Foreign Direct Investment (FDI) in Vietnam Economy

Abstract

Foreign Direct Investment has positive impacts on developing economies, however without proper and effective policies in attracting and management of foreign investment, there can be negative impacts as well. This study attempts to provide a picture of foreign investment in Vietnam over the past time. The main research method used in the article is statistics analysis and Input-Output analysis method using data from Vietnam General Statistics Office, along with some contemporary policy discussion. A comprehensive statistical investigation shows that while FDI sector consistently accounts for about 20% of Vietnam GDP since 1995, this sector is becoming dominating in importing and exporting relatively to State and other non-State sectors. Besides, policies exercised by the Government are both showing signs of unfair treatment between FDI and domestic sectors and showing loopholes exploited by FDI firms (such as tax avoidance and price transfer). From the Input-Ouput analysis, we discovered that the sector which needs State investment the most—domestic sector with highest spillover effects to income and lowest to import —is begin neglected in favor of FDI sectors. Consequently, this has created a fragmented domestic economy that is assembly-based and not fully utilising its manufacturing potentials. Some recommendations drawn from the study are: increase effectiveness of policy in attracting and using foreign investments; ensure fairness in treatment between foreign and domestic firms; create incentives to boost domestic manufacturing; priorities foreign capitals which have positive spillover effects and technology transfer.