World Bank statistics
- Natural resources:
One of the important reasons behind foreign direct investment in the world in
general and in developing countries in private is geared towards natural resources,
especially mineral ones – the top concern of mining industry. Developing countries own
diverse resources: including mineral, forest, land and water, seafood… There is a
variety of minerals in Asia which are very rich and abundant but not fully exploited. The
minerals which have significant reserves are oil, charcoal, iron, ferrous metals like
copper, lead, tin and bauxite. The ancient base is home to much iron, manganese,
bauxite, gold and some precious metals. For example: large iron mines in India,
Northeast China, Korean Peninsula, central Siberia and Russian base. Apart from iron,
there is high level of manganese with world leading reserves as well as gold and
diamond; There is a huge amount of tungsten, diamond, gold and bauxite at high level
of concentration in China and central Siberia. Tin in Southeast Asia is focused in one
extended length from Yunnan Plateau through China-India peninsula to Bangka and
Billiton belonging to Indonesia. Tin here accounts for 70% of world reserves. Currently,
output of tin mining in China, Indonesia and Malaysia is standing second, third and
fourth respectively, after Brazil. The charcoal mines with huge reserves are called coal

basins, which exists much in China, India, Mongolia and Central Siberia-Russia. Oil and
gas mines are at high level of concentration at West Siberian Delta, Central Asia,
Sakhalin island and Japan. In China, oil concentrates in basins such as Tarim, Saidam,
Dungari, Sichuan and Gobi Plateau. The China’s resources value mainly belongs to
coal, mineral and rare earth. These two resources account for more than 90% of total
value of natural resources of China. Second-largest economy of the world also has many
big coal mines, accounting for more than 13% of total world coal reserves. Recently,
China has discovered many large shale mines (An Huy, 2012). The continental shelves


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of South “East Sea”, Indonesia, Myanma, Indo-Ganges Delta, Mesopotamian Plain and
along the Persian Gulf are the areas with leading reserves in Asia.
African countries have very large oil reserves and are the attracting investment
points of large oil corporations in the world (see table 19). Among 12 current members
of OPEC, there are up to 4 members being African developing countries: Algeria,
Angola, Libya, Nigeria. Africa is also famous for essential and diverse resources:
accounting for 8% oil, 7% fuel reserves (BP statistical review, 2012). In addition, Africa
manufactures 46% chromium, 48% diamond, 48% platinum of the world. (Jenne
Manion, 2006).
Table 19: Oil reserves of developing countries of 3 continents in the world
2011 (unit: billion tanks)
America
Argentina

Stock
2.5

Share

0.2%

Africa
Algeria

Stock
12.2

Share
0.7%

Asia
Brunei

Stock
1.1
14.
7
5.7

Share
0.1%

Brazil

15.1

0.9%

Angola

13.5

0.8%

China

Colombia

2.0

0.1%

0.1%

India

6.2

0.4%

1.9

0.1%

Mexico

11.4

0.7%

4.3

Peru

1.2

0.1%

Chad
Rep of
Congo
Egypt
Equator
Guinea

1.5

Ecuador

Indonesia

4.0

0.2%

0.3%

Malaysia

5.9

0.4%

1.7

0.1%

Thailand

0.4

Trinidad
& Tobago
Venezuela
Others

0.8

0.1%

296.5
1.1

Total

336.8

17.9%
0.1%

20.4
%

Gabon

3.7

0.2%

Vietnam

4.4

0.3%

Libya
Nigeria

47.1
37.2

2.9%
2.3%

Others

1.1

0.1%

Sudan

6.7

0.4%

Tunisia
Others
Total

0.4
2.2
132.4

0.1%
8.0%

0.9%
0.3%

(Source: BP Statistical Review of World Energy 2012)
Latin America is still famous for oil in Venezuela and Argentina; forest and iron in
Brazil. Thanks to huge reserves of gold and platinum, Brazil was shortlisted the
countries with most resources in the world. This country holds 17% iron reserves of the
world, taking second position in terms of this resource. The most valuable resource of
Brazil is forest, with 485,6 million hectares which are worth nearly 17,5 thousand
billion USD. This rank has not been considered pre-salt oil reserves, which is up to 44
billion tanks discovered recently. Venezuela belongs to the group of 10 countries with
largest iron reserves, natural gas and petrol. Natural gas reserves of Venezuela stand in
8th position of the world, despite accounting for 2.7% of global supply. Petrol reserves

of 99 thousand billion tanks of Venezuela stands in 6th position in the world, not
mentioning about positive reserves of heavy sour oil which is up to 97 billion tanks.
Although Vietnam is not a large country, we have rich and diverse mineral
resources, with nearly 40 types from power minerals (petrol, coal, uranium,
geothermal), Non-metallic mineral, building materials to metal minerals. However, most
of minerals in Vietnam has not much reserves. Vietnam is rich in triassic coal (6.6
billion tons), titanium ore (O34.5 billion tons), bauxite (more than 2 billion tons), scare
earth (more than 22 million tons). Apatite was discovered in Lao Cai with reserves


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being 1700 million tons. Limestone Cement, concentrating from Quang Binh to
Northern Vietnam, has area of nearly 30,000 square kilometers, with 96 building stone
mines which includes manganese rocks (granite, xienite, diorite, gabro, andezits, bazan,
riolit), sedimentary rocks (limestone, dolomite) and metamorphic like shale, quaczit
(According to General Geological Society, Vietnam Minerals Congress). In addition,
Vietnam is also rich in forest and sea resources. This is the big advantage for our
country to foster the economy. Details of natural resources of all the developing
countries, including Vietnam, are summarized in Annex 3 of the thesis.
-The economic openness of recipient countries.
Among the factors affecting the FDI attractiveness of each country, the opening of
the economy must be included. Economic openness can be understood as the ability of a
country's integration into the world market which is expressed in a number of criteria
such as the participation in the international organizations or bilateral and multilateral
agreements to protect investment. Each developing country can be the member of many
organizations, forums or international associations .For example, Vietnam is a member
of ASEAN, APEC, ASEM, WTO; the developing countries in Africa region may be a
member of WAEMU ( West African Monetary Union), CAEMC ( Central African
Economic and Monetary Union), ECOWAS ( West African Monetary Zone)…. The

largest organization, which most of the developing countries in the world are the official
members, is the World Trade Organization WTO.
Nowadays, about two thirds of the World Trade Organization-WTO members are
developing countries .That the developing countries try to integrate deeply into the
world economy represents the dynamics of each country when participating in the large
playground in the world. Because most developing countries have been participating
into the WTO, it would not be easy to determine the degree of integration into the world
economy of each country to find out that how the elements impact on attracting FDI.
Some researchers consider and comment on the opening of the economy through export
turnover targets or total imports, exports turnover compared to GDP. However, this
measurement cannot considered as an accurate method because GDP and exports (or
exports, imports) turnover are two different criteria on the scope and the calculation so
that these index should not be compared together. Furthermore, the heterogeneous
structure of export in each country is different, even if there are some cases of overlap
when calculating (egg raw materials imported for production then export is calculated
in the import and export turnover).
-The infrastructure condition of recipient countries.
The essence of FDI is the private investment with the aim to seek profit. The FDI
enterprises would save a lot of costs in the investment environment having favorable
infrastructure, especially in the traffic system (table 21). FDI towards the market
prioritizes the good infrastructure market, especially in the inland transportation system,
whereas the export-oriented FDI prioritizes the locations near ports, airports, with the
favorable national and international transportation system. In general, all foreign
investors prefer the investment locations near the market, the major economic center
and the market access is easy via the high quality infrastructure system. Besides the
transportation system, the infrastructure situation also reflects in a number of other


12

criteria such as power, water, telecom and internet supply situation in the recipient
countries. The comprehensive data on the developing countries related to the criteria of
infrastructure is included in the appendix of the thesis.
It can be said that these criteria have not demonstrated the superiority of this
country compared with other countries concerning the infrastructure in attracting FDI.
For example, India and China are the two most populous countries in the world;
therefore the travel need of the people is much higher than in many other countries.
Moreover, the area of the two countries is also ranked as the world’s largest so the
numbers of kilometers of roads, railways, waterways also are relatively larger in
comparison with many other countries. The kilometer per capita can help to eliminate
the factors such as population size criterion or the number of kilometers of roads over
the total land area can remove the national scale element. However,a simple
comparison between two recipient countries related to one or only a few criteria of
infrastructure is not sufficient for an investor to make decision in selecting that country
over the other countries .Therefore, the fine infrastructure system is a big advantage for
developing recipient countries but the investors still base on many different factors to
make their decision .
Table 21: Some criterias of infrastructure in top10 developing recipient countries
in 20111
No

Countries

Railway

Road

Waterway

No of airports

and places for
air landing

1

China

86.000 (2008)

3.860.800 (2007)

110.000 (2011)

497 (2012)

2

Brazil

28.538 (2008)

1.751.887 (2004)

50.000 (2012)

4.105 (2012)

3

India

63.974 (2009)

3.320.410 (2009)

14.500 (2012)

352 (2012)

4

Mexico

17.166 (2008)

366.095 (2008)

2.900 (2012)

1.724 (2012)

5

Indonesia

5.042 (2008)

437.759 (2008)

21.579 (2011)

676 (2012)

6

Chile

7.082 (2008)

80.505 (2004)

NA

58 (2012)

7

Turkey

8.699 (2008)

352.046 (2008)

1.200 (2010)

98 (2012)

141.374 km
(2010)

24.725 (2012)

862 (2012)

8

Colombia

874

(2008)

9

Kazakhstan

15.079 (2008)

93.612 (2008)

4.000 (2010)

97 (2012)

10

Malaysia

1.849 (2008)

98.721 (2004)

7.200 (2011)

117 (2012)

14

Viet Nam

2.157 (2008)

180.549 (2008)

17.702 (2011)

44 (2012)

Source: The fellow summarizes from the data of the Central Intelligence Agency of
the US ( CIA) 2
2.2.2.2. Non economics factors
- Geographical position
Favorable geographical position implies many meanings. First, recipient country is
located geographically close countries investors or large economic center, near the
1
2

In the parentheses is the investigating year

/>

13

crowded market to facilitate the sale of products. Second, favorable geographic location
can also be interpreted as recipient country is located near the sea port, international
airport, convenient transportation for international trade and third, good geographical
location also known as a sea water ownership, the country is not surrounded by
continent (landlocked country- see annex 2A). The value of FDI into the developing
countries without sea reached negligible values (see Appendix 2B)
- Political stablility
Political stability in the developing countries in terms of the theory as mentioned in
Chapter 1 is one of the factors that influence the decisions of foreign direct investment.
Now, armed conflicts, civil wars, border disputes occurring in many parts of the world.
The conflict, in particular the large-scale conflict could bring more serious
consequences for the country where the conflict on the economy in general and in
particular in attracting FDI. In many developing countries around the world appear
armed groups, insurgents against the government, the seeds of political instability.
Africa, where political turmoil is pretty serious. These include the unrest in the countries
of the Magreb region, Africa, the early 21st century, is related to many countries such as
Algeria, Chad, Mali, Mauritania, Morocco, Niger, and Tunisia; well services up of the
Shia in Yemen in 2004, in Saudi Arabia, 2009-2010; armed conflict in the Niger River
Basin Nigeria 2004 conflict in Libya in recent years with the event's highlights changes
a new administration. The Middle East has always been a political hotspot in recent
times with many outstanding events such as the Iraq war in 2003, the conflict in
Palestine constant related to the armed groups Fatah and Hamas and recent is the "Arab
Spring" with the conflict, ongoing uprising in Arab countries such as Bahrain, Egypt,
Syria, Yemen, Lebanon, Saudi Arabia, Oman and Iraq. In Asia, can also mention some
typical conflicts insurgency against government forces in southern Thailand in 2004,
disputed border temple area between Cambodian and Thai Stock Finland from 2008 to
present; North Capcas conflict in Russia in 2009.

- Corruption
Corruption is a common problem of all countries in the world. But because of the
characteristics associated with the level of economic development, income, legal
systems can be found in the developing countries, corruption is more common and more
severe. According to Transparency International index of corruption perceptions in 2010
measures the level of corruption of public areas in 178 countries around the world. The
area is the most serious corruption often focus on developing countries and least
developed in Asia, Africa and the Americas. According to the organization
Transparency International, Cameroon, Liberia, Sierra Leone and Uganda, more than
50% of the respondents answered that they were paying a premium tea in the country.
That ratio is about 23 to 49% in the group of countries such as Bolivia, Cambodia,
Mongolia, Venezuela and Russia. Corruption has a negative impact on all aspects of
economic life, including attracting FDI.
2.3. EVALUATION OF THE IMPACTS OF SOME DETERMINANTS ON FDI INTO
DEVELOPING COUNTRIES BY ECONOMETRIC MODEL
2.3.1 The economics of model
2.3.2 Regression equation and variables of the model


14

The model reflects the relationship between variables which impact on FDI inflow
into developing countries.
LnFDIi,t = α0 + α1 LnPop + α2 LnEduc + α3 LnGDPpercap + α4 LnPolistab + α5
LnCorrup + α6 Di + εi
In which: i is the index reflecting developing countries and t reflects time (normaly
adjusted in year). The index αi is coeficient which needs to be estimated (j = 0-6) and εi
is random noise.
Dependent variable: LnFDI
Independent variables: LnPop, LnEduc, LnGDPpercap, LnPolistab, LnCorrup and

the D variable.
LnPop reflects market scope in the developing recipient countries
LnPolistab reflects political stability level in the developing recipient countries
LnEduc reflects skill level of human capital in the developing recipient countries
LnGDPpercap reflects income per capita in the developing recipient countries
LnCorrup reflects the state of corruption controlling in the developing recipient
countries
The D variable reflects financial crisis and economic recession.
2.3.3 Introduction to model database
The database which related to variables of model is collected from one source of
database: the world bank database. Out of world development index system related to
variables on annualy registered FDI, population, income per capita, education standard
in developing countries, the thesis also takes into account the World Governance
Indicators index.
2.3.4 The proposed hypothesis to the model
LnFDIi,t = α0 + α1 LnPop + α2 LnEduc + α3 LnGDPpercap + α4 LnPolistab + α5
LnCorrup + α6 Di + εi
To estimate the FDI inflow into the developing country i at time t, it is necessary to
work out these factors at time t-1.
The model has been examined along with assumptions:
•To estimate the FDI inflow into the developing country i at time t, it is necessary
to work out these factors at time t-1.
Corruption impact negatively on developing countries therefore controlling
corruption would possitively affect the FDI inflow.
•Factors such as market size, labor skills, political stability, ... have the same
effects on FDI inflow making the FDI inflow better off.
Author carries out to verify those assumptions and estimates the signification of the
results. According to datatbase of World Bank, the value of variables Polistab and
Corrupt fluctuate from -2.5 to 2.5. Therefore, LnPolistab and LnCorrupt fall between
0.01 and 5.01.

2.3.5 The regression results


15

2.3.5.1 World general form of the developing countries
In the panel model: Model POLS (Pool Ordinary Least Square) is used if the
missing variable has no impact on the general result. On the other hand, if the missing
variable affect the general result and there is no relationship between missing variable
and other variables, model Random Effect (RE) would be used. Incase of tangible
relationship between left variable and others, Model Fixed Effect would be taken. In the
proposed model of this thesis. There must be some factors, which affect the FDI inflow,
have not been mentioned and have relationship with independent variables. For
example, the colonial history, language, culture between investor and host country,
geographical position, efficiency level of investment promotion program. Besides, the
examined results show that model FE should be used in all three proposed
circumstances. The results are shown in table 28.
Model 1:
LnFDIi,t = α0 + α1LnPopi,t-1+ α2lnEduci,t-1+ α3LnGDPpercapi,t-1+ α4Crisis+ εi
Model 2:
LnFDIi,t = α0 + α1LnPopi,t-1+ α2lnEduci,t-1+ α3LnGDPpercapi,t-1+ α4Polistabi,t-1+
α5Crisis+ εi
Model 3:
LnFDIi,t = α0 + α1LnPopi,t-1+ α2lnEduci,t-1+ α3LnGDPpercapi,t-1+ α4Polistabi,t-1+
α5Corrupi,t-1+ α6Crisis+ ε
Model 1 which simply investigates effects of market scope, payment ability and
labor skill level on FDI inflow into the developing. The political stability and corruption
controlling factors are in turn soplemented in model 2 and model 3. Since the
assumption in each model is different from other model, factors affect FDI inflow
differently. It can be seen that the more variables taken, the more reliable the result is.

On the other hand, we can consider variables in model 1 as basis factors affecting the
FDI inflow and others variables in model 2 and model 3 complete other factor effects in
the FDI inflow.
According to the results in table 28, model 1: FDI inflow into the developing is
explained by GDP per capita, education standard and crisis circumstance (2009, 2010)
or no crisis circumtance (remaining years).
LnFDIi,t^ = 6.84 + 1.04LnGDPpercapi,t-1 + 0.22LnPopi,t-1 + 0.87LnEduci,t-1 0.39Crisis.
Following the regression result, these factors explain for 38% FDI inflow into the
developing (R2 = 0.38). Financial crisis and FDI inflow have the negative
relationship.Financial crisis can make FDI inflow fall to 39%. GDP per capita and
education standard impact possitively on FDI inflow. When GDP per capta increases
(decreases) 1%, FDI increases (decreases) 0.87%. These results reach reliable level of
95%.
Model 2: GDP per capita, population, education level, context and political
stability.


16

LnFDIi,t^ = 7.23 + 1.01LnGDPpercapi,t-1 + 0.20LnPopi,t-1 + 0.90LnEduci,t-1 +
0.13LnPolistai,t-1 - 0.38Crisis
FDI inflow into the developing next year will go up (go down) 1.01% if GDP per
capita go up (go down) 1%, increases (decreases) 0.2% if the population increases
(decreases) 1%, increases (decreases) 0.9% if the education standard increases
(decreases) 1% and FDI increases (decreases) 0.13% if the political stability increases
(decreases) 1%. Financial crisis and FDI inflow have the negative relationship. The
coefficient of variable Crisis in thí model takes a negative value (-0.38), crisis can make
the FDI inflow fall down to 38%. Factors in the model 2 explained 40% fluctuation
level of FDI inflow and it can be reliable about 90%.
Model 3:

LnFDIi,t^ = 7.52 + 0.99LnGDPpercapi,t-1 + 0.17LnPopi,t-1 + 0.92LnEduci,t-1 +
0.13LnPolistabi,t-1 + 0.38LnCorrupi,t-1 – 0.38Crisis
According to model 3, 42% og FDI inflow is explained by GDP per capita,
population, education standard, political stability level, corruption and economic crisis
circumtance. The results are particularly shown in the table 28 below:
Dependent
Model 1
Model 2
Model 3
variable:ln(FDI) i,t
Independent variable
Const
6.84
7.23
7.52
(0.027)**
(0.020)**
(0.017)**
Ln(GDPpercap) i,t-1
1.04
1.01
0.99
(0.000)***
(0.000)***
(0.000)***
Ln(Pop) i,t-1
0.22
0.20
0.17
(0.009)**

(0.06)*
(0.038)**
Ln(Educ) i,t-1
0.87
0.90
0.92
(0.000)***
(0.000)***
(0.000)***
Crisis
-0.39
-0.38
-0.38
(0.003)**
(0.003)**
(0.004)**
Ln(Polistab) i,t-1
0.13
0.13
(0.039)**
(0.040)**
Ln(Corrup) i,t-1
0.38
(0.004)**
R2
0.38
0.40
0.42
Number of Observations
510

Note: The numbers in parentheses are p-value, *,**,*** are regression coeffients
significant at 10%; 5%;1%
For the financial crisis variable, LnFDIi,t without crisis is larger than LnFDIi,t with
crisis by 0.38 or crisis can pull down the FDI percapita by 38%. This means FDI inflow
into the developing and the crisis have the negative relationship. It can be seen that the
most reasonable model is model 3 which reflects completely effects of factors onFDI
inflow into the developing countries. The studied results and the previous reseachs on
the general model of developing countries are shown in table 29 below.
Table 29: Impact of determinants of FDI into developing countries (comparing
with previous studies)
Determinants Variables
Impact
Authors


17

A. Economic factors
1. Concerning
the Market

Total
Population

+

Alan A. Bevan and Saul Estrin (2000);
Holland (2000); Tsai (1994); Campos
and Kinoshita (2003); Garibaldi (2001);
Asiedu (2002); Aseidu (2004); Meyer

and Nguyễn (2005); Ngọc Anh (2007);
Lê Việt Anh, (2004); Hoang Thi Thu
(2008)
Nunnenkamp and Spatz (2002)

Both ways
GDP per
capita

2. Concerning Good
the labor
human
ressource
(education
level)

+
+

The Thesis
Root and Ahmed (1979); Nunnenkamp
and Spatz, 2002; Erdal Demirhan and
Mahmut Masca (2008); Hoang Thi Thu
(2008)
The Thesis
Marcelo Braga Nonnemberg and Mario
Jorge Cardoso de Mendonça,
Nunnenkamp and Spatz, 2002; Aseidu
(2004); Meyer and Nguyễn (2005); Ngọc
Anh (2007); Hoang Thi Thu (2008)

+
+

+
B. Non Economic factors
3.
The distance
Geographical between
Distance
capitals
4. Political
stability
5.
Corruption

The Thesis

-

Alan A. Bevan and Saul Estrin, 2000

The Thesis studies by geographical areas

Political
stability
index

+

Corruption

+

+

Schneider and Frey (1985); Aseidu (2004);
(Beirhanu and Kibre, 2003)
The thesis
Thesis uses the variable of control of
corruption

-

Both ways
No
significance
6. Financial Crisis
Crisis 2008

-

Aseidu (2004); (Mauro 1995); (Tanzi
and Davoodi 1997); (Gupta,
Davoodi, and Alonso-Terme 1998;
Li, Xu, and Zou 2000); Abed and
Davoodi (2000)
Houston; Swaleheen and Stansel
(2007);
Akçay (2001)

Thesis

Previous studies has not told about crisis


18

2.3.5.2. In terms of sample comparing developing countries across continents
In this section, the writer will employ a completely new approach compared to
previous studies. That is studying the impact of some factors on FDI into developing
countries allocated over various regions. The full model will be run on four samples of
different continents, where there are common things among certain recipient countries.
In order to have a general view on the magnitude of effect of such factors, the writer
shall use data of Eastern Europe, mainly from the Community of Independent
Countries. According to World Bank, these countries have a relatively higher
development level than the average of all developing countries. The econometrics
models obtained are shown in tables as follows, with Asian developing economies
coming first:
LnFDIi,t^ = 12.04 + 1.02lnGDPpercapi,t-1 + 0.11lnPOPi,t-1 + 0.11lnEDUCi,t-10.21Polista i,t-1 -1.43Corrupi,t-1+ 0.17Crisis
In Africa:
LnFDIi,t^= - 42.2 + 1.16lnGDPpercapi,t-1 + 3.29lnPOPi,t-1 + 0.91lnEDUCi,t-1 0.04Polista i,t-1 -1.30Corrupi,t-1 - 0.53Crisis
In Latin America
LnFDIi,t^= -138.9 + 1.43lnGDPpercapi,t-1 + 9.21lnPOPi,t-1 - 0.18lnEDUCi,t-1 0.25Polista i,t-1 -0.45Corrupi,t-1 - 0.46Crisis
In Eastern Europe
LnFDIi,t^= 9.54 + 0.71lnGDPpercapi,t-1 + 0.40lnPOPi,t-1 - 0.79lnEDUCi,t-1 +
1.19Polista i,t-1 + 1.53Corrupi,t-1 - 0.33Crisis
Table 30: Regression results by geographical areas
Dependant
variable:ln(FDI) i,t
Independant variables

Const

Asia

Africa

Latin
America

Eastern
Europe

12.04
(0.011)**

-42.22
(0.364)

-138.91
(0.001)**

9.54
(0.023)*

Ln(GDPpercap) i,t-1

1.02
(0.000)***
0.11
(0.076)*

0.11
(0.051)*

1.16
(0.038)**
3.29
(0.083)*
0.91
(0.050)**

1.43
(0.000)***
9.21
(0.001)**
-0.18
(0.530)

0.71
(0.017)**
0.40
(0.007)**
-0.79
(0.040)**

-0.21
(0.057)*
-1.43
(0.038)**

-0.04

(0.026)**
-1.30
(0.078)*

-0.25
(0.022)**
-0.45
(0.062)*

1.19
(0.015)**
1.53
(0.024)**

0.17
(0.011)**
0.41
119

-0.53
(0.082)*
0.20
213

-0.46
(0.096)*
0.36
101

-0.33

(0.008)**
0.63
76

Ln(Pop) i,t-1
Ln(Educ) i,t-1
Ln(Polistab) i,t-1
Ln(Corrup) i,t-1
Crisis
R2
No of observations


19

Note. Figures in bracket are p-values *, ** and *** are 10%, 5% and 1% level of
significance respectively
In term of the variable representing financial crisis and world economic downturnCrisis: In Asia, FDI flows on average are higher during crisis than that in normal
conditions, shown by a positive coefficient of 0.17. In other words, crisis has raised the
FDI into Asia by 17% on average. However, the situation is different in other
continents: Crisis has reduced FDI inflows to Eastern Europe by 33% on average, 53%
in Africa and 46% in Latin America, which are statistically significant at 90% level of
confidence. This outcome is contradicting with the theory but perfectly matching the
reality. Of all developing economies in the world, during the period of crisis and
economic slowdown, Asian countries still witnessed an increasing trend in FDI inflows,
while that of other regions follows an inverted direction.
Among continents, a comparison is not easy to be made to compare the impact
magnitude of each variable on their FDI inflows. Nevertheless, this task is much easier
in comparing countries of the same region.
2.3.6. Some comments from the econometrics model

Firstly, it can be said that Quantitative Research Method in the dissertation is not
new in the world but still considered to be quite unfamiliar in Vietnam. The construction
of the models, selecting variables as well as database require a lot of time to be spent
and effort to be made. Samples are to be large enough in order for the results to have the
high confidence interval. But the outcome resulted from different regression of samples
and models is just relatively true. The reasons could be the construction of variables in
the models has not been completely correct or multicollinearity occurs among variables,
or simply in some developing countries samples, we miss out some variables (for
instance, inflation or average wages). Moreover, factors affecting FDI are, theoretically,
completely rational but in reality, measuring the specific impacts of each factor on FDI
flows into these countries is not simple.
Secondly, in all samples, one general statement is that population and income per
capita factors have considerable impacts on FDI flows into developing countries, which
is suitable with theories about the impacts of market size and ability to expense on
decisions of foreign direct investors. Furthermore, in some researched data, education
factor have positive effect, reflecting the trend of searching FDI flows on high quality
resource. Resulting from statements mentioned above, policy orientation can be
designed to enhance the positive impacts of factors which strongly affect FDI including
labor, market, political stability, transparency, etc and limit the negative impacts of
factor discouraging capital flows like corruption and political and macroeconomic
instability.


20

Thirdly, when studying geographical regions independently, we can omit their
impacts on attracting the capital flow because all nations in the researched sample
belong to the same region. One of significant results are in relatively more developed
countries, such as Eastern Europe, political stability and corruption control variable
have positive impacts on attracting FDI, which perfectly suits the assumption as well as

the reality. However, political stability and corruption have adverse effect or not clear
on FDI capital flow in developing countries in other areas where economic
development standard is relatively lower, legal framework is comparatively weaker,
which is totally suitable for the reality of some nations. That foreign investors in general
and multinational and transnational co-operations in particular are willing to spend
money is not significant in comparison with the profit returned when gaining profitable
contracts or special priorities from the local officials is not alien. Many researchers as
well as enterprises call such amount “lubricant fee” and accept legalization (though
illegalized) the expenses in business or daily life. Thus should developing countries in
the world legalize such expense in their own legal system?
Fourthly, in the above econometrics models, Vietnam is only a country in the
random sample. Hence, the model results could not be a strong basis for us to draw a
certain conclusion about the impact of FDI inflows on Vietnamese economy. However,
basing on such outcome, the writer will make some recommendation and proposals to
developing countries by means of influencing the FDI’s determinants in the way that it
could improve this capital inflow. The next chapter of this work will finish such task as
well as express the writer’s idea about policy orientation and specific solutions for
particular cases applied to Vietnam.
Table 31: Determinants of FDI into developing countries by geographical areas
Determinants Variable
Asia
Latin
Africa
Eastern
of FDI
America
Europe
1. Population
+
+

+
+
2. GDP per cap
+
+
+
+
3. Education level

+

-

No significance

+

4. Political Stability

-

+

-

-

5.Control of corruption

-

+

-

-

6. Financial crisis

+

-

-

-

In summary, research methods for econometric models to determine the impact of
factors affecting FDI flow into developing countries is a new research method is applied
in the current economic research. However, there are some disadvantages when applied
in the research methods of the models in the thesis. First, the absence of a number of
other factors that affect FDI inflows in the model, such as the effectiveness of
investment promotion programs, geographic location near major ports or port states and
legislation on intellectual property rights ... can make the results misleading. Second,
data on the variables are not statistically adequate in many developing countries, this
reduces the size of the observation, reducing the reliability of the results. Third, a
number of data variables, especially data related to FDI into the developing countries
were updated by the World Bank in different times could vary. The data are published

21

later is more accurate and reliable than the previous year high. But when doing research
model, graduate students can not be updated to the latest data and more accurate data
was updated in 2012. Therefore, the accuracy of the results derived from the model will
only relative.

CHAPTER 3: IMPLICATIONS FOR VIETNAM TO IMPROVE TO IMPROVE
THE ATTRACTION OF FDI IN THE NEXT FUTURE
3.1. FORECAST ABOUT PROSPECTS AND CHALLENGES FOR FDI INTO
DEVELOPING COUNTRIES
3.1.1. Some characteristics relating the FDI inflow into developing countries in the
next future
3.1.1.1. FDI inflows are and will continue to be negatively affected by the financial
crisis and global economic downturn
3.1.1.2. The developing world is increasingly more important role as both the host
country and home country investment investment.
3.1.1.3. The state-owned corporations play an increasingly important role in
international investment in the context of the financial crisis and global economic
downturn.
3.1.1.4. FDI trends into processing industries
3.1.2. Prospects and challenges for FDI flows into developing countries
3.1.2.1. The prospects
3.1.2.2. Regarding challenges
- For investors into the developing countries
- For recipient developing countries
3.2. CURRENT SITUATION OF THE FDI INFLOW INTO VIETNAM
3.2.1. Overview of the FDI inflow in Vietnam
3.2.2. Some advantages and challenges for Vietnam in attracting FDI
3.2.2.1. The advantages

- On credibility
- The advantage of the implementation of international commitments in the WTO
- The other advantage
3.2.2.2. Some specific challenges for Vietnam
Firstly, the macroeconomic environment still existing many subjective and
objective uncertainties.
Secondly, despite efforts from management agencies, policy makers, but the
administrative procedures in Vietnam are still cumbersome and complicated.
Thirdly, the system of policies, especially the laws relating to FDI are missing, and
not effective.
Fourthly, the infrastructure is not yet complete, the quality did not meet the
requirements of investors. The upgrading of the physical infrastructure of Vietnam still
lacking and there are critical infrastructures, such as inter-provincial roads, bridges,
culverts ...


22

Finally, the quality of human resources is not meeting the demand of economic
integration.
In summary, with respect to attracting foreign direct investment, there are two key
issues posed for developing countries, including Vietnam: (1) how to drive more foreign
direct investment, especially into countries with the lowest income levels, and (2) how
to ensure that these investments will be translated into sustainable development
outcomes.
3.3. SOME SPECIFIC RECOMMENDATIONS FOR VIETNAM FOR IMPROVING
THE ATTRACTION OF FDI
3.3.1. The point of views about the orientation of attraction of FDI into Vietnam
until 2030
Firstly, FDI policy should actively seek funding sources, especially FDI to serve

the goals of industrialization and modernization of the country.
Secondly, the implementation of strategies to selectively attract FDI.
Thirdly, FDI policies need to be improved through strengthening investment
promotion.
Finally, FDI policy should be consistent with international law and the new
economic context.
3.3.2. Some specific recommendations for Vietnam to improve the attraction of
FDI in the next future
3.3.2.1.Lien factors relating to the international macroeconomic environment
a. Continue to strengthen economic integration into the world
b. Continuation of measures to deal with the financial crisis and global economic
downturn
3.3.2.2.Recommendations relating to the impact of country specific factors in Vietnam.
a. The immediate recommendations
Firstly, continue to tighten the registration of FDI
Secondly, focus on macro-economic instability, with particular emphasis on
stability, control inflation and stabilize the exchange rate.
Thirdly, in the context of crisis and economic recession, Vietnam needs to find
additional sources of foreign direct investment in new technology should consider
leveraging the expansion of foreign direct investment from countries other developing
countries or economies in transition
b.Long-term recommendations
Medium and long term strategy of the Party and the State is in 2020, basically our
country becomes industrialized, modernized. To serve this purpose, the role of FDI is
very important. Foreign direct investment inflows are meaningful and long-term
investment which is not as flexible as indirect factors, and has long-term impact, will
play more significant role. The recommendations concerning the factors affecting FDI
to enhance the efficiency in attracting FDI for industrialization, modernization and
sustainable development, including:
- Factors related to human resources

Firstly, Vietnam needs to improve the quality of human resources through training,
skills development, improve the quality of the population, improving income.


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Secondly, the need to enlist the help and cooperation from the country investors
and multinational companies through the development of effective policy framework or
technology transfer and human resource development at the same time the policy should
enabl employees to improve education, continue to promote the preferential policies for
tuition for pupils and students. Responsibilities associated with investment in training
are neccessary. Investors should continue to train human resources with funding from
the state budget or from major investors and employees.
Thirdly, navigation training thinking that the market should not train its means, ie
to switch to training needs of businesses, especially FDI.
State relationship - business, the State should develop policies to support
workforce training for businesses, such as cutting tax for the firms having self-trained
technical resources, tax exemption with the goods, business equipment that serves the
purpose of importing trained technical manpower of high quality, enhanced information
for businesses, promoting and improving the relationship between foreign investors
outside and the training facilities, schools.
- Factor related to the investment environment, infrastructure and political
stability
Firstly, the need to continue to improve the investment environment, improve
economic institutions.
Secondly, the Government of Vietnam should have policies to provide better
public services through improved infrastructure system.
Thirdly, improve the environment of investment by enhancing political factors.
Finally, the implementation of policies to remove administrative barriers to FDI
-Concerning the natural resources

Firstly, make the most of non-renewable resources, avoiding waste. Many natural
resources are non-renewable or mostly nonrenewable such as minerals, oil should be
exploited carefully, avoiding waste.
Secondly, to enhance policies of mining use, recovery resources are renewable
resources such as forests, water resources and marine products, forestry products ...
Thirdly, look to deploy orientation of direct investment is not intended to into
exploitation of natural resources, especially non-renewable resources. This is one of the
undertakings, the general policy of the State of Vietnam did and are doing. Specifically,
enhanced FDI into industry from normal processing industries to processing industries
using high technology such as electronics, telecommunications, manufacturing
machinery ...
In addition, Vietnam should also focus on improving local content in products
made by FDI enterprises, avoid exporting raw and semi-processed products. Building
materials, material inspection center, participate in exchanges of international materials,
actively participate in international cooperation on environmental protection.
Finally, the need to strengthen measures to protect the environment, mounting
responsibilities of investors with national standards relating to the environment and in
line with international practices.
- Factors Related to Corruption
Firstly, the salary and incentive payments account for transactions related to FDI
public.
Secondly, public property officers and employees related to FDI.


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Thirdly, strengthen the monitoring mechanism, monitoring behavior, lifestyle of
the administrative staff of the state related to FDI.
Fourthly, the need to raise the salaries of staff in general, staff in customs
enforcement officials say the private investment license.

Fifthly, to legalize lubrication in charge of economic activities, especially FDI
activities.
Finally, it called for the support of all the people in the fight against corruption.
3.3.2.3. Group recommendations concerning a number of other factors that affect FDI
Firstly, promote the improvement of the institutional and economic goals for the
country's economic development.
Secondly, to take advantage of favorable geographical position, to built new ports.
Finally, other factors such as the enforcement of intellectual property rights, the
privatization process, the level of democracy in the economy also affects the inflow of
foreign direct investment into developing countries. Specifically, Vietnam needs to
strengthen legal systems relating to intellectual property rights, in particular intellectual
property rights related to FDI and enhance market liberalization, accelerate the process
of privatization, sustain democracy in the economy in order to create a favorable
investment environment to attract more efficiently FDI.


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D. CONCLUSION
Effective attraction of FDI is one of important objectives of all countries in the
context of the current international integration. However, in order to attract FDI for
economic development, recipient developing countries need to identify the factors that
affect capital flows so that by changing the factors that attracted efficiency FDI results,
especially in the context of crisis and world economic downturn.
On the basis of a baseline study of factors affecting FDI of factors including the
overall impact, the impact factor approach from the perspective of the investor and the
factors affecting recipient countries, Post graduant build economic regression model
with the variables having the actual value collected in panel data and by the method of
regression models to verify impacts of some factors affecting this capital flows. These
conclusions agree with previous studies concerning major factors affecting foreign

direct investment such as population size, education levels, purchasing power have
positive impact on FDI into developing countries .. Basically, FDI into developing
countries still preferred market size, cheap labor, but tend to change: the investment
which prefers workforce qualification plays more and more important role. In addition,
the political stability also influence investors' decisions. As for corrupt elements, this is
a social and economic phenomenon complex and psychological factor. So government
should promote transparency of the transaction, especially publicly, legalize the
expenses that has long not been clarified. Post graduante has also mentioned some
recommendations for strengthening the attraction of FDI through improving the
effective impact of factors affecting capital flows, such as capacity building of the
workforce, strengthening internal unity and international solidarity to political stability
and legalization fee lubrication ....
Currently, the databes are small, so the effect of research on the determinants of
FDI in the country over time is not feasible (too few sample observations), some
important variables are missing. In the future, when the database will be more complete,
post graduante will conduct new research with the samples of individual countries. In
addition, post graduante will add additional variables to the model, reflecting the impact
of other factors such as salary rates, geographic location, historical factors (already
colonized or not investment in the host country), the language factor (labor skills,
English is native languegue or not), the privatization, especially the effectiveness of
programs to promote investment in the investment ... .