Tác động của đầu tư trực tiếp nước ngoài đến chuyển dịch cơ cấu hàng xuất khẩu ở vùng duyên hải bắc bộ, việt nam

SOUTHERN LUZON STATE UNIVERSITY, REPUBLIC OF PHILIPPINES
IN COLLABORATION WITH
THAI NGUYEN UNIVERSITY, SOCIALIST REPUBLIC OF VIETNAM
_______________________________________________________________________________

IMPACTS OF FOREIGN DIRECT INVESTMENT ON RESTRUCTURE
OF EXPORTS IN THE NORTHERN COASTAL REGION OF VIETNAM

DOCTOR
OF BUSINESS ADMINISTRATION

BY
DBA. Candidate: NGUYEN THIEN SU (SUNT)
Scientific Adviser:

Dr. TRAN DAI NGHIA

July, 2013

0


ACKNOWLEDGEMENT
One of the joys of completion is to look over the journey past and remember all
the friends and family who have helped and supported me along this long but fulfilling
road.
I would like to express my heartfelt gratitude to leaders of Thai Nguyen
University in VietNam and Southern Luzon State University in the Philippines who
created best conditions for me to complete the course generally and fulfill the disertation
particularly.
My sincere gratitude also goes to professors in the Council of Examiners for

Framework of the DBA namely Professor Cecilia N. Gascon, Professor Walberto A.
Macaraan, Professor Melchor Melo O. Placino, Professor Nordelina B.Ilano, Professor
Do Anh Tai, Dr. Hoang Thi Thu who provided encouraging and constructive feedbacks.
It is no easy task, reviewing a thesis, and I am grateful for their thoughtful and detailed
comments.
I would like to send my special thanks to Professor Tran Dai Nghia who guided
the direction of the work with his careful and instructive comments during the process of
writing the DBA. I could not have asked for better role models, each inspirational,
supportive, and patient. I could not be prouder of my academic roots and hope that I can
in turn pass on the research values and the dreams that he has given to me.
My gratitude goes towards Professors directly gave me useful and memorable
lectures in DBA namely Dr.Professor Cecilia N. Gascon, Dr.Professor Walberto A.
Macaraan, Dr.Professor Melchor Melo O. Placino, Dr.Professor Alice T. Valerio, Dr.
Professor Do Anh Tai, and Dr. Professor Tran Dai Nghia. They provided me a rich and

i


fertile environment to study and explore new ideas. They made my DBA life is ever
fluid, and, in the course of it all, a warm and inviting place to work.
I am grateful to lecturers who managed the International Cooperation Program
between Vietnam and the Philippines namely Professor Nguyen Tuan Anh, Professor
Dang Xuan Binh and Mr. Nguyen Thanh Hai. Without their cooperation, I could not
have chance to join and fulfill the course.
My thanks also send to the Hanoi College of Industrial Economics, functional
ministries- Ministry of Industry and Trade, and my colleagues for their generous support.
I have been surrounded by wonderful colleagues; thank you for welcoming me as a
friend and helping to develop the ideas in this thesis.
I would not have contemplated this road if not for my parents, my wife, my
children, and all of my dear friends who instilled within me a love of creative pursuits,

science and language, all of which finds a place in this thesis.
Nguyen Thien Su
July, 2013

ii


TABLE OF CONTENTS
CONTENTS
ACKNOWLEDGEMENT

pager
i

TABLE OF CONTENTS

iii

ABSTRACT

vi

LIST OF TABLES

vii

LIST OF FIGURES

viii

CHAPTER I: INTRODUCTION

1

1.1. Background information

3

1.2. Statement of the problem

4

1.3. Hypotheses of the study

5

1.4. Objectives of the study

5

1.5. Significance of the study

6

1.6. Scope and limitations of the study

7

1.7. Definition of terms

7

1.8. Organization

9

CHAPTER 2: LITERATURE REVIEW
2.1. FDI and Effects of FDI

10
10

2.1.1. Forms of FDI

10

2.1.2. Determinants of FDI

12

2.1.3. Effects of FDI

15

2.1.4. The FDI trend in the world

18

2.2. Export structure

21

2.2.1. Classification

21

2.2.2. FDI flows and export

24

2.2.3. Export quality

27

2.2.4. Comparative advantage existing in exports

31

2.2.5. FDI and Shifting exports struture

33

2.2.6. Methodology of some studies using models of assessing the impact of FDI
on shifting exports structure

36

2.3. Theoretical framework

39

2.3.1. Quantity and quality of export structure

39

2.3.2. Shifting export structure

41
iii


2.3.3. Factors determining the export structure and shifting exports structure

43

2.3.4. FDI in shifting exports structure

46

2.3.4.1. FDI with restructuring export products

46

2.3.4.2. The impact of FDI on Shifting Exports structure

55

2.4. Conceptual Framework

56

57

CHAPTER III: RESEARCH METHODOLOGY
3.1. Locale of the study

57

3.2. Research Design

60

3.2.1. Research Methodology

60

3.2.2. Variables used in the research

61

3.2.2.1. Variables to measure exports structure of the region

61

3.2.2.2. A Measurement of shifting exports structure in the Northern Coastal
Region of Vietnam

63

3.2.2.3 A measurement of the impact of FDI on shifting exports structure

63

3.3. Data sources used to analizing and testing models

64

3.4. The models used in the study "The impact of FDI on shifting exports
structure in the Northern Coastal Region of Vietnam"

65

3.4.1. Formula of the impact of FDI on shifting exports structure (SE) in the
Northern Coastal Region

65

3.4.2. Two models used in the study "The impact of FDI on shifting exports
structure in the Northern Coastal Region of Vietnam"

67

CHAPTER IV: PRESENTATION, ANALYSIS AND INTERPRETATION
OF DATA

68

4.1. Role of the Northern Coastal Region in the economic development of the

68

country
4.2. The situation of enterprises and export goods:
4.2.1. Industrial development and Economic situations in period 1986-1995

72
72

4.2.2. Export analysis in period of 1995-2004

75

4.3. Impacts of FDI on restructuring exports in the Northern Coastal Region

79

in the period 2005 - 2012
4.3.1. Exports of the Northern Coastal Region

79

4.3.1.1. Export quality restructuring

79

4.3.1.2. Shifting exports structure in the Northern Coastal Region

83

4.3.2. FDI with shifting exports structure of the Northern Coastal Region

90

4.3.2.1. FDI actraction in Vietnam

90

4.3.2.2. The impacts of FDI on economic development

92

4.3.2.3. Impacts of FDI on shifting exports structure

95
98

4.4. Applying two theoretical models to test the impact of FDI on shifting
exports structure in the Northern Coastal Region

iv


4.4.1. The analytical model 1 can be written as follows

99

4.4.2. The model 2 can be written as follows

107

4.4.3. Assessments on the impacts of FDI on shifting exports structure of the

110

Northern Coastal Region
CHAPTER V: SUMMARY OF FIDINGS, CONCLUSIONS AND
RECOMMENDATIONS

116
116
118
119
119

5.1. Summary of the findings
5.2. Conclusions
5.3. Recommendations

5.3.1. The solutions for attracting and effective use of FDI for Shifting Export
Structure in the Northern coastal region

129

5.3.2. Basic conditions to attract and use FDI to promote shifting exports
structure.

130

5.3.3. Proposals for further research
BIBLIOGRAPHY

138

APPENDICE

143

CURRICULUM VITAE

148

v


ABSTRACT
This study was carried out to explore the impact of FDI on shifting process of
exports structure in the Northern Coastal Region of Vietnam. Specifically, this study
intended to answer questions of (1) influence of FDI on elements of the economy, (2)
definition of shifting exports structure, (3) impact of FDI on shifting exports structure,
and (4) solutions to attract FDI for shifting exports structure in the region. The main
objective of the research was to take route to shift exports structure, to attract FDI, to
propose oriented solutions to best promote the specific role of FDI, to cater to shift
exports structure in terms of quantity, and to improve the quality of exports structure.
The methodology of the thesis was to review the various relevant literatures. Method of
system analysis, method of fieldwork, method of comparison, quantitative research
methods and forecasting method were also used in the study. Findings showed that there
have been visible changes in term of quantity of exports structure in the Northern Coastal
Region. Also, a new classification of the exports structure and of the exports structuring
besides the traditional classifications such as SITC, VSIC was revealed from the study.
Additionally, the two analytical models used the study showed the accurate results about
the impacts of FDI on shifting exports structure in the Northern Coastal Region. Based

on the scientific conclusions, solutions and policy implications relating for attracting and
making the best uses of FDI in the region are given in the study.
The study confirmed the positive impact of FDI implementation including inputs
and outputs to the region's exports restructuring both in terms of quantity and quality of
the exports structure. Specifically, the FDImade capital has a positive impact on both the
quality and quantity of the exports structure. However it showes a greater impact on the
quality than that on the quantity; The impact of FDI on the exports of processed or
refined goods was higher than that of raw material goods. The FDI increases export
value of private sector significantly; while it negatively influences to that of State Owned
Enterprises; The exchange rate also has an significant effect on the quantity of export
than on the quality.

vi


LIST OF TABLES
Table

CONTENT

pager

4.1

68

4.13
4.14
4.15

The economic indicators of the Northern Coastal Region and the whole
country, in 2010
Industrial growth of economic sectors
Registered businesses in international trade in the period of 1995-2004
Contribution of economic sectors to total export turnover
The total export value in the Northern Coastal Region in the period 2005-2012
The total export value of provinces in the Northern Coastal Region
in the period 2005-2012
Export value of 10 main items with largest proportion of the total export in
the Northern Coastal Region in the period of 2005-2012
The Export structure of the Northern Coastal Region in the period of 20052012
Export situation in the Northern Coastal region in the period of 2005-2012
Shifting exports from raw materials to processed products in the Northern
Coastal region in the period of 2005-2012
PROPY indicator of primary exports of the Northern Coastal Region in the
period of 2006-2012.
EXPY of the Northern Coastal Region in the period 2006- 2012
(For primary goods of the Northern Coastal Region)
Proportion of exports goods with highest PRODY index
Quality of some exports with high processed content in exports structure of
the Northern Coastal Region
Foreign investment (project implemented before December 2012)
FDI licensed in the period 1988-2012 by regions
FDI and economic growth in the Northern Coastal Region

4.16
4.17

Average wages in the Northern Coastal region in the period of 2005-2012
Average wages in FDI enterprises in the period of 2005-2012

96
97

4.18

97
98
100
102

4.22

FDI with changes in the proportion of export in FDI sector in the period
2005-2012
Export value of FDI with high level processed goods
FDI and the Northern Coastal Region export performance
FDI and the Northern Coastal Region export performance by category of
exported goods.
Dependent variable Export value by Northern Coastal Region (Log EVt)

4.23
4.24

Variables used in the model 2
Results of testing models 2

107
107

4.2
4.3
4.4
4.5a
4.5b
4.6
4.7
4.8a
4.8b
4.9
4.10
4.11
4.12

4.19
4.20
4.21

vii

75
76
77
79
79
81
82
83
84
86

87
88
89
91
92
95

105


LIST OF FIGURES
Figure

CONTENT

Pager

2.1

FDI input factors with shifting exports structure

52

2.2

Elements of FDI towards impacts on shifting exports structure

56

3.1

Map showing the survey areas, Northern Coastal Region of Vietnam, 2012

57

4.1

Export growth rate of the Northern Coastal Region in the period of 20052012

80

4.2

Comparing export value of 3 groups of the Northern Coastal Region in the

85

period of 2005-2012
4.3

FDI attraction in Vietnam period of 1988-2012

90

4.4

FDI in total investment (%)

93

4.5

Contribution of FDI sector in GDP (%)

94

viii


CHAPTER I: INTRODUCTION
Vietnam officially became a member of WTO five years ago. Since then,
Vietnam’s economy has undergone many changes and a lot of economic development
strategies have been in effects to solve a problem considered as a key point after
integrating into international economic arena, which is how to make gains more than "
losses". In a simple term, the loss of revenue due to tariff cuts under WTO integration
commitments must be offset by revenues earned from exporting goods, products, and
services. The economy of Vietnam has made many progresses as export has increased
relatively stable. However, the economy still faces very serious problems including high
inflation rate and sharply increased in trade deficit. According to the trade balance data,
the growth rate of import has always been higher than that of export since 2006;
Statistics from the General Statistics Office showed that trade deficit was US $5.07
billion and US $14.2 billion in 2006 and in 2007 respectively; import-export balance
continued to be negative at US $12.9 billion in 2009, US $12.4 billion, and US $12.71
billion in 2011. Particularly, in the first quarter of 2012, the trade deficit was over US
$251 million, equal to 1% of the total export value. In which, the whole domestic sector
was in deficit of US $2.75billion whereas foreign investment sector was in surplus of
$2.5billion. According to statistics from the World Trade Organization, in 2010, Vietnam
became the largest importer in the Association of Southeast Asian countries (ASEAN),
1.5 times it equaled to imports of ASEAN countries combined. Therefore, trade surplus
target after joining WTO of Vietnam has not been reached.

Aiming at creating economic growth in a sustainable way, solving problems
mentioned above and meeting the goals set when joining the WTO in particular and
global economic integration in general, Vietnam has taken many measures to reduce
trade deficit and the most radical measures are to accelerate the pace and to improve the

1


competitiveness of export goods. However, in recent years, the export value of Vietnam
has been very low, one of the reasons is that the structure of Vietnam's trade has been
changed slowly, the structure of exports were still very backward, and exports were
increased mostly in quantity while the export quality has not been improved, and heavily
tilted towards commodities of agriculture, forestry, fisheries, crude oil, coal, and other
low-value added processing commodities. At present, the export value of crude oil and
low-value added goods makes up over 60% of total export value. Industries have high
percentage of outsourcing, especially apparel and footwear. Heavy industrial goods
account for 16% and they are mainly minerals, machinery and high technology products
make up only 2% and 8.3 % respectively.
According to the research carried out by economists, together with promoting
export quantity, the most important thing that every country would like to have is to form
an approptiate export structure consisting of high value added goods with high
technological content and a greater proportion in the exports basket [61]. The reason to
focus on improving export structure towards raising the quality of export structure is that
it can affect the economic growth of the country by the amount of exports [39]. In other
words, the increasing level of the sophistication of export products can increase
economic growth [14]. In addition, according to Kassicieh and Suleiman (2002), if a
country has the quality of exports structure with high technological content products
making up a large proportion in the basket of exported products, it will reduce risks from
fluctuations in the global trade. Moreover, revenues generated from exports would
increase and be sustained, which is the sufficient condition and the target that the export

should be directed to.
The fact that the countries participating in international trade have always tried to
make positive changes in the structure of their exports in order to gain advantage in

2


exports. Besides, great problems that Vietnam's exports facing are the threshold
production of traditional export products and the threat of losing comparative advantage
in exports . Therefore, Vietnam will face great difficulties in the future if it does not
improve significantly in its exports quality. This is one of the biggest problems in the
reform strategy of exports of Vietnam.
1.1. Background information
The Northern Coastal Region of Vietnam includes five provinces, i.e., Quang
Ninh, Hai Phong, Thai Binh, Nam Dinh, and Ninh Binh. According to Decision No.
865/QĐ-TTg of the Prime Minister of Vietnam dated 2008, the Northern Coastal Region
was oriented to become an important economic region of the nation. The goal was to
take all of its potentials and advantages for the development of the Region to contribute
to and play a major role in socio-economic development of Vietnam.
The Northern Coastal Region is one of nine economic regions of Vietnam
contributing to the economic development of the country including export
activity. However, those contributions are not commensurate with potentials and
advantages of the region. Besides, the region's export situation is in the same for the
whole country; The export structure is backward, poor in quality, and not commensurate
with the potentials of the region. The Northern Coastal Region of Vietnam has also been
facing pressures from the international economic integration, not only for export
activities, but also for economic development in general as well. Hence, the issue of
improving the export structure has become essential not only for the region itself, but
also for the economy development. Therefore, shifting export structure of the Northern
Coastal Region in particular and Vietnam in general, has become an indispensable

requirement, and it is also necessary to have an appropriate and really hard leverage to
promote this process to obtain the desired target.
3


In recent years, Foreign direct investment has played an increasingly vital role in
the economic development of Viet nam in general and of each region, province, town,
and cities in particular, and especially export activities. Recently, Foreign direct
investment has always taken "engine role" in creating value and made up more than
40% of the total export value of the country. The FDI has played the essential role in
promoting export for Viet Nam in general and and for the Northern Coastal Region in
particular"[12]. In addition, the Foreign direct investment with advantages of technology,
capital investment, production experiences, marketing skills, etc., has a great influence in
improving the quality of exported goods. Foreign direct investment will also meet
requirements of exports restructure.
The study of the impacts of Foreign direct investment on restructuring export
sector in the Northern Coastal Region will be expected to have significant contribution
theoritically and practically. The results of the study will provide scientific basic
recommendation and references for policy makers in forming the best policy in
restructuring export sector to maximize benefits of exports sustainably. This is the reason
for carrying out the study of “Impacts of Foreign Direct Investment (FDI) on
restructure of exports in the Northern Coastal Region of Vietnam” .
1.2. Statement of the problem
The main issue to be addressed in this research is impacts of Foreign direct
investment on shifting exports structure in the Northern Coastal Region of Vietnam.
Specifically, this study intends to answer the following questions:
(1) How has foreign direct investment affected the elements of the economy?
(2) What quantitative factors are changes in export structure?

4

(3) How foreign direct investment has been affecting the shift of export structure
in the Northern Coastal Region of Vietnam
(4) What are the solutions to attract FDI on shifting exports structure of the
Northern Coastal Region of Vietnam?
1.3. Hypotheses of the study
The following hypotheses were tested in the study:
Hypothesis 1: The FDI promote shifting exports structure in the Northern
Coastal Region both quantitatively and qualitatively.
Hypothesis 2: FDI will significantly influences export values of private sector
and public sector differently.
Hypothesis 3: FDI made for raw commodities and processed food increases the
value of the exports in both processed products (FDIpro) and raw material expported
products (FDIraw).
Hypothesis 4: Export value of FDI sector has increased the quality of export
products in the Northern Coastal region.
Hypothesis 5: The value of industrial productions from FDI sector can boost the
impact on the complexity of export goods.
1.4. Objectives of the study
1.4.1. General objective:
To analyze the practical impacts of FDI and how the implementation of FDI can
influence restructure of exports quantitatively and qualitatively in the Northern Coastal
Region of Vietnam.

5


1.4.2. Specific objective:
To review the impacts of FDI on shifting exports structure and some related

matters
To analyze quantitative indicators reflecting the quality of exports structure
To use the models to test the impacts of FDI on shifting exports structure in the
Northern Coastal Region of Vietnam
To provide a set of policy recommendations and proposed solutions in order to
attract and to make effective use of FDI to promote the exports restructuring towards
improving the quality and quantity of the exports in the Northern Coast region.
1.5. Significance of the study
The study impacts of FDI on shifting exports structure in the Northern Coastal
Region has the following contributions:
The results of this study will be used as a scientific basis for assessing the role of
FDI in shifting the region's exports structure in particular and Vietnam in general.
Those classifications are significant for the study as well as the consideration and
review of the quality of exports structure or the export quality of each group of items,
each item in order to have timely evaluation of shifting process and export adjustments
which are very necessary to achieve objectives.
Implication of analyzing the role of the FDI to shift exports structure in Northern
Coastal Region could be the basic reference for further research with relevant issues in
other regions and for whole country.
This research can help policy makers and provincial authorities in making
economic policies at provincial and national levels with directions, policies, and specific

6


measures accordingly in order to use FDI effectively to serve improving exports
structure of the province in particular and the whole country in general, to achieve
objectives of sustainable export, as well as growth and economic development in the
context of international integration.
The theoretical analysis as well as the status of export activities, the attraction

and use of FDI, and assessment of the impacts of FDI on shifting exports structure to
accelerate the process of restructuring in terms of export quantity, and more importantly
to improve the quality of exports structure in the Northern Coastal Region of Vietnam
and the whole country.
The solutions proposed by the research can be a specific and practical
application of the management of the exports and use of FDI offered by foreign partners
in a proactive and effective way.
1.6. Scope and limitations of the study
This research aimed at studying in a spatial scale of the Northern Coastal Region
of Vietnam; including five provinces of Quang Ninh, Hai Phong, Thai Binh, Nam Dinh,
and Ninh Binh. Research data ranged from 1995 to 2012.
The scope of this research was to analyze the structure of tangible exports. Thus,
the author focussed on studying elements such as the capital performance by foreign
parties, export value of the FDI sector and value of industrial production of the FDI
sector.
1.7. Definition of terms
- Foreign direct investment (FDI): is an investment activity carried out by
economic organizations and individuals in any country which by themselves or

7


combined with other economic organizations or individuals of another country to
conduct fund in cash or property in that country under a certain form of investment
- Input of FDI: it can be understood in the most general way that FDI is an
amount of necessary capital to start business activities that foreign investors need to
spend. The amount of capital can be expressed in money or property, such as: Tangible
fixed assets (machinery, equipment, technological assembly line…) or intangible fixed
assets (patents, trade secret, trademark or current assets (raw materials, spare parts etc).
Thus, it can be understood that the inputs of FDI is the real capital of foreign investors

spent at the time of initial or added to conduct business activities in a field which is
registered and accredited by investment-receiving countries.
- Output of FDI: Includes elements which were made after the process of
conducting business in investment-receiving countries such as Gross Output (GO), Gross
Domestic Products (GDP FDI), or the contribution of FDI to the export sector (EVFDI)
- FDI performance: Is the impact of FDI input elements
- Export structure: Is a whole including many commodities or commodity groups
which account for a certain percentage in terms of quantity as well as a certain
proportion of the total value of export structure
- Shifting exports structure: According to Nguyen Huu Khai (2007), "shifting
exports structure is the change of exports structure from this state to another state in
accordance with requirements of development"[16].
- Value Added (VA): Is difference between Gross Output (GO) and Intermediate
Cost (IC).
- The value of industrial production in FDI areas: Is an independent variable of
FDI output showing gross output of industrial sectors using FDI.

8


- The export value in FDI areas: Is an element of FDI output showing the
contribution of FDI in export sector
- Income per capital: Is a measure of mean income within an economic
aggregate, such as a country or city. It is calculated by taking a measure of all sources of
income in the aggregate (such as GDP or Gross National Income) and dividing it by the
total population.
1.8. Organization:
The dissertation is divided into five chapters; the first chapter gives an
introduction on the topic, the second chapter of the dissertation provides a
methodological overview in terms of theory: FDI affects exports structure both in

quantity and in quality. Chapter 3 presents information about theoretical models to be
developed within the analytical framework of the dissertation selected. Chapters 4
indicates the synthesis of data, model testing results along with the present value
analysis, interpretation, and evaluation of the impacts of FDI on shifting exports
structure in the Northern Coastal region. The final chapter includes a summary of
findings, conclusion, and proposes solutions for attracting and effective usage of FDI and
recommendations for further research for shifting exports structure in the Northern
Coastal region of Vietnam.

9


CHAPTER II
LITERATURE REVIEW
2.1. FDI and Effects of FDI
2.1.1. Forms of FDI
Moosa (2002) raised the FDI classification in the view of Caves (1971), including
the definitions: Firstly, horizontal FDI, which aims to expand the production of similar
products in host country as the product of home country. Secondly, the vertical FDI has
another purpose, which is aimed at the exploitation of raw materials or close to
consumers through distribution channels. Thirdly, FDI group is the sum of the horizontal
FDI and vertical FDI [62].
Heopman (1984) thought that the multinational companies (MNCs) with the
desire to maximize profits and to choose the location to minimize the cost of production,
including transport costs, expenses tariff charges. Therefore, they would split the
production of products in various countries. Especially the product phase should focus on
unskilled labor, will be located in countries with lower wage costs (investment-receiving
countries). Meanwhile, these countries would import intermediate goods, machinery and
equipment from MNCs (corresponding to the increased export MNCs) and increase
export the final product. At this time, FDI was called vertical FDI.

From the investment-receiving countries, FDI can be classified into importsubstituting FDI, FDI increases exports and FDI under the Government's efforts. Importsubstituting FDI related to the production of products that were previously imported by
the country receiving the investment. When that country's imports decrease, investing
countries’s exports also decline. The type of investment seems to be determined by the
scale of market acceptance of the host country, transportation costs and trade
barriers.The second type of FDI is motivated by the desire to seek new sources of input
for many products such as raw materials and intermediate goods. Meanwhile, FDI –
10


recipient countries are driven by the desire to find other resources to invest in production
as raw and intermediate goods. And FDI recipient countries will increase exports of raw
materials, intermediate goods and investment to the investing country and to other
countries which have branches of multinational companies. The third type of FDI is that
the governments of countries receiving investment encourage foreign investment in an
effort to balance the payments deficit. We can see that the approach of the investmentreceiving countries has become strategic development particularly in countries with
developing economies, it is import-substituting FDI and export-oriented FDI.
FDI can also be classified by the way of extension to exploit the advantages of
investment in the host countries, to increase sales of investment firms in their home
countries and countries receiving investment. Besides, FDI is also seeking labor in host
countries to reduce production costs. Extended FDI is affected mainly by the advantages
of firms in investing countries, such as the size of the firm, the focus for research and
development (R & D) and profitability by the advantages of technology.
Maitena Duce, Banco de Espana (2003)’s classification based on the direction of
investment, FDI assets and liabilities under the perspectives of the host country. The
financial expansion of parent company to its subsidiaries in other countries, is considered
as direct investment abroad and vice versa the financial expansion of its affiliates or
subsidiaries in foreign countries, is considered as the reduction in direct foreign
investment in foreign countries. And from the investment-receiving countries, there has
the opposite direction. In addition, FDI is also classified based on the investment tool
that means fact source of FDI; That is capital property revenues incubation enter and reinvestment from other sources such as debt and joint venture. Finally, FDI is classified

by industry classification, according to which FDI flows into any sector for that sector
shall be calculated without taking into account the investor's capital flow of the

11


industry. However, the Organization for Economic Co-operation and Development
(OECD) recommended that the FDI would rely on industry sectors where parent
companies are active. It can be seen, the categorization of FDI is raised above will be
used to host countries to invest and applied to classify the foreign capital investmen.
Under Vietnam's Investment Law (2005), FDI has the following forms:
- 100% of capital investment owned by foreign investors
- Joint-venture economic organizations co-owned by domestic and foreign
investors
- Investment in the form of: Business Contractual Cooperation (BCC); Building
Operate Transfer (BOT); Building Transfer-Operate (BTO), and Building transfer (BT).
- Investment in business development
- Purchase of shares or capital contribution to participate in the management of
investment activities
- Investment performance with mergers and acquisitions
Previously, Vietnam was mainly a capital-receiving country so it should be noted
the categorization of FDI under the host country's perspective. Recently, Vietnam
businesses have tended to invest in abroad, so the categorization based on the perspective
of investors will be effective to help statistical agencies of Vietnam have appropriate
classification.
2.1.2. Determinants of FDI
Dunning (1977) gave a systematic and complete explaination about the factors
which were likely to affect the expansion of international models produced by
Multinational Corporation (MNEs) and capital was sponsored by FDI. Conditions to

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select FDI is that we have to gain the Ownership-specific Advantages (O advantages) for
other firms. The O advantages include: access to the market dominance or cheap raw
materials, the advantages of scale, brand, or the ability to manage intangible assets or
toxic power. In addition, the O advantages also associated with the Internalisation
advantage (I advantage) and the Location advantage (L advantage) [48] [49]. Meanwhile,
the I advantage was the advantage gained from the internal production of the company
which would allow firms to overcome external market and the transaction costs involved,
or this was one of things that the company itself could expand or sell rights to other
firms. Next was the advantage of location (L advantage), it was factor related to the
question of whether the expansion is the ingenious design between domestic and broad.
Once you have the O advantage of a favorable position, FDI will occur.
Imad A. Moosa (2002), summarized the pattern yoke Zhejiang of Dunning
explains the general conditions affecting FDI with the assumption, there was a demand
for specific goods, which a specific firm step inside O advantage, then there was only
two factors including L and I:
- If there is no I advantage, the firm will allow its O advantage for another
company, especially when factors create favorable locations for expansion abroad.
- If the firm has the I advantage and the factor of location is convenient for
expanding competition in the country, the firm will expand its domestic market and
export.
- If the firm gains I advantage and the location is convenient to expand
competition abroad, FDI will occur [82].

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We can say that Zhejiang model of Duning is a typical model which fully

explained in terms of FDI theory, in addition to many studies explaining the factors that
influence FDI.
Saul Estrin and Alan A.Bevan (2000), studied the effects of the factors such as
country’s risk, unit costs of labor, market size and other factors attract FDI in the
transition economies in Central and Western Europe. The results of testing model was
using a larger FDI which was suffered by the above factors, apostle of the host country
risks including economic and political risks.
Maitena Duce, Banco de Espanna (2003), also studied the factors affecting FDI
in the South East and Western Europe concluded: FDI depends on factors such as
economic policy in the investment-receiving countries, the level of gravitational
background country. Also FDI depends on many factors, such as the scale of the
economic reason, national resources of the host country, the level of popular open with
international trade and international market access, quality and financial infrastructure
technology.
Shaukat Ali and Wei Guo (2005) studied the factors affecting FDI into China,
there were two factors which this research emphasizes, that is the size of the market (it
seems to be the factor which mainly effects on the FDI flows into China, especially for
U.S. firms) and cheap labor in China was the retention of second factor (this is the main
factor attracting Asian investment firm in China) [45].
There have been also many other experimental studies on the determinants of the
FDI, which the author can not list here all. But it can be concluded that FDI is influenced
by the tuber of a complex set of factors . Therefore, it requires countries calling for
investment have to consider, study to have the appropriate policies, to promote

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effectively to attract FDI for their growth and development, especially in the competitive
situation of FDI as well as the trends in FDI flows today.
2.1.3. Effects of FDI

FDI provides investment capital, increase revenue, improve the balance of
payment. For developing countries, demand for capital is always the top priority. These
countries always have the gap between investment and economic development need. FDI
is thought to have a contribution to offset this gap [62]. FDI has the advantage of more
stable sources of finance and other financial flows and stable long-term commitments to
investment-receiving countries, increasing the state budget.
- Impacts of FDI on economic growth, production, capacity growth, export
improvement and market expansion
There are many studies about the role of FDI in economic growth. Andreas
Johnson (2005) examined the impact of FDI on economic growth of investmentreceiving countries through two basic channels of FDI, the physical capital and
technology. Meanwhile, technology is the major factor that affects the most to the
economic growth of these countries. The author used the model of data analysis and
concluded that FDI was a key factor promoting economic growth in developing countries
and the opposite conclusion for developed countries. Laura Alfaro (2003) thought that
FDI could yield big advantages for the host country by testing the effect of FDI on
regional growth of crude production, manufacturing and services, during the period from
1981-1999. The results show that the impact of FDI is not clear, namely to have a
positive effect on the manufacturing sector, the impact is not clear in the service sector
and has no effect on crude production area. In the study of Le Xuan Ba (2005) about FDI
for economic growth in Vietnam came to the conclusion that FDI generally played a

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positive role in economic growth. There were many other studies in the role of FDI in
economic growth, but each study evaluated FDI to a specific country, industry, or aspect
of the economy and had the conclusions for each study and generally affirmed the role of
FDI for economic growth in general [1].
Technology is regarded as an essential element of an economy. Technology is the
product of research and development (R & D) that is the invention of new products or

production techniques or both. Anabel Marin, Martin Bell (2004) studied the transfer of
technology from the parent company to affiliates, subsidiaries abroad. The authors study
FDI data of industrial firms in Argentina in the period 1992-1996 [60]. Many other
experimental studies in Australia were conducted on the relationship between FDI and
technology to confirm the role of FDI in technology transfer in the host country. FDI has
an important role in forcing domestic businesses to innovate technology to compete,
maintain and develop. It also makes chance for domestic businesses to approach
advanced technology, the skill of using technology chain, soft technology from FDI
businesses through cooperation activities, transferring and moving the working labor
among businesses. However, this will encounter the limitations, if the original
technology is the technology from multinational companies, because this has the rules
and conditions associated with the technology which is transferred.
- FDI promotes economic restructure and use internal capital more flexiblly and
effectively.
The developing countries have policies to attract FDI into its economic sectors,
regions, provinces and cities under development objective balancing between the
branches and economic regions; at the same time, they also invest into infrastructure
development, especially transport infrastructure to facilitate opportunities for
disadvantaged areas to develop social and economic life. FDI also promotes key
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