Summary of economics Doctoral thesis: Attracting foreign direct investment towards sustainable development in Vietnam

VIETNAM ACADEMY OF SOCIAL SCIENCES
GRADUATE ACADEMY OF SOCIAL SCIENCES

DINH KHANH LE

ATTRACTING FOREIGN DIRECT INVESTMENT TOWARDS
SUSTAINABLE DEVELOPMENT IN VIETNAM

Major
: Economic Management
Major code : 9 34 04 10

SUMMARY OF ECONOMICS DOCTORAL THESIS

HANOI - 2018


The study is completed at:
VIETNAM ACADEMY OF SOCIAL SCIENCES
GRADUATE ACADEMY OF SOCIAL SCIENCES

Supervisor: 1. Assoc. Prof. Dr. Tran Đinh Thien
2. Dr. Pham Van Cong
Reviewer 1: Assoc. Prof Phi Manh Hong

Reviewer 2: Assoc. Prof Vu Thanh Son

Reviewer 3: Assoc. Prof Tran Minh Tuan

The thesis is upheld in the presence of Academy Doctoral Thesis
Assessment Board at ........................, Hanoi

at ... ... h ... day ... month ... year ......

The thesis can be found at the library:
- Library ………………………
- National Library of the Graduate Academy of Social Sciences


INTRODUCTION
1. The urgency of the thesis
Attracting foreign direct investment (FDI) has become a trend of most
countries in the context of international integration nowadays. FDI has made
immense and undeniable contribution to the socio-economic development of the
countries, especially developing countries.
In recent years, the issue of sustainable development has become an
indispensable and irreversible trend in all areas, including FDI attraction. In
many developing countries, including Vietnam, FDI attraction has brought
positive results. However, it also has significant consequences, especially social
and environmental consequences. The quality of FDI in Vietnam remains low,
mainly processing and assembly. The linkage between FDI enterprises and
domestic enterprises seems to be very poor, while technology transfer remains
limited.
Given increasing demand for investment capital attraction, as well as FDI
significant consequences, especially in industrial activities, it is required for a
number of countries, including Vietnam, to consider FDI attraction in the
direction of sustainable development.
Therefore, the thesis research: Attracting foreign direct investment
towards sustainable development in Vietnam proves to be very essential, and
has theoretical and practical significance for Vietnam in the new context.
2. The objectives of the thesis
2.1 Overall objectives

Clarify the theoretical and practical basis and objectively assess the
situation of FDI attraction in view of sustainable development in Vietnam;
Propose orientations and measures to attract and evaluate FDI projects towards
sustainable development in Vietnam in coming time.
2.2 Specific objectives
Firstly, systematize the theoretical background on sustainable
development, FDI attraction and FDI attraction towards sustainable
development; develop a theoretical framework for analyzing and evaluating
FDI flows towards sustainable development in Vietnam;
Secondly, study the experience of FDI attraction in some countries such
as China and Thailand.
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Thirdly, objectively assess the FDI status in Vietnam over the past years
in two aspects: achievements and existing shortcomings; impacts of FDI on
Vietnam in terms of sustainable development; identify causes of ineffectiveness
in FDI attraction and usage in Vietnam.
Fourthly, propose solutions to attract and maintain positive impacts of
FDI in Vietnam in the direction of sustainable development.
3.
Objects and scope of research
3.1 Research objects
The research object of the thesis is foreign direct investment attraction
towards sustainable development in Vietnam from 2006 to 2016.
3.2 Scope of research
+) In terms of content: The thesis focuses on analyzing the effects of FDI
on sustainable development in Vietnam in terms of main pillars: economic,
social and environmental. In the "economic" pillar, the thesis examines the
positive and negative effects of FDI on economic development. In the "social"

pillar, the thesis focuses on the effects of FDI on labor and wages. In the
"environment" pillar, the thesis analyzes some negative impacts of FDI on the
environment and its causes.
+) In spatial terms: The thesis examines the general situation of FDI
towards sustainable development in Vietnam, not limited to geographic
locations in terms of regions and territories in Vietnam.
+) In temporal terms: The thesis focuses on FDI towards sustainable
development in Vietnam in the period from 2006 to 2016.
4.
Approach and Methodology
The thesis topic in Economic Management major is a comprehensive
research that includes explanatory research, research on current situation and
practical reviews, anticipatory research and research on solutions to clarify
theoretical and practical bases on FDI and FDI towards sustainable
development in Vietnam.
5.
New scientific contributions of the thesis
- To a certain extent, conducted an overview of both domestic and foreign
researches related to the thesis topic to identify research gaps and issues to be
studied by the thesis;

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- Systematized some contents related to general basis on FDI attraction
towards sustainable development, including concepts, contents, evaluation
criteria and factors affecting FDI attraction in the direction of sustainable
development;
- Assessed the actual situation of FDI attraction towards sustainable
development in Vietnam in the period 2006-2016; from which causes of

shortcomings were identified.
- Based on the analysis of opportunities and challenges of FDI attraction
and targets of FDI attraction in the direction of sustainable development in
Vietnam towards 2025, the thesis proposes a system of solutions to improve the
attraction of foreign direct investment into Vietnam in the following years.
6. Theoretical and practical significances of the thesis
6.1 Theoretical contribution
The thesis systematized basic theoretical issues on FDI attraction towards
sustainable development.
6.2 Practical contribution
The thesis identified shortcomings in terms of policy and state
management in attracting and using FDI flows efficiently and sustainably.
Scientific and practical-based recommendations serve as reliable sources for
policy makers to refer, develop and issue feasible solutions. The thesis would
provide an additional "channel" of information for enterprises to make right
decisions, as well as proactively propose FDI projects in line with Vietnam's
sustainable development goals in coming time.
7. The structure of the thesis
Apart from the introduction, conclusion, appendices and references, the
thesis consists of four chapters:
Chapter I: Overview of researches related to foreign direct investment
towards sustainable development
Chapter II: Theoretical and practical bases for foreign direct investment
towards sustainable development.
Chapter III: FDI attraction from sustainable development perspective in
Vietnam in the period 2006-2016
Chapter IV: Orientations and solutions to attract FDI in the direction of
sustainable development towards 2025 with a vision to 2030.
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CHAPTER 1
OVERVIEW OF RESEARCHES RELATED TO FOREIGN DIRECT
INVESTMENT TOWARDS SUSTAINABLE DEVELOPMENT
1.1 Overview of published domestic and foreign studies about FDI
and impacts of FDI from sustainable development perspective
1.1.1 Overview of foreign researches
a) FDI and economic issues
The relationship and impacts of FDI on the economy has no longer been a
new issue and has been studied by various researches
Studies by Moosa, Imad A. (2002) in Foreign Direct Investment: Theory,
Evidence and Practice; the study by Laura Alfaro (2003) named "Foreign Direct
Investment and Growth: Does the Sector Matter?" and the study by Mohammad
AA & Mahmoud KA (2013) titled "Foreign Direct Investment and Economic
Growth Review Literature from 1994 to 2012" focus on the impacts of FDI on
various aspects of economic development and growth, including both positive
and negative impacts. The OECD Benchmark Definition of Foreign Direct
Investment (2008) sets measurement & statistics standards of FDI impacts on
balance of payments, and analyzes the relationship between FDI, trade and
trade policy. In the International Business: Theory of the Multinational
Enterprise edited by Alan M. Rugman, Richard E. Caves analyzes the effects of
FDI on the recipient country’s market.
b) FDI and social issues
The relationship between FDI and social issues is mostly mentioned in
terms of labor, wages and welfare.
Arnal, E. & A. Hijzen (2008) in the study “The impact of Foreign Direct
Investment on Wages and Working Conditions” argues that FDI firms tend to
pay higher wages than domestic firms, and the impact of FDI on wages is
positive, and most evident in developing countries. In the study named "Foreign
direct investment and welfare", Olaf J. de Groot (2014) examines the

relationship between FDI and general welfare, which shows that FDI increases
inequality, and brings benefits for the rich more than for the poor. In the study
titled "Rising Income Inequality: Technology, or Trade and Financial
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Globalization?” Jaumotte, F., S. Lall, and C. Papageorgiou (2008) also find that
FDI results in higher income inequality.
c) FDI and environmental issues
Most studies on the relationship between FDI and environmental issues
show that FDI has negative impacts on the environment of the recipient
country, increases CO2 emissions and water pollution, and so on. A number of
studies can be cited such as the study by Theodore H. Moran (2011) titled
"Foreign Direct Investment and Development: Launching a Second Generation
of Policy Research”, the study by Jiajia Zheng & Pengfei Sheng (2017) named
“The Impact of Foreign Direct Investment (FDI) on the Environment: Market
Perspectives and Evidence from China" and the study by Mohammad S.A.,
Fatemeh Z., Reza S., Nader H. & Marjan D. (2013) titled "The Impact of FDI
on environmental resources in selected countries".
1.1.2 Overview of domestic researches
a) FDI and economic issues
The role of FDI in economic growth, production capacity, budget revenue
and macroeconomic balance is analyzed in "Foreign direct investment in
Vietnam. Theory and Practice" by Phung Xuan Nha (2013), and "Impact of
Foreign Direct Investment on Economic Growth in Vietnam" by Nguyen Thi
Tue Anh et al. The impacts of FDI on the economy are also influenced by
various factors. For example, Nick J. Freeman (2002) in the study titled
"Foreign Direct Investment in Vietnam: An Overview" points out how policies
affect FDI impacts on economy growth; the study named “Foreign direct
investment and economic growth in Vietnam” by Anwar, S. & Phi Lan, N.

(2010) specifies other factors such as education, training, financial markets, etc.
In addition to the positive impacts, the author, Tran Phien (2012) in the study
titled "The Negative Impacts of Foreign Direct Investment on Socio-Economic
Development in Viet Nam", highlights the negative effect of FDI on the
recipient country in terms of economic aspect.
b) FDI and social issues
The Report "Viet Nam Industrial Investment Report 2011: Understanding
the impact of Foreign Direct Investment on industrial development” by MPI
confirms that FDI has positive impacts on Vietnam's labor market such as
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creating more jobs, but no significant impacts on the improvement of skills and
qualifications. The "Annual Report on Vietnam Business Forum 2016" of the
World Bank identifies the reasons for the limitations in promoting the spillover
effects on technology and labor productivity of FDI enterprises, and proposes
several solutions. John Mc. & Myunghwan Y. (2016) in the study named "FDI
and inequality in Vietnam: An approach with census data" suggest that the
increase in FDI in a province is related to the reduction in living conditions of
households if they have no members working for foreign businesses; Other
studies also mention the spillover effects of FDI on social dimensions such as
education, technological level, labor skills, etc.
c) FDI and environmental issues
In the study titled “Impacts of FDI on Sustainable Development
Objectives of Vietnam in International Economic Integration”, Doan Tranh, &
Thoa NT (2016) identify some positive effects of FDI projects in Vietnam on
the environment such as the investments in the field of water supply and waste
treatment. However, there are few investment projects in the environmentfriendly areas which account for about 0.2% of the total number of projects.
Meanwhile, Vietnam faces negative environmental impacts caused by FDI
projects. More and more FDI projects are found polluting the environment in

the North, Central and South of Vietnam, which pollute the water, air, destroy
biodiversity, degrade the environment and cause serious impacts on human life
and health.
1.2 The issues of the thesis not having been addressed by published
researches (research gaps)
FDI is no longer a new topic and has been studied from various
perspectives. However, the researches focus on analyzing individual factors
only such as the impact of FDI on economic development, the impact of FDI on
export market, capital market, labor and employment, technological factor, the
relationship between FDI and labor. Therefore, none of the researches has
actually provided a proper and comprehensive concept, framework and
procedure about FDI in the direction of sustainable development; nor proposed
a set of criteria to assess FDI towards sustainable development in Vietnam; nor
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assessed the status of FDI in Vietnam from the sustainable development
perspective, thereby appropriate solutions are recommended.
1.3 Key issues addressed by the thesis
The thesis will focus on clarifying the theoretical framework of FDI
attraction towards sustainable development, thereby presenting the definition
and approach of FDI attraction towards sustainable development in line with the
context of socio-economic development in Vietnam.
Based on the assessment of the current status of FDI attraction and usage
in Vietnam from the sustainable development perspective, the thesis analyzes
shortcomings and causes, and then recommends orientations and solutions to
overcome and improve the quality of FDI attraction in the coming period.

CHAPTER 2
THEORETICAL AND PRACTICAL BASES FOR FOREIGN DIRECT

INVESTMENT TOWARDS SUSTAINABLE DEVELOPMENT
2.1 The concept of FDI attraction
2.1.1 In the world
"Foreign direct investment is an amount of capital invested to obtain
long-term benefits in a business operating in an economy different from the
economy of the investor. Apart from profitability purpose, the investor also
wants to gain a foothold in the management of the enterprise and market
expansion”. The growing importance of FDI is due to the recognition of the
tremendous contribution of FDI to the economic development, and the
provision of capital, technology, and modern management skills to the host
countries. FDI is affected by specific factors in the host country and the
investor’s country. Regarding the host country, these FDI attraction factors
include natural resources such as mineral, while cheap labor is seen as a noless-important factor, especially when an import substitution policy is adopted
which brings a great opportunity for investors.
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Several theories of foreign direct investment are as follows:
Theory of marginal profit: The theory mentions that the capital inflow
will move from a country with low interest rate to a country with a high interest
rate until an equilibrium is reached (the two countries' interest rates are the
same). After the investment, both countries earned profits and the world's
output increases higher than before investment.
(i) Eclectic theory or OLI model: A company wishes to engage in FDI
activities should have three advantages: (1) Ownership advantages (O); (2)
Locational advantages (L) and (3) Internalization advantages (I).
(ii) Theory of Investment Development Path (IDP) consists of 5 phases:
(1) L advantage of a less attractive country, the inflow of FDI is negligible due
to the local market limitations; (2) the inflow of FDI starts to increase as the L
advantage attracts investors; (3) the FDI inflow begins to decrease and outflow

begins to increase; (4) O advantage of domestic companies increases. Laborintensive technologies are gradually being replaced by capital-intensive
technologies; (5) the outflow and inflow of FDI continue and their volume is
similar.
2.1.2 In Vietnam
FDI constitutes an important resource of the economy and joins the
domestic resources in creating the aggregate strength for the attainment of the
objectives of national industrialization and modernization and economic
restructuring.
FDI attraction must ensure conformity with planning and the concentrated
and unified direction of the central government in couple with rational
decentralization to localities on the basis of socio-economic conditions and the
capability and quality of officers,..; special importance must be attached to the
effectiveness of the state management through inspection and supervision to
ensure the strictness of law.
2.2 Perspectives on Sustainable Development
2.2.1 In the world
Sustainable development is "development that meets the needs of the
present without compromising the ability of future generations to meet their
own needs" (Worldbank, 2016).
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In general, sustainable development can be seen as a balance between
social, economic, and environmental 'objectives' or 'needs', as summarized in
the figure below:
Figure 2.1 Sustainable Development Goals
Source: Unctad (2016),
‘Detailed
Benchmark
Definition of Foreign Direct

Investment’. Third Edition
(BD3). Paris, Organization for
Economic Co-operation and
Development, 1996.
2.2.2 In Vietnam
In Vietnam, sustainable development is defined as "fast, efficient and
sustainable development, and economic growth is consistent with the
realization of social progress, equality, and environmental protection", "socioeconomic development is closely combined with the protection and
improvement of environmental resources, ensuring a harmony between the
artificial environment and natural one, which maintain biodiversity."
2.3 Impact of FDI on sustainable development
2.3.1 Impact of FDI on environmental issues
On the one hand, investment activities accompanied by modern,
environment-friendly technologies and the production of clean products to serve
the host country market will have a positive impact on the environment. On the
other hand, FDI inflows focusing on profits only, without attention to waste
water treatment, emissions, industrial waste and so on will seriously threaten
the environment. In addition to the impact of FDI on the environment,
environmental factor is also an important factor influencing the investment
decisions of FDI investors. The relationship between FDI and environmental
pollution is a two-way linkage and is inconsistent in all countries.
2.3.2 Impact of FDI on social issues
Labor issue: FDI can bring about significant benefits by creating a
number of high quality jobs and bringing modern production lines and
9


professional management models to the recipient countries. However, activities
of multinational companies are also causing controversies and worries about the
social impact. For example, some multinational companies are said to make

unfair competition when taking advantage of low-wage and low-standard
employments in foreign countries.
Inequality and regional imbalance: Investors often invest in advantageous
locations, thus the more developed they are, the more likely they are to develop.
This means there is an increasing risk of inequality and regional imbalance.
2.3.3 Impact of FDI on economic development
Besides contribution to the economic development, FDI inflow also
presents potential risks to the economy such as trade deficits, transfer pricing,
money laundering, and imbalances among sectors, industries, etc.
2.4 FDI attraction towards sustainable development
FDI attraction towards sustainable development is the attraction of
profitable FDI projects to maintain the efficient operation of FDI enterprises
without compromising the important interests of the recipient country, while
positively benefiting the country's long-term development goals as measured in
the economic, environmental, social and governance priorities indicators.
2.5 Criteria for assessing the effectiveness and quality of FDI flow
towards sustainable development
a) Evaluation criteria of "economic" pillar:
- Profitability of FDI: Normally, the ICOR is used for the evaluation.
Incremental Capital-Output Ratio (ICOR) shows the marginal amount of
investment capital necessary to generate the next unit of production.
- Contribution of FDI to total social investment:
Contribution of FDI to total social investment = (Scale of implemented
capital / total social investment) x 100%
- Contribution of FDI to national GDP:
Contribution of FDI to national GDP = (GDP of FDI sector / total
GDP) x 100%
- Contribution of FDI to the state budget: illustrated through the criteria
of (1) income efficiency (calculated as the average salary of a worker in the FDI
10

sector in relation to other economic sectors); (2) state budget revenues, and (3)
ability to assist the recipient country to restructure its economy in line with its
economic development strategy.
- Savings and increasing net foreign currency earnings:
- Contribution of FDI to export: It is shown in the net export value of the
FDI sector in the host country.
b) Evaluation criteria of "social" pillar:
Increased employment:
Increased employment from FDI = (Number of employees working in
FDI sector x Number of working years + Number of employees increased due
to related projects, sectors x Number of working years - Number of employees
lost their jobs due to FDI x Number of unemployment years)
- Ability to create jobs:
Proportion of employments created by FDI sector = Number of
employees in FDI sector / total employees of the whole country x 100%.
- Income of labor:
- Labor productivity:
Productivity of social labor = Gross domestic product (GDP) / Average
number of employees.
- Level of technology transfer: shown in (1) the number of technology
transfer contracts in the host country; (2) the proportion of investment projects
coming from source technology countries; (3) the level of modernity and up-todate of technologies transferred; (4) TFP of FDI sector; (5) localization rate.
The higher the indicators are, the greater level of technology transfer of FDI
enterprises to the recipient country is.
c) Evaluation criteria of "environmental" pillar:
- Impact of FDI on environment:
FDI enterprises polluting the environment = (Number of enterprises
failing to comply with regulations on environmental protection / Total number

of FDI enterprises) x 100%.
In addition, the level of impact of FDI projects on the environment of the
recipient country can be assessed based on: Values of environmental indicators
(emissions, waste, noise, etc.), the ratio of the cost of FDI enterprises spent on
11


environmental improvement activities to the total revenues of the enterprises;
the proportions compared to those of countries with similar conditions and to
the world average.
2.6 Key groups of factors affecting FDI attraction towards
sustainable development
The thesis analyzes four main groups of factors affecting FDI attraction
towards sustainable development, including (i) Policy framework relating to
FDI attraction; (ii) labor quality of the recipient country; (iii) Infrastructure of
the recipient country; (iv) Economic and political situation in the region and in
the world.
2.7 Experience of several countries in FDI attraction towards
sustainable development
From the experience of FDI attraction of China and Thailand, the lessons
learned for Vietnam are: (i) FDI policies need to be harmonized, aligned with
the overall national development objective set in the 10-year strategy, 5-year
plan and annual plan in each period of development; (ii) In addition to financial
incentives, many other factors also determine FDI attraction such as
infrastructure, labor, management capacity, etc.; (iii) Investment procedures
should be strict, and comply with standards on construction, environmental
protection.

CHAPTER 3
FDI ATTRACTION FROM SUSTAINABLE DEVELOPMENT

PERSPECTIVE IN VIETNAM IN THE PERIOD 2006-2016
3.1 Overview of situation of FDI attraction in Vietnam in the period
2006-2016
3.1.1 Status of investment promotion
In general, investment promotion activities in localities have been quite
positive in various aspects such as: (1) local investment promotion activities
have been developed quite properly, in line with the national socio-economic
development master plan and plan; (2) investment promotion activities have
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been conducted proactively rather than passively; (3) investment promotion
activities have been integrated into trade and tourism; (4) Localities have
encouraged and made use of socialization funding to deploy promotion
activities.
3.1.2 Status of Investment attraction
As of 20/06/2017, there were 23,594 active projects with a total registered
capital of USD 306.3 billion in Vietnam. Accumulated implementation capital
of the FDI projects was estimated at USD 162.57 billion, equivalent to 53% of
total registered capital. Foreign investors invested in 19 out of 21 sectors in the
national standard industrial classification. The processing and manufacturing
sector attracted the largest capital, with USD 180.68 billion, accounting for
58.98% of total investment capital, followed by real estate sector with USD
50.99 billion, accounting for 16.6%, and electricity, gas, water manufacturing
and distribution with USD 18.83 billion, accounting for 6.14% of total
investment. As of June 2017, 120 countries and territories have invested in
Vietnam. South Korea ranked first with a total registered capital of USD 54.5
billion (accounting for 17.7% of total investment capital).
3.2 Analysis of factors influencing FDI attraction towards sustainable
development in Vietnam during 2006-2016

3.2.1 Macroeconomic environment factors
a) Macroeconomic environment stability
In the ranking of the World Economic Forum announced in 2017,
Vietnam's trade environment is estimated to climb 14 ranks to 73rd out of 136
economies evaluated. According to the World Bank's Ease of Doing Business
Report published at the end of October 2016, Vietnam's business environment
was recorded to have the strongest improvement since 2007, up 9 points (from
91/189 to 82/190). It can be said that Vietnam has taken firm steps, and made
efforts to change policies, and create a healthy investment environment and
establish sustainable economic development areas.
b) Level of international economic openness of the recipient country
Vietnam has become a member of many trade agreements and is also
negotiating a number of other important trade agreements. Specifically: By the
end of 2016, Vietnam signed and implemented 10 FTAs, concluded two FTA
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negotiations, and is negotiating four other FTAs. Following the viewpoints and
policies of the Party, the process of opening up, proactively and actively
integrating into the global economy has opened up a new development space
for Vietnamese economy.
c) Legal system of the recipient country
Positive aspects: Vietnam is becoming an attractive destination for
foreign investors since Vietnam has made significant legal reforms related to
the investment environment and foreign investment. The Government has
promulgated and amended the Law on Investment, the Law on Enterprises,
circulars and decrees to improve the investment environment and give more
incentives to attract more foreign investors.
Limitations:

Although

administrative

procedures

for

entry

into

Vietnamese market have been continually simplified, FDI enterprises are still
much concerned about post-registration regulations; In addition, financial
incentives, especially taxes, play an important role in attracting FDI and
selecting investment locations in Vietnam. However, this kind of incentives
also reveals a number of issues for consideration; the supporting industry
development policy for Vietnamese enterprises to connect with FDI enterprises
and participate in the global value chain has not resulted in significant changes
in the actual situation.
d) Capital attraction strategy for national socio-economic development
The Socio-Economic Development Strategy for 2011-2020 shows that the
socio-economic development goals in this decade will focus on the quality of
growth, or in other words, in-depth and sustainable growth, rather than quantity,
and ensure the macro balances to stabilize the economy in the long run.
3.2.2 Internal factors of Vietnam
a) Labor quality
Positive aspects: Vietnam's labor productivity has improved significantly
and continuously over the years, and the relative labor productivity gap between
Vietnam and regional countries has been reduced; the labor force participation

rate is high; Vietnam’s human resources quality has also been improved.
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Limitations: Vietnamese skilled labor failed to meet the market
requirements; the quality of education and vocational training in Vietnam
remains a concern for foreign investors.
b) Infrastructure system
Thanks to the attention of the Government, the socio-economic
infrastructure system has been gradually improved to meet the development
requirements; Investment resources for infrastructure development have been
increasing and diversifying; Forms of investment, construction, operation and
business have been diversified and expanded.
However, in general, the infrastructure system of Vietnam reveals a
number of limitations, lack of synchronization, poor connectivity; Urban
infrastructure is of low quality and overloaded. Social infrastructure is short in
quantity and low in quality, inefficient, and failed to meet basic demand for
social services.
c) Vietnam's advantages in attracting foreign direct investment
Firstly, the stable security and political situation is an important condition
for deciding to set up long-term investment activities in Vietnam. Secondly,
Vietnam has a favorable geographic position in trade with the world as well as a
connection hub of the region and a gateway to penetrate economies in the
western part of the Indochina Peninsula. Thirdly, with a population of 92
million people, Viet Nam has the advantage of abundant and quality labor force
with competitive labor costs.
3.2.3 Factors related to investors
a) Regional and global socio-economic situation
In the first phase of opening, FDI is an effective solution to help Vietnam
out of the difficult situation of blockade, embargo. In the next phases, FDI is an

important supplementary source of total social investment capital. Therefore,
Vietnam encourages FDI and offers various incentives such as licensing,
finance, taxes, land use, etc. to attract FDI. In the period of 2006-2016, with the
accession to the World Trade Organization (WTO) in 2006, foreign inflows into
Vietnam increased dramatically, especially in FDI.
Recently, after a series of serious environmental incidents caused by FDI
companies recently discovered, together with the implementation of the United
15


Nations sustainable development goals, Vietnam is shifting its focus on hightech and environment-friendly FDI projects, research and development, etc.
b) Investment strategy of foreign investors
Depending on each stage, each investor has different purposes when
investing in Vietnam. In the past, the main attraction for foreign investors in
Vietnam was the advantage of cheap labor. At present, foreign investors choose
Vietnam as their destination because of its competitive advantages such as high
and stable economic growth rate over the years, political economic stability,
improved investment environment, increasingly transparent legal framework
and better support for investors, etc.
3.3 Evaluation of FDI attraction activities in Vietnam from
sustainable development perspective
3.3.1 Economic aspect
Positive aspects: FDI made contribution to the state budget; to the GDP
(contribution of the FDI sector to GDP was 6.3% only in 1995, increased to
15.2% in 2000 and 19.6% in 2013); to total social investment capital
(contribution of the FDI sector made up 22% of total social investment capital
during 2011-2015); to the export (export of the FDI sector accounted for 65.2%
of total export turnover of the country in the period 2011 - 2015).
Limitations: Orientation of FDI attraction by sectors and partners remains
limited; the high degree of concentration of FDI in some localities may cause

regional imbalances; the technology level of FDI enterprises in Vietnam failed
to meet expectations; Vietnam is also facing the risk of relying too much on
external resources; some FDI enterprises have the phenomenon of "transfer
pricing" in Vietnam.
3.3.2 Social aspects
Positive aspects: The number of employees working in FDI enterprises
has increased over time; average salary of employees in the FDI sector is higher
than that in other sectors; the presence of foreign invested enterprises has had a
positive impact on the improvement of labor productivity to a certain extent.
Limitations: The number of jobs generated by the FDI sector is still low
compared to the demand for jobs in Vietnam each year; Laborers working in
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many FDI enterprises have poor stability; The number of strikes in FDI
enterprises tends to increase, both in size and in complexity.
3.3.3 Environment aspect
Some localities were not cautious enough in selecting FDI projects and
investors which resulted in environment pollution caused by some enterprises,
high consumption of energy, and no socio-economic benefits; Investment and
recurrent costs for environmental protection account for a small proportion of
total investment, production and business cost of FDI enterprises.
3.4 Reasons of FDI attraction limitations in Vietnam from sustainable
development perspective
3.4.1 Objective reasons
a) Macroeconomic environment reasons
During the financial crisis and global economic recession (2008-2014), a
number of FDI enterprises must reduce their production scale, which greatly
affected the performance of FDI in Vietnam.
In 2016, the global economy was affected by the slow economic growth

of some economies, geopolitical uncertainties such as the Brexit, European
migrant issue, and the United States presidential election which had a negative
impact on investor sentiment, and resulted in shrinking psychology, or finding
safe havens instead of looking for investment locations.
b) Investors-related reasons
Majority of FDI enterprises focus on taking advantages of cheap labor
cost, available resources, easy-going consumer markets to assemble and process
products for domestic consumption and export; FDI enterprises engaged in
high-tech industries tend to import inputs from their home countries rather than
from FDI enterprises operating in low-tech industries and use fewer domestic
private suppliers; Some FDI enterprises took advantage of loopholes in state
management to cause environmental pollution; Trade unions in FDI enterprises
have not yet promoted their role as representatives of the legitimate interests of
employees.
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3.4.2 Subjective reasons
Planning remains poor and there is a lack of sectoral planning, product
planning; State management of investment promotion is still limited,
investment promotion method has not been coordinated effectively and
smoothly from central to local, which results in wasting resources;
Decentralization of investment is not appropriate to the actual situation; The
examination and issuance of Investment certificates are not done properly in
some cases; The legal system, investment policies and investment attraction
perspective remain unclear; The State has not invested adequately in the
construction of technical infrastructure and training of human resources in
economically underdeveloped areas.

CHAPTER 4

ORIENTATIONS AND SOLUTIONS TO ATTRACT FDI IN THE
DIRECTION OF SUSTAINABLE DEVELOPMENT TOWARDS 2025
WITH A VISION TO 2030
4.1 Future context for FDI attraction
4.1.1 Opportunities
Vietnam has been deeply integrating into the global economy, thus, the
trade relation between Vietnam and other countries will become stronger,
capital flows from highly developed countries can bring substantial benefits;
business environment is improved, which can be seen as advantages of Vietnam
in the future.
4.1.2 Challenges
The integration process will have a profound effect on all fields of the
entire economy, which requires Vietnam to better comply with technical
standards, intellectual property, quality of labor, etc. The United Nations adopts
17 sustainable development goals and 169 targets, which poses challenges to

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Vietnam's economic development and investment attraction, but ensures
commitments to sustainable development.
4.2 Demand and potential for FDI attraction
The average annual demand for FDI implementation capital is about USD
14-15 billion (purely foreign capital). The demand increases over time, about
USD 9-10 billion/year in 2011- 2012; increased to USD 13-14 billion/year in
2014-2015, and USD 21-22 billion/year in 2019-2020.
In terms of potential FDI attraction, objectively, domestic conditions still
have a number of favorable factors to attract foreign investors. Vietnam is
ranked high on political stability, and highly appreciated by the international
community, which makes existing foreign investors confident in operating in

Vietnam while attracting new investors looking for investment locations.
4.3 Viewpoints and orientations for FDI attraction towards
sustainable development in Vietnam
The viewpoints on FDI are reflected in the Government Resolution No.
103/NQ-CP on "Orientation to increase efficiency of attracting, using and
managing foreign direct investment", namely:
- Foreign-invested economy constitutes a part of the national economy, is
encouraged by the State for long-term development, has its rights and legitimate
interests guaranteed and is equally treated on the basis of cooperation for
mutual benefit and fulfillment of Vietnam’s international commitments.
- FDI constitutes an important resource of the economy and joins the
domestic resources in creating the aggregate strength for the attainment of the
objectives of national industrialization and modernization and economic
restructuring.
- FDI attraction must ensure conformity with planning and the
concentrated and unified direction of the central government in couple with
rational decentralization to localities on the basis of socio-economic conditions
and the capability and quality of officers,..; special importance must be attached
to the effectiveness of the state management through inspection and supervision
to ensure the strictness of law.
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- The revision of foreign investment policies and laws must adhere to the
principle of making them more and more competitiveness, favorable and
preferential.
Orientations for FDI attraction in coming time:
1) To attract FDI in the direction of selecting projects with high quality
and added value and using modern and environment-friendly technologies,
especially information technology and bio-technology to serve agriculture;

developing infrastructure, training high-quality human resources, conducting
research and development, providing modern services, etc.
2) To intensify the attraction of large-scale projects with highly
competitive products and joining the global value chains of transnational
groups, thereby building and developing supporting industries and enterprises;
to encourage industrial projects to gradually shift from processing to
manufacture; to select big and prestigious investors to develop the financial
market; while attaching importance to medium- and small- scale projects
suitable to each economic sector and each locality.
3) To encourage, facilitate and promote the alignment among FDI
enterprises and between FDI and domestic enterprises.
4) To plan FDI attraction by sectors, fields and partners, suitable to the
advantages of each region and each sector in order to promote the investment
efficiency of each locality and each region in conformity with the overall
planning, ensure the national interests and the economic restructuring after a
new growth model.
4.4 Solutions to attract FDI towards sustainable development in
Vietnam
4.4.1 Solutions for identifying development goals
a) Develop the list of spearhead product sectors, regions, growth-driving
economic elements: The accurate identification of the list of spearhead product
sectors, regions, growth-driving economic elements will serve as a basis to
make proper orientations for attracting FDI into key economic sectors, regions
and territories.
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b) Orientations for markets and partnerships: Vietnam still needs to
attract FDI of small and medium enterprises into supporting industries. While
attaching importance to international investment of small and medium

enterprises, Vietnam should shift to attract FDI of transnational companies
(TNCs). Given the globalization and the Fourth Industrial Revolution,
Vietnam's industrialization policy needs to take advantage of new opportunities
as a number of the world's leading TNCs invest in information technology, and
build centres for Research and Development (R&D) in our country.
c) Orientations to attract FDI into territories, localities, industrial parks
and economic zones: In each locality and territory, it is necessary to make
proper orientations for attracting FDI in conformity with characteristics of each
region based on actual situation. For instance, big cities such as Hanoi, Ho Chi
Minh City, Hai Phong and Da Nang should shift to attract projects with hightech, modern services and high-quality human resources training.
4.4.2 Solutions for improving the legal framework
a) FDI policy reform: including the improvement of legal framework and
policies related to FDI. Policies and laws relating to FDI should be further
improved to make them consistent in implementation and create favorable
business environment for enterprises; labor and wage policies (satisfactorily
settle labor and wage disputes, complete procedures for laborers working in
foreign-invested enterprises such as signing labor contracts, collective labor
agreements, create and promote the role of trade unions, party organizations and
youth unions); environmental protection policy; policies related to investment
promotion activities.
b) Improve investment and business environment, review policies that are
hindering FDI attraction
4.4.3 Solutions for implementation organization
a) Promote technology transfer: Technology transfer is suggested to
occur in either one of two ways: horizontal transfer or vertical transfer. The
mechanisms for horizontal technology transfer include (i) learning by observing
and imitating, (ii) movement of employees between multinational corporations
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and domestic companies, and (iii) through competitive pressure placed on
domestic firms.
b) Improve the efficiency of state management of FDI attraction: The
State should develop investment mechanisms to attract resources of foreign
investors in sectors and fields that have strong vertical and horizontal linkages
with domestic enterprises; Strengthen the capacity of the local enforcement
apparatus; Reform the administrative procedures in the direction of getting
people and enterprises as serving objects; Strengthen the inspection and
supervision of foreign investment activities.
c) Improve the quality of human resources: At present, "abundant and
cheap labor" is no longer a competitive advantage of Vietnam to attract FDI,
thus Vietnam should develop a good strategy of training human resources, both
in knowledge and skills and in modern industrial working style. This will be the
decisive comparative advantage of Vietnam in the period of deep integration
into the world economy.
d) Diversify the forms of FDI attraction and adopt preferential policies:
In addition to the traditional forms of foreign direct investment such as
business cooperation contracts, joint venture enterprises and 100%-foreignowned enterprises, it is necessary to expand new forms of investment such as
Build - Operate - Transfer (BOT), Build - Transfer (BT), Public - Private
Partnership (PPP).
e) Promote linkages between domestic and FDI enterprises: FDI plays an
important role in the development of the economy, however, if the Vietnamese
economy wants to develop sustainably, it is impossible not to have the domestic
private sector growing efficiently. The largest part of the Vietnamese economy
is small and medium enterprises (SMEs), and thereby promoting the
development of SMEs will significantly improve the entire economy.
f) Promote investments in supporting industries development to enable
domestic firms to participate in the global production chain

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CONCLUSIONSAND RECOMENDATIONS
The thesis titled "Attracting foreign direct investment towards sustainable
development in Vietnam” with aims to clarify the theoretical and practical
issues related to FDI attraction from the sustainable development perspective;
analyze the situation of FDI attraction in Vietnam and the impacts of FDI
attraction and usage policies on economic growth, social justice, rational use of
natural resources and environmental protection. Thereby, propose key
orientations and solutions to attract FDI projects in the direction of sustainable
development in Vietnam. Given those objectives, the thesis has achieved the
following results:
Firstly, systematize and clarify the theoretical and practical issues of FDI
attraction from the sustainable development perspective. Through different
perspectives and concepts of organizations and individuals on FDI attraction,
sustainable development, the thesis initially establishes a system of criteria for
assessing the sustainable development when attracting FDI into Vietnam,
thereby propose solutions to attract high-quality FDI in line with Vietnam's
development objectives in coming time. Secondly, through the study of
experiences of other countries, the thesis has drawn lessons on FDI attraction
towards sustainable development in Vietnam. Thirdly, by analyzing and
assessing the situation of FDI attraction in Vietnam based on the proposed
economic, social and environmental criteria and processes, the thesis highlights
the strengths and especially unsustainable factors in attracting FDI in recent
years. Fourthly, based on the viewpoints and orientations for FDI attraction and
the sustainable socio-economic development of the country, the thesis proposes
03 groups of solutions, including 11 measures to attract FDI in the direction of
sustainable development in coming time.
Given the system of arguments, analysis of the current situation and
proposal of solutions of the thesis titled "Attracting foreign direct investment

towards sustainable development in Vietnam”, the author hopes to make a
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