Analysing the determinants of Vietnam’s FDI inflow
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Abstract
FDI has long been recognised for its positive impact on host countries, prompting economies, particularly those in the developing world, to dedicate significant efforts to crafting policies conducive to attracting FDI inflows. Vietnam stands out as a top performer within the ASEAN region, and it is known for its appeal to FDI. This study seeks to shed light on Vietnam's successful FDI attraction strategies, offering insights for similar endeavours. Utilising the ARDL approach and monthly data from 2010 to 2019, this study examines the determinants of FDI inflows in Vietnam. The analysis reveals that market size is the sole significant factor in both short-term and long-term estimations. However, in the short run, market size, trade openness, and inflation notably influence FDI inflows. These findings underscore the importance of enhancing the host nation’s competitive advantage to attract market-seeking and export-oriented FDI in the short term. However, the FDI landscape shifts towards market-seeking investments over time, particularly as the domestic market expands. This shift presents valuable guidance for policymakers in shaping long-term FDI-related strategies. By leveraging the benefits accrued from FDI, whether market-seeking or export-oriented, host nations can foster domestic market development, thereby sustaining FDI inflows in the long run. This development aligns with the growing global awareness of promoting societal equality, such as the SDGs. By fostering equality, purchasing power within the overall market is boosted, creating a more favorable environment for FDI.
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