Tác động của đầu tư trực tiếp nước ngoài (FDI) tới biến động kinh tế vĩ mô ở việt nam tt tiếng anh

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INTRODUCTION
1. Research significance
Many theoretical and practical studies confirm that FDI has both positive and negative
impacts on the economy, especially the economy of developing countries, creating the
economy’s macroeconomic fluctuations. FDI has a positive impact on the receiving country
when capital is invested in production, trade, productivity improvement, import and export
promotion, management experience transfer, advanced technology, spillover effects creation
in developing markets and domestic enterprises, job creation, economic growth promotion,
budget revenues increase, etc. contributing to creating macroeconomic stability. However, the
studies also prove that FDI in highly speculative sectors such as real estate, securities, etc.
can cause inflation, exchange rate fluctuations, "dollarization" phenomenon, "Bubble" of the
stock and real estate market, etc. The fact that many FDI projects are the same in localities,
the big difference between registered capital and implemented capital, the phenomenon of
"price transfer" and early registration high investment but not using external capital but
mobilizing capital from receiving countries in FDI enterprises due to poor management,
causing negative impacts on domestic production, the ability to effectively use investment
and financial capital state production, the independence of the economy from the outside and
the sustainability of the economic structure, etc. which then can lead to macroeconomic
instability in the country receiving FDI.
Vietnam, after more than 30 years of implementing "Doi Moi", especially after the
Foreign Investment Law was established (in 1987), supplemented and modified many times,
has attracted a large amount of FDI for economic development. Studies show that FDI
contributes positively to the economy of Vietnam, contributing to growth promotion, job
creation, and international integration, actively and positively contributing to macroeconomic
stability. However, in the period 1991 - 2017, together with the increasing FDI into Vietnam
both the number of projects and registered capital, implemented capital, Vietnam also
witnessed periods of macroeconomic instability (the period 1991 - 1994, 1995 - 1999, and

2008-2013), especially since the financial crisis and world economic recession in 2008. In the
period 2008-2013, Vietnam's economy revealed macroeconomic instabilities situations such
as: high inflation, volatile exchange rate, unstable payment balance, large budget deficit, etc.
These are the fluctuations of the macro economy that are attributed to present and from
previous years. This raises the question of how FDI relates to macroeconomic fluctuations in
Vietnam.
The answer to the above question as well as a comprehensive and profound assessment
of the impact of FDI on macroeconomic fluctuations in the period of 1991 - 2017 in current
conditions is necessary because FDI is playing a very important role for Vietnam's economic
development. In the coming time, attracting FDI is still a big target of Vietnam, as well as
Vietnam will still be an attractive investment destination for foreign investors, while
Vietnam's current top target and the next is macroeconomic stability, ensuring fast,
sustainable, high quality, and long-term growth. Therefore, the study contributes to giving a
comprehensive view on FDI and the relationship between FDI and macroeconomic
fluctuations in Vietnam, thereby drawing the cause, proposing solutions to attract and use FDI
effectively in the next stages to ensure macroeconomic stability, contributing to the
implementation of Vietnam's macro-economic goals in the coming time.
There have been many studies on the positive effects of FDI on socio-economic
development; as well as studies that mention the negative impact of the FDI on economy,
society, and environment in each aspect separately. However, there has not been any

comprehensive and profound research on the impact of FDI on macroeconomic fluctuations
in the period of 1991 - 2017 in Vietnam on many aspects and relationships.
Therefore, the topic "The impact of foreign direct investment (FDI) on
macroeconomic fluctuations in Vietnam" is chosen to be the thesis topic.
2. Subjects, objectives and scope of research of the thesis
2.1. Research subjects
Impact of FDI on macroeconomic fluctuations in Vietnam.
2.2. Objectives of the study
The research topic focuses on the following objectives:

- Systematize the theory of FDI, macroeconomic fluctuations, and the impact of FDI
on macroeconomic fluctuations of an economy.
- Analyze and evaluate the situation of attracting and using FDI, the situation of
macroeconomic fluctuations and the impact of FDI on macroeconomic changes in Vietnam
from 1991 - 2017.
- Propose solutions to attract, manage, and effectively use FDI, take advantage of
positive impacts and limit negative effects of FDI on Vietnam's macroeconomic situation in
the coming time.
2.3. Research scope
- Regarding the scope of content: Studying the situation of attracting, using FDI and
Vietnam's macroeconomic fluctuations in the period of 1991 - 2017 through the evaluation of
both single macroeconomic indicators (GDP; inflation; budget deficit; exchange rate
fluctuations) and aggregate macroeconomic instability index (MII macroeconomic instability
index proposed by Ismihan et al (2002). Assessing the level of FDI impact on Vietnam's
macroeconomic fluctuations in the period 1991 - 2017 through assessing the impact of FDI on
single macroeconomic indicators and MII aggregate index.
- About the scope of space and time: The study was conducted at the national level of
Vietnam from 1991 to 2017. The thesis selected this period because in 1988 when Vietnam
started to implement the Investment Law. However, not until 1991 did registered FDI capital
begin to disburse. In 2017, the study is full of statistics.
3. Research methods
- By using Eview software 8.0 to estimate the impact of FDI on macroeconomic
fluctuations in Vietnam through the impact of FDI on single macroeconomic indicators and
impact on the macroeconomic instability index. (The contents of the steps conducted under
this method will be presented in chapter 4 of the thesis).
- Statistical methods, described from official and reliable data sources to assess the
status of attracting and using FDI in Vietnam; Vietnam's macroeconomic situation in the
period of 1991-2017 through single macroeconomic indicators and macroeconomic instability
index (MII).
4. The scientific and practical significance of the thesis

(1) In theory:
- Generalizing the theory of macroeconomic volatility, how to measure
macroeconomic fluctuations, indicators representing macroeconomic fluctuations. There is a
study on macroeconomic fluctuations but not a comprehensive overview of indicators that
represent macroeconomic volatility and a measure of concentration that focuses on one or
several single macroeconomic indicators.
- Generalizing the theory of the impact of FDI on macroeconomic fluctuations. There
are many studies on two separate issues: FDI and some indicators of macroeconomic
fluctuations, or just generalizing the theory of FDI impacts on several individual


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macroeconomic indicators. Until now, there has not been any research to assess the theory of
the impact of FDI on the overall macroeconomic indicators that are considered to represent
macroeconomic changes.
(2) In practice:
- The thesis evaluates and analyzes relatively comprehensively the situation of
attracting, using FDI, the situation of macroeconomic changes and the impact of FDI on
macroeconomic changes in Vietnam in the period of 1991 - 2017. Using the formulas to
calculate the macroeconomic instability index (MII) of Vietnam in the period of 1991 - 2017.
At the same time, using the quantitative model to show the variables to show or measure the
variable level macroeconomic dynamics of Vietnam; points out the factors affecting
Vietnam's macroeconomic fluctuations in the period 1991 - 2017.
- Through the quantitative model, the thesis presents the results of assessing the impact
of FDI on Vietnam's macroeconomic fluctuations in the period of 1991 - 2017.
- Based on the results of analysis and evaluation, the thesis proposes solutions to
attract, manage and effectively use FDI, take advantage of positive and limit negative impacts

of FDI, aiming at the goal stabilize Vietnam's economy at a high level in the next period.
(3) New contributions of the thesis
- In the context of many studies showing the fluctuation of single economic indicators
to attract and use FDI, but very limited research topics in contrast are the impact of FDI on
single macroeconomics indicators for Vietnam like this thesis.
- Almost no research has evaluated the impact of FDI on macroeconomic volatility on
both single macroeconomic index and general macroeconomic index (economic instability
index - MII) of Vietnam in the period of 1991 - 2017 with data according to the quarter as
this thesis does. The empirical research results of the thesis have contributed to the theory of
the impact of FDI on Vietnam's macroeconomic fluctuations in the period of 1991 - 2017.
5. Structure of the thesis
In addition to the introduction, conclusion, summary list, references and appendices,
the thesis is divided into 5 chapters:
Chapter 1: Overview of research on the impact of foreign direct investment on
macroeconomic fluctuations
Chapter 2: Theoretical basis for the impact of foreign direct investment on
macroeconomic fluctuations
Chapter 3: Current situation of foreign direct investment and macroeconomic changes
in Vietnam in the period 1991 - 2017
Chapter 4: Impact of foreign direct investment on macroeconomic fluctuations in
Vietnam
Chapter 5: Orientation and suggestions for some policies for Vietnam

For expressing macroeconomic situation through a single macroeconomic index,
researchers often use indicators such as:
(1) Index of economic growth: The index commonly used to show economic growth
is: Gross domestic product (GDP). Ramey & Ramey (1995) and Acemoglu et al (2003)
studied macroeconomic fluctuations using the standard deviation of GDP growth rate per
capita. Di Giovanni and Levchenko (2010), and Van der Ploeg and Poelhekke (2009) use the
standard deviation of GDP per capita and exports measure macroeconomic fluctuations.

(2) Inflation index. Researchers such as Fischer (1991), Ramey and Ramey (1994),
Drugeon and Wignolle (1996), Azam (1997, 1999), Yiheyis (2000), Caballero (2007), Iqbal
and Nawaz (2010), and Shahbaz (2013) use inflation as a proxy for the macroeconomic
situation of the economy. Olaniyan (2000) also points out that inflation and inflation
fluctuations are important signals to assess macroeconomic instability in Nigeria and have a
negative impact on investment.
(3) Budget deficit index: Fischer (1993) considers budget deficits as a sign that the
Government cannot use tools to intervene in the economy, leading to macro instability.
(4) Exchange rate index. Campa and Goldberg (1995), Azid et al. (2005) select
exchange rates to consider the macroeconomic situation of the economy, whereby exchange
rate fluctuations make unsure investment decisions, so investors tend to wait for enough
information to decide investment, affect economic efficiency. Obstfeld and Rogoff (1998)
affirmed that exchange rate fluctuations increased trade costs and deficits, affecting economic
growth.
Some studies have used simultaneous review of single macro indicators. Fissher
(1993), Bleaney (1996) and Ismihan, Metin-Ozcan & Aysit (2002) in their study
simultaneously consider indicators such as inflation rate, budget deficit rate / GNP and foreign
debt ratio / GNP to assess the macroeconomic situation of the economy, thereby affirming the
increasing status of one of the above indicators, showing an economy with a macroeconomic
instability. Meanwhile, Sameti et al (2012) chose to observe the collection of variables such
as GDP, inflation, current account deficit, foreign exchange reserves and budget deficit to
determine the degree of macroeconomic volatility. In addition, Hausman & Gavin (1996),
using indicators such as GDP, investment and labor productivity to consider the level of
economic fluctuation of the economy.
1.1.2. Aggregate macroeconomic index
IMF (2001) also provides an overall index of vulnerability index (VI) to reflect the
macroeconomic fluctuations of an economy. This index is calculated based on the weighted
average of a set of indicators including: External sector index (proportion of reserves against
short-term debt, current account deficit; current account / GDP balance) , foreign debt / GDP,
foreign debt / export, REER exchange rate deviation); public sector index; financial sector

index; business sector index. Ismihan (2002) developed the macroeconomic instability index
(MII), using four indicators: inflation rate, foreign debt / GNP, budget deficit / GNP, exchange
rate, results of this index fluctuates from 0-1 to show macroeconomic fluctuations, if the result
is gradually going to 1 is big economic instability, progressing to 0 is economic stability.
Similarly, Jaramillo and Sancak (2007) also set the index of macroeconomic instability with
aggregate variables such as fluctuations of inflation, exchange rates, foreign currency reserves
against base money and budget deficits for GDP. In addition, Ali (2015) uses an aggregate
index including: inflation, unemployment, budget deficit and trade deficit to show
macroeconomic instability in Pakistan. In addition, IMF (2015) proposed the method of index
of growth reduction (GDVI) to quantify risk and assess the impact on macro variables,
especially the risk of external shocks impact on growth decline.

CHAPTER 1
OVERVIEW OF RESEARCH ON THE IMPACT OF
FOREIGN DIRECT INVESTMENT ON MACROECONOMIC FLUCTUATIONS
1. 1. The economic indexes that show the macroeconomic fluctuation of an economy
Domestic and foreign studies show that the macroeconomic fluctuation of an economy
is expressed by researchers through a single macroeconomic index or by observing a group
of macroeconomic indicators simultaneously or through a quantified index that is a set of
several single macro indicators.
1.1.1. Single macroeconomic index.


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1.2. Impact of FDI on macroeconomic fluctuations of an economy
1.2.1. Impact of FDI on GDP fluctuations
Chen (1979), Ahikpor (1990), Hill and John (1991) and Todaro (1994), Liu, Burridge

and Sinclair (2002), Wasantha Athukorala (2003), Jallab (2008), prove FDI has a positive
impact to the economic growth of developing countries such as: (1) FDI provides countries
to receive additional domestic investment, advanced technology and equipment or financial
support to import goods that they cannot be produced. (2) FDI can increase labor productivity
of countries that receive capital through technology transfer, provision of equipment and other
intermediary products for domestic producers and local labor training, engineers and
managers in investment-receiving countries. Besides, products of foreign companies
compensate for imported products, thereby reducing the trade deficit. (3) FDI enterprises
contribute significantly to the budgets of host countries; create jobs and increase income
directly or indirectly for local workers; promote demand for domestic products; consumption
of raw materials of domestic enterprises and export promotion of receiving countries, directly
or indirectly contributing to their economic growth. In Vietnam, Nguyen Van Tuan (2005)
assessed and discovered the impact of FDI on GDP growth, technology transfer, employment
promotion, economic restructuring, and increased exports and international relationship
expansion. Tran Minh Tuan (2010) evaluated the role of economic integration in attracting
FDI and the positive impact of FDI on the economy such as: promoting economic
restructuring; increase production capacity and industrial revenue; Contributing significantly
to the goal of creating jobs and improving the quality of human resources. Nguyen Phi Lan
(2006) proves that FDI affects Vietnam's exports during the research period. Nguyen Thi Tue
Anh (2006) shows that FDI has a positive impact on economic growth in Vietnam during the
period of 1986-2006.
1.2.2. Impact of FDI on inflation fluctuations.
Balasa (1964) and Samuelson (1964) noted the difference in productivity caused by
the difference in technological progress of FDI enterprises, resulting in faster labor
productivity growth in the commercial goods sector. Higher wages in these areas, which
spread to other sectors, put pressure on wage increases and other costs, directly impacting
inflation in the country receiving FDI. Takagi and Esaka (2001) and Reinhart and colleagues
(2008) conclude that when inflows are large and stable, certain impacts on money supply
growth will be exerted, thereby putting pressure on the inflation of the economy. Notably,
Kawai and Tagaki (2009) show that high inflows of capital, especially capital into highly

speculative industries, will increase credit, create hot growth and inflation, and influence
adversely affecting the goal of sustainable growth and ensuring price stability; causing many
risks of instability of the financial-banking system such as increasing bad debts in banks and
risks related to massive foreign investors withdrawing capital.
1.2.3. Impact of FDI on exchange rates
Researchers like Calvo, Leiderman and Reimhart (1993) tested capital inflows in
emerging economies in Latin America from 1988 - 1992, indicating that except Brazil, all
real exchange rates are countries in Latin America affected by FDI. Similarly, El Badawi and
Soto studied the impact of four separate factors: short-term capital flows, long-term capital
flows, indirect investment and FDI to Chile, resulting in long-term capital inflows and FDI
Significant impact on the exchange rate in this country. Javorick (2004) has other results when
it concludes that the spillover effect of FDI can also improve local production capacity
through technology transfer and management, thus reducing the pressure on the real exchange
rate. Biswas and Dasgupta (2012) examined the impact of capital inflows on India on the real
exchange rate using quarterly data in the period 1994-95Q1 to 2009-2010Q4, showing shocks

to FDI impact that has extremely long-term positive impact on real exchange rates, although
some stages are negative.
1.2.4. Impact of FDI on budget deficit
Rostow (1956, 1971) considered FDI as a source of capital, technology transfer and
budget deficit in countries receiving FDI, especially developing countries in the transition
process. FDI enterprises through direct and indirect business contributions (through
industries, support, supply and labor wages in FDI enterprises,...) into the state budget revenue
source. The budget deficit is a phenomenon of spending larger than revenue, so the increase
in FDI revenue for the budget will contribute to reducing the budget deficit.
1.3. Conclusion
As shown above, both qualitative and quantitative studies in the world and in Vietnam
have generalized the impact of FDI on macroeconomic fluctuations. However, there are some
research gaps for the thesis to implement, specifically:
First, in theory, the existing studies have not given the overall economic indicators that

show the macroeconomic fluctuations of an economy. Therefore, there is no research on the
overall theory of the impact of FDI on macroeconomic fluctuations of an economy.
Secondly, in practice, there are no studies using quantitative methods to assess the
impact of FDI on aggregate macroeconomic index (such as MII macroeconomic instability
index) which is a combination of some single macroeconomic index through a certain formula
to show Vietnam's macroeconomic fluctuations according to quarterly figures from quarter
4/1991 to quarter 4/2017.
Thirdly, there has not been any research based on the overall assessment of the impact
of FDI on macroeconomic fluctuations to propose solutions to enhance attraction and use of
FDI for macroeconomic stability objectives in Vietnam in general.
In order to continue to contribute to the current theoretical basis of the impact of FDI
on the macroeconomic volatility of an economy and fill the research gap, the thesis aims at
the following three research questions:
(1) What is the theory of the impact of FDI on the macroeconomic fluctuations of an
economy?
(2) Is there an impact of FDI on indicators showing macroeconomic fluctuations in
Vietnam in the period 1991 - 2017, if so, how does it affect?
(3) How to attract and effectively use Vietnam's FDI in order to limit the negative
changes of macro economy in the coming time?
CHAPTER 2
THEORETICAL BASIS FOR THE IMPACT OF
FOREIGN DIRECT INVESTMENT ON MACROECONOMIC FLUCTUATIONS
2.1. Foreign Direct Investment
2.1.1. Concept and classification
There are many studies in the world on FDI, including the concept of FDI, an overview
of the concepts of OECD (1999), UNCTAD (1999), IMF (2011) ... that basically show that
the above definition has the following key characteristics: (1) is the flow of investment capital
(money and assets) mainly due to transnational companies moving from one country to
another, leading to an increase in money quantity and property of the host country. The
investment time of FDI is long-term, stable and highly binding, not favorable for the

withdrawal of capital as commercial loans, or other indirect investment. (2) The transfer of
this capital through the establishment of new enterprises (FDI enterprises), business
cooperation contracts, and acquisition of existing branches or businesses, purchase of shares


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at controlled or advanced operating mergers and acquisitions. (3) Foreign investors are wholly
or jointly owners of investment capital with a certain percentage sufficient to participate in
direct management of enterprises' operations and directly control and administer the
movement process of investment capital flow. Therefore, investors are responsible for
investment capital as well as profits or risks of the process of investing that capital flow. (4)
FDI is a private investment activity, subject to market relations on a global scale, less affected
by political relations between countries, governments and organizational objectives. The
version is always profitable. FDI does not create high-interest debt or political, social, or
military-binding requirements between the investment and the recipient country. (5) FDI is
considered both from an external investment into a country and from outside the country.
External capital may be part of the profit of the investment or the process of withdrawing
investment capital from the country or moving to another country.
Regarding FDI classification, according to Vietnam's Investment Law (2005), FDI
classification includes: Business cooperation contract; Venture business; Enterprises with
100% foreign capital; Form of investment in buying shares or merging or acquiring
enterprises. In addition, governments now encourage foreign investors to participate in other
forms of investment such as BOT (Construction - Exploitation - Transfer), BTO (Construction
- Transfer - Exploitation) and BT (Construction - Transfer), etc. Forms classified according
to Vietnam's investment law are the basis for the thesis to describe the situation of FDI in
Vietnam in the period of 1991 - 2017.
2.1.2. The determinants of FDI

There are many studies both theoretical and empirical about the determinants of FDI
including: (1) Scale of the country receiving investment. (2) Openness of the economy. (3)
Cost and labor productivity. (4) Political risks. (5) Infrastructure. In addition to the above
factors, other factors also have an impact on attracting FDI of the investment recipient
countries such as: Corporate income tax; the elements of international investment
environment. The elements belong to the investment country. The macroeconomic policy of
the country has investors including financial policy - monetary impact on real interest rates,
inflation ...; import and export policies and foreign exchange management; the policy of
promoting foreign investment by foreign investors is a big decision to the foreign investment
decision of foreign investors.
2.1.3. Impacts of FDI on the recipient country
FDI has been recorded to have positive and negative impacts on countries that bring in
capital to invest abroad, specifically: Positive impacts: FDI replenishes domestic capital for
economic growth, in which FDI helps increase resources investment capital for production
and domestic industries and economic development, thereby boosting economic growth.
Secondly, the receiving country receives advanced and modern technology, technological
know-how and management skills. Thirdly, the investment recipient country has the
opportunity to join the global production network, in which not only FDI enterprises but also
other domestic enterprises having business relations with FDI enterprises also participate in
the assignment process. This is favorable for enterprises receiving investment to boost
exports. Fourthly, with the expansion of production from FDI, the number of jobs for people
increased, increasing income and thereby increasing domestic purchasing power. Moreover,
through FDI, local and investment-receiving projects, it is possible to increase the budget
contributed by FDI enterprises, as well as create stimulus to develop infrastructure for
attracting and using FDI in the host country. Negative impact: easily dependent on foreign
capital, technology, market and politics; must share their national interests, interests and

special resources with the investment country; the economy is out of balance; can become an
industrial waste dump of advanced countries.
2.2. Macroeconomic fluctuations

2.2.1. Concept of macroeconomic fluctuations
Through surveying the use of the phrase "macroeconomic fluctuations" in some
studies, the thesis uses the definition of expressing macroeconomic fluctuations for the
analysis and evaluation of the thesis content as follows : Macroeconomic volatility is the
growth or slump of an economy over a period of time, as shown by changes in single
macroeconomic indicators and aggregate macroeconomic indicators, including: GDP,
inflation, exchange rate, budget deficit, and macroeconomic instability index.
2.2.2. Factors affecting macroeconomic fluctuations
Considering macroeconomic instability as a phenomenon of macroeconomic
fluctuations, research of Ha Thi Thieu Dao (2013) shows that there are both internal factors
(monetary policy, fiscal policy and combination) and external factors (openness, integration
of the economy with the world; inflows and foreign trade rates) affect macroeconomic
instability.
Particularly for the external factors, the level of integration of the world economy for a
country's macroeconomic situation, not only causes macroeconomic instability (when there is
a crisis) the world economy) (Mauro and Becker, 2006) but also create macroeconomic stability
(when the world economy flourishes, helping the country promote exports, receive investment
capital, ...). Thus, basically, the researches unified the factors affecting macroeconomic
changes, including: monetary policy; fiscal policy (Fatas and Mihov 2006, 2007 considers these
factors a direct impact of macroeconomic fluctuations); the combination of monetary and fiscal
policies; the level of openness and integration of the economy with the world; inflows
(including FDI inflows) and foreign trade.
2.2.3. Show macroeconomic fluctuations
2.2.3.1. Single macroeconomic indicators show macroeconomic fluctuations
Overview of research shows that indicators such as GDP, inflation, budget deficit,
exchange rate fluctuations, etc. are often selected by some studies to represent
macroeconomic fluctuations in some related studies.
2.2.3.2. An index combining single macroeconomic indicators.
There are some indicators selected by researchers to represent the situation of
macroeconomic fluctuations of the economy, specifically:

Index of macroeconomic instability (MII): MII was developed by Ismihan et al. (2002)
based on the method of developing the HDI index of UNDP (1992), based on data of 4 single
macroeconomic variables Retail includes: Inflation rate, budget deficit / GNP; foreign debt /
GNP and exchange rate fluctuations, to calculate the value of MII in 2 steps:
Step 1. Calculate the component indicators according to the following formula:

With It the index index value of the macro variable X in year t; Xt is the value of the
macro variable X year t, Xmin (Xmax) is the smallest (largest) value of the macro variable X in
the whole period. The component index value of the macro variable X will be in the range of
0 to 1 (0≤ It ≤1).
Step 2. Calculate MII by simple average of the component indicators.
MII = (It1 + It2 + It3 + It4) / 4


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The above formula shows that 0≤ It ≤1 should 0≤ MII ≤1, this is explained: the lower
the value of MII is 0, the lower the level of macroeconomic instability, and the closer it gets.
By 1, the macroeconomic instability is higher.
The index of macroeconomic instability (mii) proposed by Jaramillo and Sancak (2007)
is based on 4 macroeconomic indicators including: fluctuations of inflation rate, exchange
rate, reserve accumulation rate compared to base money and the ratio of budget deficit to
GDP:

FDI increases capital production, investment, modern technology, technology transfer
and good management will increase labor productivity, reduce waste in production, and create
investment effects on mechanics. Certain infrastructures serve production, which helps
businesses do business effectively, generate large profits, contribute to paying taxes to

contribute to the state budget and limit public investment in infrastructure, and training of
human resources, etc. In addition, through increasing investment capital, technology and
training human resources, increasing labor and income for people and opening new
opportunities for industries and sectors newly born, increasing the number of businesses and
business households, thereby increasing budget revenue. Combining expenditure reduction,
increasing budget revenue, contributing to stabilizing the state of budget deficit.
2.3.3. Impact of FDI on inflation fluctuations
In the situation of inflation economy, FDI in manufacturing sector has a positive
impact on stabilizing inflation according to the impact channels: FDI in manufacturing
reduces budget deficit and deficit. The decrease in budget reduces the pressure of increasing
money supply, which also contributes to reducing inflation due to high money supply. FDI
invested in production with modern technology, advanced management ... increases labor
productivity, increases the competitiveness of goods and attracts other investors to the
manufacturing sector. This affects inflation stabilization through two channels: (1) reducing
inflation from the causes of pull demand. Due to the increasing supply (more people
producing and increasing productivity and quality), balancing the aggregate demand, thereby
reducing the level of pull, bring about equilibrium, thereby stabilizing inflation; (2) reducing
inflation from pushing costs. Main modern technology, good management, etc. has reduced
product prices, which is the basis for reducing selling prices, limiting pushing costs to
consumers, contributing to reducing inflation due to pushing costs. However, outdated
technology FDI increases the budget deficit, leading to pressure to increase money supply,
directly affecting inflation. In addition, due to low productivity, raw products, poor quality
management, waste, etc. this makes product prices rise, affecting inflation.
2.3.4. FDI impact on exchange rate fluctuations
FDI impacts on exchange rate fluctuations through channels such as FDI affecting
inflation, causing inflation pressure to cause exchange rate fluctuations. The next channel,
FDI affects the balance of payments through impact on current accounts and capital accounts.
For the impact on the current account, the trade balance is part of the current account, while
the previous study shows that FDI has an impact on exports and imports, which in turn has
an impact on the trade balance. Therefore, FDI affects current accounts. In terms of the impact

of FDI on capital accounts, it is clear that implemented FDI contributes directly to the capital
account, so FDI has a direct impact on the capital account. With the direct impact on the
capital account, indirectly on the current account, it can be concluded that FDI affects the
balance of payments of an economy.
2.3.5. Impact of FDI on aggregate macro index
First, FDI impacts on single macro indexes that constitute components of the general
macroeconomic index that can be in the same direction or opposite to single indexes
constituting the aggregate macroeconomic index; the balance between the same direction and
the positive direction will be the result of assessing the impact of FDI on the aggregate
macroeconomic index.
Secondly, analyzing the impact of FDI on macro indexes by quantitative analysis
through mathematical model. In which, the general macro index is the dependent variable,
FDI and the variables represent the cause of macroeconomic situation (internal and external

mii: macroeconomic instability index at time t; Ln: natural base logarithm; CPI:
consumer price index; er: exchange rate of national currency against USD; res: international
reserve amount; bm: base money; fbal: state of budget deficit; gdp: nominal GDP; σ: standard
deviation of each variable.
The index of growth reduction (GDVI) was set by IMF in 2015 to quantify the risk and
assess the impact on macro variables, especially the risk of external shocks affecting the
decline. This method is described by Le Thi Thuy Van (2016) following the following
steps:(1) Determining the period of external shock occurrence and defining growth crisis;(2)
Select regional indicators including real GDP, overall fiscal balance, growth in partner
countries and foreign exchange reserves; (3) Build a aggregate index based on the
combination of warning signals emitted from component indicators when this index exceeds
the threshold and determine the proportion of the component index, contributing to only
synthesis number.
Overall vulnerability index (VI): an index built on the weighted average of a set of
indicators including: External sector index (proportion of reserves against short-term debt,
deficit) current account, current account/GDP, foreign debt/GDP, foreign debt/export, REER

exchange rate deviation; public sector index; financial sector index; business sector index.
2.3. Theoretical basis of the impact of FDI on macroeconomic fluctuations
2.3.1. The impact of FDI causes fluctuations in GDP
Based on the formula GDP = NX + G + C + I (NX = Export - Import, G: government
spending, C: consumption; I: social investment), obviously FDI contributes capital
investment for the total social investment capital (I), this is a factor that directly affects GDP
and indirectly through exports when FDI contributes to increasing labor productivity,
enhancing product quality and reducing prices (due to reduced production costs) increased
competitiveness for export goods, thereby increasing export value. Moreover, FDI helps the
host country to convert the structure of export products from simple and low-value goods to
high value export goods. FDI also helps connect host countries in the global value chain. At
the same time, through this activity, FDI enterprises import auxiliary materials and equipment
from enterprises of investment-receiving countries, making export value increase. In addition,
FDI contributes to market expansion for host countries. Accordingly, FDI enterprises often
export back to their countries and other major markets of enterprises that produce goods in
investment-receiving countries, making these countries expand their markets in investment
countries and other major markets, this directs domestic enterprises to receive investment to
find ways to approach these markets more conveniently.
2.3.2. Impact of FDI on fluctuations in budget deficits


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factors) are independent variables. Based on quantitative results to analyze the level of FDI
impact on the aggregate macro index.
CHAPTER 3
FOREIGN DIRECT INVESTMENT AND VIETNAM'S MACRO-ECONOMIC
PERFORMANCE IN THE 1991 -2017 PERIOD

Basically, almost all provinces and cities of Vietnam have attracted FDI with different
forms of investment, many of which have become centers of FDI projects. However, localities
with better infrastructure have attracted greater FDI, such as Dong Nai, Binh Duong and TP.
Ho Chi Minh, Hanoi, Hai Phong. While mountainous and rural localities are less attractive to
FDI projects, causing imbalance in attracting FDI in Vietnam.
3.1.5. Investment sector
FDI is present in almost all economic sectors of Vietnam, in which the processing and
manufacturing industry has the largest number of projects and investment capital. This sector
increased very rapidly in the period 1988- 2004, 2005-2011 and 2012 - 2017, particularly in
the period of 2012 - 2017, nearly 4 times higher than the number of projects and registered
capital compared to the period 1988 - 2004. The field of creating new value also increased
very quickly, such as trade, repair and production, distribution of electricity, gas and water,
with a period of up to 10 times in both capital and investment registration projects. .
Transportation, warehousing and communication also increased rapidly in terms of number
of projects and registered capital, creating a favorable investment environment for FDI
attraction, especially for commercial purposes (when transportation costs are low). More,
more convenient ...). The areas related to the service industry, professional activities, science
and technology ... all have a large number of investment projects compared to other fields.
These areas directly create new values are those areas where registered FDI projects increase
rapidly, indicating that FDI in Vietnam is being attracted in the right direction. However, in
the 1988 - 2017 period, the field of real estate, hotel and restaurant business has a number of
registered FDI projects accounting for only 5.15% of the total projects, but accounting for
20.45% of the total business, ranked second after manufacturing, processing and
manufacturing.
3.2. The situation of macroeconomic changes in Vietnam 1991 - 2017
3.2.1. Assessment based on single macroeconomic indicators
3.2.1.1. Movement of economic growth
In the period of 1988-1991, economic growth was unstable, due to instability from the
previous period, especially the collapse of the Soviet Union and Eastern European countries,

strongly affecting the socio-economic situation of Vietnam. However, in the period 1992 1994 there was a continuous breakthrough, if in 1991 Vietnam still had to borrow food, then
in 1992 became the third rice exporter in the world, this period has many policies. Vietnam's
economy began to bring about positive results. In the period 1995-1998, the highest GDP
reached in 1995 (reaching 9.54%, the highest level up to the present time, considered to have
positive results from the previous period), but from 1996 onwards due to the impact of
financial crisis in Asia, Vietnam's GDP fell sharply, causing macro instability. The period
1999 - 2000 was marked with the lowest level of GDP reduction (only 4.77%), also the year
ending the impact of the regional financial crisis. In 2000, the economic growth rate started
to rise again due to the more stable situation. In the period 2001 - 2007, Vietnam's economy
continued to grow at a high level, the highest level was 8.5%, this is the period when Vietnam
increased international integration, export value was boosted, along with with an increase in
the number of businesses from different economic sectors. However, stepping into the period
of 2008 - 2011, when the world economy and Vietnam recession since 2008, a number of
large export markets of Vietnam have difficulties, along with public debt and inflation issues.
increase ... so the economic growth rate after 2007 decreased significantly. From 2012 to
2017, Vietnam has accelerated the implementation of macroeconomic stabilization policies,
controlled economic situation, and the world economy is gradually recovering, making

3.1. The situation of attracting and using FDI in Vietnam from 1991 - 2017
3.1.1. Investment license
After the Foreign Investment Law in Vietnam was established in 1987 and amended
in 1990, 1992, 1996, 2000, 2006 and 2014, Vietnam attracted a large number of FDI projects.
By the end of December 2017, the number of valid FDI projects in Vietnam was 24748, with
a total registered capital of USD 318722.62, an average of USD 12.878 million per project.
In particular, the period from 1988 to 1991 number of FDI projects attracted 363 projects with
a total registered investment capital of about 2,895 million USD, on average each project is
about 7,875 million USD. However, until 1991, the newly registered capital amount was 329
million USD, quite small compared to the total registered capital. The period from 1992 to
1994. Vietnam attracted a large number of investment projects, in particular: in this period,
Vietnam attracted 842 projects, with total registered and increased capital of about 9.434

billion USD, On average, each project reached 11.2 million USD, the average capital growth
rate reached 50%, the disbursed capital reached 3,634 billion USD (accounting for 38.52% of
registered capital).
Period from 1995 to 2000. In the world, developed countries tend to increase
investment in emerging and transforming economies such as Vietnam and Eastern Europe.
However, since 1997, due to the Asian financial crisis began to adversely affect the offshore
investment activities of Asian investors, which are major investors of Vietnam. Period from
2001 to 2007: has attracted 6466 FDI projects, with a total registered and increased capital of
54,073 billion USD, an average of each project is 8.36 million USD. Disbursed capital
reached nearly 50% of the total registered capital. The period from 2008 to 2011. 2008 was
the most successful year of Vietnam in attracting FDI when the number of registered projects
reached a record of 1,557 projects, the highest registered capital up to this stage with the
number of 71,726. billion USD and disbursement reached 11.5 billion USD. In the period of
2012 - 2017, the total FDI projects attracted 11822 projects, with registered capital reaching
USD 143.638 billion, an average project of USD 12.15 million, disbursement reached USD
81.874 billion, accounting for 57% of registered capital.
3.1.2. Investment form
FDI in Vietnam exists in different forms, including: 100% foreign-owned enterprises;
joint venture; BOT, BT and BTO contracts; contract of business cooperation; joint-stock
companies and parent-child companies. Most foreign investors who invest in Vietnam want
to establish 100% foreign-owned enterprises, BOT, BT and BTO forms are quite few foreign
investors registering even though the Government of Vietnam is encourage these forms,
especially for infrastructure construction projects.
3.1.3. Investment partner
Vietnam has attracted investment from thousands of corporations and enterprises from
125 countries and territories, mainly from Asian countries such as Japan, S.Korea, Singapore,
Hong Kong and ASEAN. ... (where technology is not high) accounts for about 75% of total
FDI. While FDI from developed countries like the US, EU, Japan is not high.
3.1.4. Investment areas

13
Vietnam economy to gradually increase again. In 2016, Vietnam GDP reached 6.43%, 2017
increased to 6.81%.
3.2.1.2. Inflation fluctuations
The period 1991-1995 witnessed a strong fluctuation of inflation when from very high
(81.8% in 1991) to a low of 8.4% in 1993 and then increased to 16.9% in 1995. Since 19961998 showed that inflation had uneven fluctuations but then stabilized below 10%. From 1999
to 2000, the situation of inflation fell sharply, falling to the lowest, even in 2000 inflation was
down to 1.71%. In the period of 2000 - 2006 (before Vietnam joined the WTO), Vietnam's
inflation was relatively stable at one-digit level, this is the period of world and Vietnam
economic growth stable and high level. economic growth momentum. The period of inflation
fluctuates the most from 2007 to 2012, inflation increases and decreases with a big difference
between the previous year and the following year. Since 2012, the Government of Vietnam
has strengthened measures to curb inflation and boost economic growth, so inflation is
maintained at a low level. In addition, the economic situation has been restored, prices of
some strategic commodities have dropped sharply, especially oil, making the overall price
level better controlled and inflation under control.
3.2.1.3. Fluctuations of the budget deficit
For 27 consecutive years, Vietnam has a budget deficit, between 2000 and 2005,
although the budget deficit is at a safe level, but close to the permitted level (5%), from 2006
- now and deeply Budget deficits continue to increase, despite significant improvements. This
is a potential manifestation of macroeconomic changes, especially in the period of 2007 2011 and 2012 - 2016.
3.2.1.4. Exchange rate fluctuations
The exchange rate of Vietnam Dong and US Dollar increased sharply, especially in the
period of 1990 - 1994 and 1996 - 1999, corresponding to the fluctuations of the world
economy, adjusting the monetary policy of Vietnam in the average. stabilizing inflation and
promoting growth.
3.2.2. Macroeconomic volatility of Vietnam through MII index
To quantify the macroeconomic situation of Vietnam in the period 1991 - 2017, the
thesis uses MII formula as proposed by Ismihan et al. (2002), specifically:

1991Q1
1992Q1
1993Q1
1994Q1
1995Q1
1996Q1
1997Q1
1998Q1
1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
2014Q1
2015Q1
2016Q1
2017Q1

0.7

0.6
0.5
0.4
0.3
0.2
0.1
0

Figure 3.1. Index of macroeconomic instability of Vietnam in the period 1991 - 2017
Table 3.1. Proportion of component indicators in MII (%)
Exchange
Foreign
Budget
Period
Inflation
Total
rate
Debt/GNP
deficit/GNP
100%
1991-1994
6,66%
43,54%
34,58 %
15,22%
100%
1995-1998
14,84%
43,75%
14,27 %

27,14%
1999-2000
18,64%
31,28%
7,14 %
42,94%
100%

14
2001-2006
2007-2013
2014-2017

23,27%
41,16%
24,94%

25,51%
11,03%
10,15%

1,83 %
1,62 %
1,29%

100%
49,39%
100%
46,19%
63,62%

100%
Source: Author calculate

3.3. The relationship between FDI and Vietnam's macroeconomic fluctuations
3.3.1. The relationship between FDI and fluctuations in GDP
According to the Ministry of Planning and Investment, the contribution of FDI to GDP
continues to increase, in 1992 the contribution rate of FDI in GDP was 2%, to 1995 reached
6.3%, in 2000 reached 12.7%, The whole period of 2001-2005 averaged 14.5%, the average
period of 2006 - 2011 reached 16.43% and the period of 2012 - 2016 reached an average of
17.59%. However, the reality shows that this capital source focuses on projects of
"processing" type, the value-added ratio of these projects is not superior corresponding to
capital. This reduces the quality of growth. According to the formula GDP = NX + G + C + I
(NX = Export - Import, G: government spending, C: consumption; I: social investment). In
this study, the impact of FDI on GDP through aggregate demand is reflected in the
contribution of FDI to total investment and trade balance.
3.3.2. The relationship between FDI and inflation fluctuations
In the period 1995-1999, 2002-2003, 2006 - 2011, the direction of implemented FDI and CPI
in the same direction increased, the rest of the other periods were reversed (FDI increased,
CPI decreased). Analysis of the relationship between FDI and CPI in Vietnam can analyze
the transmission channel of the impact of FDI on the cause of inflation, including analyzing
the impact of FDI on money supply M2 and impact on demand causing phenomena. dual
bridges and push costs.
3.3.3. The relationship between FDI and exchange rate fluctuations
The factor that directly affects the exchange rate in Vietnam is the supply and demand for
money, but it affects the supply and demand of this currency due to factors such as: inflation
and interest rate differences between the two countries; deficit / balance of payment surplus;
the situation of economic growth and recession; Psychological factors and speculative
activities. Among these causes, FDI has an impact on Vietnam's inflation and payment
balance, which has an impact on exchange rate fluctuations. Impact on inflation has been
presented above. As for the impact on the balance of payments, which affects the current

account and capital account as follows: (1) Impact on current account: BoT is part of the
current account, in the trade balance (BoT) of FDI is always greater than current account, thus
concluding FDI contributes to limiting the current account deficit, increasing the balance of
payments, affecting Vietnam's exchange rate. . (2) Impact on capital account: FDI
implementation is 01 component of the capital account, the contribution of realized FDI to
capital accounts increases steadily over the years and only in 2007, 2008 FDI value
implementation is lower than capital account, all other years are higher. Therefore, in this
channel, FDI has a positive impact on the balance of payments, thereby affecting exchange
rate fluctuations.
3.3.4. FDI relations and fluctuations of budget deficits
According to the formula: Budget balance = Budget revenue - Budget expenditure. In
particular, if the budget is larger than the budget revenue, it is called the "budget deficit". FDI
affects budget deficits, often known to have an impact on budget revenue. Vietnam budget
has 27 consecutive years of deficit and impact of many factors, including FDI, while FDI
enterprises have contributed significantly to Vietnam's state budget revenue in the period
2001 - 2017, the level of increase steadily over the years, contributing to increasing budget


15

16

revenue, limiting Vietnam's budget deficit. According to GSO statistics, in the period of 19942000, the value of budget remittance of FDI enterprises reached 1.8 billion USD, then
increased to 14.2 billion USD in the period 2001 - 2010 and to 23.7 billion USD. In the period
of 2011 - 2015, in 2017 alone, FDI enterprises paid 8 billion USD to the budget, accounting
for 14.46% of the total state budget revenue in 2017. However, the level of state budget
contribution of FDI enterprises is limited, with a close Average contribution in the period
2001 - 2017 reached 10.49%, while state-owned enterprises contributed 17.89%, private
sector contributed 10.3%.

4.2. Establishing model
The model to assess the impact of FDI on macroeconomic instability is as follows:
LnMIIt = α0 + α1LnOPEt + α2LnCPIt + α3LnFDIt + α4LnM2t + α5LnEXRt + et (1)
The model of assessing the impact of FDI on GDP is as follows:
LnGDPt = α0 + α1LnIMPORTt + α2LnEXPORTt + α3LnFDIt + α4LnEMPt + et (2)
For inflation, the model for assessing the impact of FDI on CPI takes the form:
LnCPIt = α0 + α1LnM2t + α2LnFDIt + α3LnEXRt + et (3)
The model of assessing the impact of FDI on the exchange rate is as follows:
LnEXRt = α0 + α1LnOPEt + α2LnFDIt + α3LnERVt + et (4)
In which: LnMII: Logarithm the natural base of macroeconomic instability; LnEXR:
Logarithm of natural bases of exchange rates; LnFDI: Logarithms the natural base of the value
of foreign direct investment; LnERV: Logarithm of natural base of foreign exchange reserves;
LnOPE: Logarithm the natural base of the openness of the economy; LnGDP: Logarithm of
the natural base of the value of gross domestic product; LnFDI: Logarithms the natural base
of the value of foreign direct investment; LnEXPORT: Logarithm of the natural base of export
value; LnIMPORT: Logarithm of natural numbers of Import values; LnEMP: Logarithm of
natural base of labor value; LnCPI: Natural logarithm of consumer price index; LnM2:
Logarithm of the natural base of money supply M2.
4.3. Impact assessment method
From the research overview and current situation of macroeconomic changes in
Vietnam in the period of 1991 - 2017, the thesis selected the process of assessing the impact
of FDI on Vietnam's macroeconomic changes through the use of Eview software 8.0
according to the following steps:
Step 1: Using stationaruty test method with Augmented Dickey Fuller test (ADF) test
to test stationaruty of each series of data described to perform regression for quantitative
analysis.
The model for ADF is:

CHAPTER 4
IMPACT OF FOREIGN DIRECT INVESTMENT ON VIETNAM'S

MACROECONOMIC FLUCTUATIONS
4.1. Description of data
Data used in this study were taken quarterly from the Q4 of 1991 - to the Q4 of 2017,
specifically as follows:
- Foreign direct investment (FDI): This index is taken from GSO, unit: Million USD.
This is the actual FDI data deployed in registered projects.
- Gross domestic product (GDP): source: GSO, unit: USD million. This is the actual
GDP data, reflecting Vietnam's economic growth over the quarters and years from 1991 to
2017. This value is calculated based on the consumption approach: GDP = I + C + G + NX
(I: total investment, C: consumer spending; G: government spending; NX = X (export) - M
(import)). The actual GDP value, not the value, is calculated by the general parity method
(PPP).
- Export (EXPORT): source: GSO, unit: Million USD. Export value is the export price
multiplied by the total export order, this index reflects the value of Vietnam's exports
(excluding service exports) abroad in the 1991 - 2017 period.
- Import (IMPORT): source: GSO, unit: Million USD. Import value is the import price
multiplied by the import order, this index reflects the value of Vietnam's imports from foreign
countries in the period 1991 - 2017.
- Macroeconomic instability (MII): This index is calculated in chapter 3 (section 3.2.2)
based on the formula proposed by Ismihan et al. (2002) based on 4 macroeconomic variables.
Single tissue includes: Inflation rate, foreign debt / GNP, budget deficit / GNP and exchange
rate.
- Openness of the economy (OPE): This index is calculated according to the formula:
Openness of the economy = (Export + Import) / GDP. In particular, the value of exports,
imports and GDP are taken from the above data.
- Consumer price index (CPI): source: IFS-IMF, reflecting the level of consumer price
increase in each period, thereby reflecting the level of inflation of the economy.
- Exchange rate (EXR): This data is taken from IFS-IMF, this is the nominal exchange
rate between USD / VND in each period.
- Foreign exchange reserves (ERV): Data source from IFS-IMF, unit: Million USD.

- Money supply M2 (M2): data source from IFS-IMF, single unit: Million USD.
- Labor source (EMP): This data is taken from GSO, the position: million people. This
is the number of people in the working age of Vietnam.
Depending on the different models, the data will be converted to natural base Log
format to perform regression impact assessment. The results of the data description show that
the data used for this analysis are reliable.

k

ΔYt = α0 + βyt-1 +



µ j Δyt-j + εt (1)

j =1

k

ΔYt = α0 + δt + βyt-1 +



µ j Δyt-j + εt (2)

j =1

In which Δyt-1 = yt – yt-1; Yt : Data series according to the time being considered; k :
Length of delay; εt : White noise
The model (2) has an additional trend variable on time t (this is a variable with the

value of 1-n, 1 is the first observation representation, n is the last observed representation of
the data series. White noise showing random errors arising from classical assumptions that
there is an average value of 0, since the variance is constant and not autocorrelated, the thesis
will test model (1) and ( 2) via Eview software with hypothesis hypothesis:
H0: β = 0 (yt is a non-stop data string);
H1: β <0 (yt is a stop data series).
Use the method of estimating the least squares Ordinary Least Squares regression
(OLS) provided that independent and dependent variables stop at Level level. In the case of
assessing the impact of FDI on the above indicators but there are more independent variables
that do not stop at Level level, the OLS method cannot be used, must be transferred to Step
2.
Step 2: Check the cointegration relationship between the data series according to the
individual impact assessment model of the variables according to Johansen Test (1991). For


17

18

each model, this approach is explained on the basis of two test statistics: Trace test and
Maximum Eigen Value Test.
Step 3: Check long-term and short-term relationships between impact assessment
models in two cases:
Case 1(without co-integration): Use VAR model to estimate short-term and long-term
relationships of data series. The VAR model considers all variables to be endogenous to build
relationships between them. Therefore, the VAR model measures the response and oscillation
of macroeconomic variables before each external shock. The VAR (p) model looks like the
following: Yt = φ1Yt-1+ φ2Yt-2 +....+ φpYt-p + BXt + εt
In which, Yt is the m-dimensional matrix, has the same integration, Xt is the quadratic
matrix of exogenous variables, p is the latency of Yt, φi is the square matrix m, B is the matrix

At the level of mxp number, εt is the average noise vector by variance Σ.
Case 2 (with co-integration): Using the VECM model (Model to adjust vector error)
to estimate the relationship between short and long-term chains of data series.
VECM model is a system of equations consisting of ECM equations, in which
variables are both independent and dependent variables. It can be expressed as follows:

ranges of data are satisfied. Therefore, the OLS method cannot be applied to models (1), (2),
(3), (4).
4.5. The impact of FDI on Vietnam's macroeconomic fluctuations.
Using the quantitative regression method from Eview software 8.0, the thesis evaluated
the impact of FDI on Vietnam's macroeconomic volatility through assessing the impact on
individual macroeconomic indicators including: GDP, inflation, exchange rate and aggregate
macroeconomic index (macroeconomic instability index - MII). Based on each model, the
thesis uses VECM model to assess the impact of FDI on specific indicators. For assessing the
impact of FDI on macroeconomic instability, the results show that FDI has both short-term
and long-term effects on Vietnam's macroeconomic instability, and checks Granger Test on
term causality shows that FDI and MII have a causal relationship with each other; however,
the degree of explanation in the variance decomposition of FDI for MII is low, the reaction
level of MII before the fluctuation of FDI is not large. This shows that, although there is an
impact on MII, FDI has a big impact on Vietnam's economic instability in the period 1991 2017. Contrary to the explanation from MII variance decomposition for FDI shows that MII
has a big role in attracting and disbursing FDI. For assessing the impact of FDI on single
macro indicators, causality tests show that FDI is related to GDP, CPI and exchange rates. As
for GDP, the results show that FDI has a strong and positive impact on both short-term and
long-term GDP, the degree of explanation in the variance decomposition of FDI for large
GDP, and the reaction level of GDP before the fluctuation of FDI shows that FDI is a positive
contributor to Vietnam's economic growth. As for the impact of FDI on the consumer price
index - CPI, the results also confirm that FDI has both short-term and long-term impacts on
CPI; FDI has a large degree of explanation for the CPI in the variance decomposition of CPI.
Therefore, it can be seen that FDI also plays a role in increasing Vietnam's CPI. Finally, for
the impact of FDI on exchange rates, the results show that FDI has a long-term and shortterm impact on the exchange rate. In addition, the level of reaction of the exchange rate to the

fluctuation of FDI and the degree of interpretation of FDI to the exchange rate in low variance
decomposition shows that FDI is not the main cause of fluctuations exchange rate of Vietnam
in the period 1991 - 2017.

p

ΔYt = β + Azt-1 +



Ki Δyt-i + μt

i =1

In which: μt is the white noise vector and zt = BAyt. Bayt reflects the long-term
relationship between the variables in the model. In equilibrium B’yt = 0, while at each time zt =
B is the imbalance of these long-term relationships. This is a characteristic error correction feature
when changes in a variable are related to a change in another variable as well as the distance
between variables in the previous period.
Step 4: Use Granger causality test to show the degree of causality of the indicators in the
function.
Step 5. Use the method of evaluating the reaction of micro-economic indicators for LnFDI
(Response of (Macroeconomics index) on LnFDI) and variance decomposition (Variance
Decomposition of Macroecconomics index) in cholesky order to type price impact of FDI on
macroeconomic index.
Step 6: Check balances from VECM and VAR models. Using LM tests for
autocorrelation, Heteroskedasticity VEC for residuals: Include cross-term and inverse roots of
AR-specific polynomials to test VAR and VECM models for stability and autism remaining and
feasible.
4.4. Stationaruty Test

To accurately determine the maximum delay step, the thesis uses the formula to
determine the maximum delay (Pmax) proposed by Schwert (1989) to use the unit root test
through the following formula:

From the above formula, the maximum delay step Pmax = [12 * (105/100) 1/4] = 12,147.
By taking the integer part of the result Pmax, the maximum delay step used for the unit root
test is P = 12.
The thesis uses Unit Root test method with Augmented Dickey Fuller test (ADF) test
to check the stop of each series of data described in the above section for quantitative analysis
at trend and no coin. of the unit root test at the original value (Level) and at the first difference
(Fiirst Difference), the results show that the original value level (Level), LnERV, LnFDI,
LnCPI, LnMII sequences, LnOPE, LnEXR LnGDP, LnIMPORT, LnEXPORT, LnM2 are not
satisfactory enough to stop at Level level but at the first difference level (First Difference) all

CHAPTER 5
RECOMMENDING THE ATTRACTION POLICY AND USING DIRECT
INVESTMENT CAPITAL FOR STABILITY OF VIETNAM'S MACROECONOMY
5.1. Orientation to attract and use FDI into Vietnam.
Experimental results in chapter 4 combined with the results of statistical analysis
described in Chapter 3 show that, attracting and effectively using FDI; export promotion is
most about increasing export value; restricting the import of raw materials for production
instead of domestic investment materials; controlling FDI projects, especially FDI projects
into non-production sectors, speculating as real estate; control exchange rate fluctuations;
Increasing foreign exchange reserves and limiting budget deficits are problems for limiting
Vietnam's macroeconomic fluctuations in the coming time. To solve the problems raised in
this conclusion, the thesis provides some orientations to attract FDI into Vietnam as follows:
Firstly, strengthening and prioritizing attraction of FDI from major investors from
developed countries, with modern technologies such as the United States, EU and Japan, etc.
At the same time, limiting projects with peanut technology which come from countries like
China, ASEAN, ..

19

20

Secondly, attracting FDI in the fields of production and business in the direction of
attracting FDI in sectors, fields, and products with key competitive advantages,
manufacturing and processing industries, agriculture and services. tourism, digital economy,
industries that are able to increase exports, expand markets into large markets, potential to
ensure sustainable trade surpluses; limited or strict regulations for investment in real estate,
this is a highly speculative field that can cause inflation, exchange rate fluctuations,
dollarization, " bubble "stock market, real estate ... The technologies applied in FDI projects
prioritize the application of high technology, clean technology, regeneration technology, take
advantage of the opportunities of revolution Industry 4.0, to focus on improving labor
productivity, competitiveness and resilience of the economy.
Third, focus on FDI projects that are able to connect FDI enterprises and state-owned
enterprises, domestic private enterprises to become "links" of supply chains, global value
chains or projects. FDI consumes "output" or provides "input" of domestic enterprises,
forming a solid and complementary link.
Fourthly, strengthen management and thoroughly handle investors who commit
fraudulent acts, "transfer prices" to make up state budget revenue, causing imbalance and
inequality between businesses. In addition, strict control of speculation on non-production
projects such as real estate.
Fifthly, attracting environmentally friendly FDI projects, ensuring FDI development
in a sustainable manner with a focus on quality and efficiency of socio-economic
development, ensuring national defense and security. Restricting FDI projects with outdated
technology, natural resources, affecting the environment, human health, and sustainable
development. Strictly control projects affecting security and defense and encouraging FDI
projects to enhance security and defense, ensuring Vietnam's national and ethnic interests.

Sixthly, as a causal impact, Vietnam needs to aim at ensuring a stable investment and
business environment, limiting macroeconomic instability, inflation and exchange rate
fluctuations to encourage effective FDI attraction and use.
5.2. Advantages and disadvantages in implementing the orientation to attract and use
FDI
5.2.1. Advantage
(1) The industrial revolution 4.0 is opening up opportunities for Vietnam to attract
high-tech investment, contributing to improving the competitiveness of Vietnam's exports and
improving labor productivity. (2) Deep and international international integration has brought
Vietnam a peaceful and friendly environment for economic development; Bilateral and
multilateral free trade agreements between Vietnam and other countries are facilitating
Vietnam to increase exports and attract FDI, promote production to contribute to
macroeconomic stability. (3) Cluster development trend, value-oriented production groups
are increasing in production activities through horizontal connection (focusing on enterprises
producing similar types of products) and vertical products (focus on enterprises that produce
complementary products) in an extensive way. (4) New forms of FDI appear such as
outsourcing, outsourcing services, contract farming, franchising, licensing and contract
management ... of multinational corporations. (5) Vietnam's new generation FDI attraction
policy is in line with the development trend of the world.
5.2.2. Disadvantages
(1) Unbalanced economic structure because FDI flows will be directed to industries
and sectors with high profitability and fast capital recovery. (2) Challenges in the ability to
absorb large amounts of investment capital and the capacity to manage this large amount of
investment capital. (3) Challenges in performance and transparency, publicity of investment

policies. (4) Domestic investment flows may be overwhelmed or may be exploited. (5)
Challenges in linking domestic enterprises and linking domestic enterprises with FDI
enterprises in production networks, supply chains or value chains.
5.3. Some suggestions on policies to attract and use FDI in the coming years
5.3.1. Create a favorable environment for FDI attraction.

Firstly, formulate policies and legal corridors for FDI attraction. Vietnam needs to
continue its commitment and implementation of international economic integration through
the introduction of economic and trade "white papers". In which, it is necessary to publicize
transparent policies and management mechanisms for foreign investment activities,
emphasizing the principle of "fairness, mutual benefit" (win - win). At the same time, to
continue reviewing and amending legal documents related to international economic
integration, focusing on new-generation standards, which countries like the United States and
EU have jointly proposed. Intellectual property, telecommunications, digital commerce,
origin,... these are standards towards a new economy on the 4.0 industrial platform. In
addition, Vietnam needs to actively participate and actively contribute to international and
regional economic forums and organizations in order to ensure the stability of economic
policies and these policies are in line with standards general of the world. In addition, in the
policy of attracting FDI of Vietnam, it is necessary to ensure consistency across the country,
shorten the differences between localities, avoid creating a basis for localities to compete in
attracting FDIs. FDI balance and balance in incentives for FDI enterprises with domestic
enterprises. In localities, it is necessary to have a list of priority projects with specific
incentives, a list of priority projects and specific sanctions to withdraw licenses, especially
for projects with outdated technology, less technology transfer, affect the living environment
and the risk of speculation and fraud, especially speculation on real estate and fraud from
transfer pricing, or other forms of abuse. At the same time, set out criteria and criteria to limit
specifically to FDI enterprises on importing machinery, equipment, materials for production,
before and during the investment process in Vietnam, in order to limiting outdated
technology, mainly processing and encouraging FDI enterprises to import domestic materials
for production. In addition, Vietnam needs to upgrade its center to further predict the task of
early warning investors or investment waves that intend to invest in Vietnam but have low
standards of capital, technology, ...To build policies on success, Central and local, invite
foreign experts, businesses, and local governments to participate in the policy making process,
to ensure the needs and interests of the enterprises when participating in investment and local
benefits. Secondly, Vietnam needs to implement measures to improve the effectiveness of the
agreements signed with its partners, commitments during high-level visits between the leaders

of Vietnam and other countries, in order to maximize exploitation, minimizing negative
impacts towards increasing FDI attraction to Vietnam. Focusing on agreements with major
countries such as the United States, EU, Japan, etc in the direction of focusing on the content
related to foreign investment activities and tariff preferences, as well as incentives other
countries for Vietnam in the above agreements. In addition, Vietnam should continue to
promote the establishment of new bilateral agreements, upgrading existing bilateral
agreements with countries towards meeting new generation standards; complete on-going
agreements. In order to promote these agreements, Vietnam needs to propose in the
coordination board to implement the agreement with the businesses of both sides in the formal
administration and in the activities of the Coordination Board to implement the agreement.
Moreover, continue to make use of, enhance the role and participate in activities of
associations and associations on investment promotion of big countries such as: Vietnam US Advisory Council, JICA (Japan). .. In particular, Vietnam focused on obtaining opinions


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from these organizations in making policies to attract and use FDI, especially issues related
to enterprises of these organizations. In addition, supporting FDI projects of countries which
have been granted investment licenses or are negotiating, preparing to invest by the
government actively negotiating with partners to find and solve problems encountered soon.
. Third, the conclusion in chapter 4 shows that FDI has a reciprocal effect on macroeconomic
fluctuations, if macroeconomic fluctuations are low and stable, the confidence of foreign
investors will increase and expand investment in Vietnam and vice versa. In addition to the
specific results of the economy, Vietnam needs to take appropriate propaganda measures from
that result to build a stable image and business environment for Vietnam. However, the belief
and expectation of an economy of investors increased not only by propaganda but also by the
Government's reliable actions and the strength of the economy, so the application of the a set
of solutions: (1) consistently propagating consistently on the objective of macroeconomic

stability, curbing inflation and economic growth, considering it a continuous, unchanged
target; (2) continue to strongly implement the tightening of monetary and fiscal policies, and
closely combine and consistently implement these two policies to curb inflation, target
inflation, and consider economic stability. macro and inflation control over priority economic
growth; continue to promote long-term and short-term plans, solutions and policies that have
achieved positive results and remove and adjust solutions that are not effective; (3) Set
priorities for short-term macro policies and priority strategies of economic structure policies
in economic models so that investors can easily plan investment plans.
5.3.2. Create favorable infrastructure for new generation FDI attraction.
Analysis in chapter 3 shows that Vietnam needs to continue planning, renewing and repairing
socio-economic infrastructure, especially seaports and power plants, in the direction suitable
for projects. industry, manufacturing, high technology in areas such as telecommunications,
manufacturing industry, artificial intelligence, biotechnology, ... of developed countries in the
world, especially the United States, EU . In particular, it is necessary to invite international
consulting organizations and investors from advanced countries such as the United States, EU
and Japan ... in the field of high technology to participate in consulting the design of
infrastructure. This is to ensure standards, vision and conditions suitable for high-tech projects
of big investors. The availability of infrastructure suitable to the conditions to attract hightech investment, will be a form of "welcoming" high-tech investors in the world. At the same
time, pay attention to balance in infrastructure investment in the North and South, rural,
mountainous and urban areas. Vietnam should promote non-state enterprises to participate in
infrastructure development; continue to review administrative regulations to eliminate
procedures that are no longer appropriate and at the same time develop preferential policies
for priority areas in Vietnam's priority development areas. In addition, Vietnam should
continue planning the sectors, territories and economic structures in the whole country. First
of all, urgently planning industrial parks, especially focusing on developing supporting
industries for high-tech fields, to catch up with high-tech world investors who are planning to
invest or expand investment in Vietnam. On that basis, identify domestic investment projects
and projects that need to attract FDI by sectors and territories as well as determine
corresponding technological requirements.
For improving the quality of human resources, Vietnam continues to innovate the education

and training system to develop human resources, with a focus on high-tech fields, the
strengths of the first countries. advancing in the world such as the United States, EU, Japan
... so that human resources can meet the needs of workers suitable for foreign projects.
However, this innovation needs to be based on a survey of labor market demand in general
and the needs of foreign investors, the demand for each sector of the economy in particular,

to avoid labor imbalance. . For FDI enterprises, it is necessary to have regulations requiring
FDI enterprises to commit to joint training and training programs for employees. The
Government should also direct, encourage and expand the form of cooperation and training
cooperation between domestic training institutions and domestic and foreign FDI enterprises,
especially countries like the United States. EU, Japan and other high-tech countries, according
to the investment orientation of the above enterprises, to create a workforce that meets the
requirements of investors; strengthen the education of employees' sense of discipline.
Continue to attract FDI into large labor intensive industries such as footwear, textiles,
agriculture ... However, it is required that FDI enterprises participating in these sectors meet
the regulations on environmental protection. and applying advanced technology to create
more jobs for domestic workers; At the same time, strengthening the linkage between FDI
enterprises and domestic enterprises to create jobs indirectly for Vietnamese workers through
supporting fields for FDI enterprises of domestic enterprises.
5.3.3. Improving the effectiveness of FDI promotion.
Based on the orientation to attract FDI in section 5.1, chapter 5, the thesis offers some
solutions to improve this work efficiency as follows:
Vietnam determined that partners need investment promotion not only for big investors but
also for small investors but apply advanced technology, suitable to the level and orientation
of Vietnam, to approach the public. High technology, effective immediately, considering
these investors are the main subjects in the current period. For large investors, it is necessary
to have a separate investment strategy for investors such as the United States, EU, Japan ...
on the basis of detailed research on these investors to learn and share. small areas of their
strengths or areas they are interested in, there is a policy of focusing on attracting these
investors into the fields and strengths with appropriate incentives. There is not only a special

investment promotion strategy at the national level, but also an investment promotion strategy
with transnational or enterprise enterprises of those advanced countries. The process of
developing investment promotion strategy for specific partners needs to invite domestic
enterprises to participate, especially enterprises with strong points to connect with foreign
partners in such fields as: supporting industry, logistics, support services, ...
Forces in brokerage and investment promotion can be enterprises specializing in investment
promotion in foreign countries and in Vietnam, or individuals working in foreign enterprises,
especially foreigners of Vietnamese origin. .. Participants of foreign investment promotion
are not only Government agencies or local agencies but also Vietnamese enterprises, foreign
enterprises in Vietnam, Vietnamese students in the country. In addition, Vietnamese experts
and officials go to foreign countries to visit, study, ...
In the field of priority investment attraction from foreign partners: Foreign investors,
especially US investors, EU investors tend to invest in the field of fast efficient retrieval, such
as: sectors high technology, manufacturing machines, electronics, telecommunications,
biotechnology, mining, real estate, tourism, education, health .... This is the basis for
determining priority areas for collection. investment attraction from these partners. For each
field, Vietnam should have its own strategies, focusing on each small aspect, but is an aspect
consistent with the strengths of foreign investors to develop strategies to attract investment
with partners. work specifically on this area, avoiding general, unclear, specific identification.
Vietnam continues to focus on propaganda and introduction of favorable and objective
assessments on Vietnam's investment environment such as integration policies, tax incentives,
incentives for land establishment and registration procedures. and conduct investment, labor,
economy, infrastructure, industrial and export processing zones .... At the same time, the
contents of investment promotion must provide specific investment projects according to


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sectors and fields. area, local. In addition, it is noteworthy that the specific projects involved
in attracting investment are not only offered by the state but also by Vietnamese enterprises
and foreign enterprises in Vietnam. is also an important source of FDI attraction. These
projects must be elaborated, estimated capital, profitability, arising factors ... The content of
investment promotion also includes specific partners, agencies (with names, specific address
of representative), steps to conduct negotiations, registration and business for foreign
investors to facilitate investment contact. Investment promotion must be considered as a
"sales" activity, investment promotion process such as marketing activities for sales, projects
such as "products" and investors are "customers and products as possible and specific. , easy
procedures, good marketing activities are easier for "sales".
Vietnam should consider investment promotion activities as regular activities, in all stages of
the process of economic cooperation with foreign partners, this is not only a separate activity
of the central planning and investment sector and local, but also the activities of all sectors,
sectors, businesses and individuals related to economic cooperation with foreign partners.
Therefore, the method of conducting investment promotion is also implemented in all sectors,
businesses and individuals (officials working abroad, studying abroad, overseas students,
Vietnamese foreigners, ...). Mass media, representative agencies of Vietnam, Vietnamese
enterprises abroad, Vietnamese community working in large enterprises in foreign countries
... through cooperation, exchange and association conference, ... to promote Vietnam's
business environment as a bridge between foreign investors and Vietnam.
5.3.4. Healthy activities to attract and use FDI.
Conclusion in chapters 3 and 4 shows that Vietnam needs to focus on a number of solutions
such as: Vietnam needs to soon complete the mechanism to control the implementation of
investment capital of foreign investors, which binds foreign investors. in the registration and
deployment, avoid high registration status, but the fact of transferring money to Vietnam is
few, the rest is mobilized right in Vietnam, does not increase the supply of foreign currency.
For the reduction of the budget deficit from the increase in budget revenues, the state should
strengthen management and strictly handle the problem of "price transfer" and trade fraud of
FDI enterprises. In which, regularly checking and supervising finance, business reports of
FDI enterprises, ready to tighten or eliminate for investors who do not comply with the above

regulations. At the same time, limit the gap of preferential rates for FDI and Vietnamese
enterprises in production and business activities to create an equal environment between these
two components. In addition, continue to promote component restructuring towards
increasing the proportion of private and FDI sectors, reducing the state sector. However, only
reducing the SOE business sector, but the "support" area of SOEs must increase investment
in advanced technology, skilled workers and be closely monitored to go "right of way". , not
encroaching. Private and FDI sectors need to continue to encourage investment in high-tech,
high value-added areas, at the same time restricting processing, assembly, resource loss, less
technology transfer and harm. environment. Vietnam also needs to have clear regulations,
requiring investors to commit technology transfer in addition to Vietnamese enterprises
promoting R & D actively transferring technology from FDI and technology development for
Vietnam. Moreover, Vietnam needs to continue to promote the industrial process, strengthen
the development of supporting industries to increase the added value in the production assembly of finished products. In particular, to focus on researching the high-tech industries
of the countries to plan industrial parks to support such industries, to welcome high-tech
investors who intend to invest or expand production. It is also a basis for determining the list
of domestic projects that can be invested and attracting foreign investment.
CONCLUDE

The thesis contributes in theory, the thesis analyzes and clarifies the theory related to
FDI, macroeconomic changes and the impact of FDI on macroeconomic fluctuations. The
thesis also points out the limitations in related studies, such as no comprehensive research
through comprehensive evaluation of macroeconomic indicators, since there has not been a
more complete analysis of the expression and causes of macroeconomic fluctuations of the
economy in general and Vietnam's economy in particular.For the impact of FDI on
macroeconomic fluctuations in Vietnam, the thesis has studied, researched and assessed the
impact of FDI both on single macroeconomic indicators and macroeconomic indicators
combined with quarterly data from quarter 4/1991 to quarter 4/2017. Through the
implementation of this research, the thesis has added theory to "fill up" the research gap.
Practical contributions, the thesis assesses the situation of attracting, using FDI of
Vietnam and the situation of macroeconomic changes in Vietnam on single macroeconomic

indicators (economic growth) economic, inflation, budget deficit, exchange rate) and on the
index of macroeconomic instability in the period 1991 - 2017. The thesis has given Vietnam's
macroeconomic instability index (MII) from 1991 to 2017 through the use of MII calculation
method proposed by Ismihan (2003). The thesis also used regression method VAR and VECM
with quarterly data from quarter 4/1991 - quarter 4/2017 through Eviews 8.0 software,
synthesis and comparison method to analyze the impact of FDI on variables macroeconomic
dynamics through assessing the impact of FDI on single macroeconomic indicators and
impacting the macroeconomic index (MII). The dissertation analyzes opportunities and
challenges for Vietnam in implementing the target of attracting FDI and stabilizing macro
economy in the coming time. Since then, the dissertation proposes a number of solutions to
take advantage of positive and favorable factors and limit the limitations and challenges to
attract and use FDI in macroeconomic stability.
Regarding the limitations of the thesis: (1) the thesis has not evaluated the impact of
FDI on single macro indicators such as foreign debt index, bad debt, "price transfer" and other
negative aspects. (2) The thesis has not studied the experience of some similar countries like
Vietnam on attracting FDI for their macroeconomic stability goals for objective comparisons
and preferable solutions suitable for Vietnam. (3) Research results this is only true for the
study area, Vietnam in the research period from 1991 to now, is the reference result for other
regions and research periods. Therefore, in order to continue to improve further, the next
research direction to be concerned is: (1) study the impact of FDI on single macroeconomic
indicators such as bad debt and debt foreign, the problem of price transfer and the impact of
transfer pricing on Vietnam's macro economy and analysis of the spillover, vertical,
horizontal impact of FDI on single macroeconomic indicators; (2) study the experience of
other countries in attracting FDI, the impact of FDI on macroeconomic stability and
experience of attracting, using FDI for macroeconomic stability objectives of country, to have
a basis for comparison between Vietnam and other countries, thereby offering solutions to
promote attraction and use of FDI effectively, contributing to stabilizing Vietnam's macro
economy in the coming time.