1. Home
  2. Vol 7, No 6 (2023)
  3. Dang

Impacts of Foreign Direct Investment on Economic Development: Does Institutional Quality Matter?

Thuy T. Dang, Tran Thi Kim Oanh, Ha Luong Thanh, Trung Ngoc Nguyen

Abstract


The linkage between foreign direct investment (FDI) and economic development has been demonstrated in economic literature. In this study, we analyze the impact of FDI on economic development, considering the role of institutional quality in 63 provinces/cities in Vietnam in the period 2005–2022. Applying various regression methods, such as Pooled OLS, FEM, REM, GMM, and PVAR, the results confirm that foreign direct investment and institutional quality have a positive impact on economic development. Findings also provide evidence that institutional quality is an important factor in attracting FDI, determining both the quality and quantity of inflows from other countries into Vietnam. Some policy implications are given to promote the role of institutions and attract foreign direct investment, thereby promoting the economic development of provinces and cities in Vietnam.

 

Doi: 10.28991/ESJ-2023-07-06-05

Full Text: PDF


Keywords


Economic Development; Foreign Direct Investment; GMM; PVAR; Institutional Quality.

References


Domazet, I. S., & Marjanović, D. M. (2018). FDI as a Factor of Improving the Competitiveness of Developing Countries. Advances in Finance, Accounting, and Economics, 82–104, IGI Global, Pennsylvania, United States. doi:10.4018/978-1-5225-3026-8.ch005.

Iamsiraroj, S. (2016). The foreign direct investment-economic growth nexus. International Review of Economics and Finance, 42, 116–133. doi:10.1016/j.iref.2015.10.044.

Agosin, M. R., & Machado, R. (2005). Foreign investment in developing countries: Does it crowd in domestic investment? Oxford Development Studies, 33(2), 149–162. doi:10.1080/13600810500137749.

Falki, N. (2009). Impact of foreign direct investment on economic growth in Pakistan. International Review of Business Research Papers, 5(5), 110-120.

OECD. (2012). (2001). OECD Environmental Outlook. Organisation for Economic Cooperation and Development (OECD), Paris, France. doi:10.1787/9789264188563-en.

Herman, M., Chisholm, D., & Leavell, H. (2004). FDI and the effects on society. Allied Academies International Conference. Academy for Studies in International Business. Proceedings: Jordan Whitney Enterprises, 4(1), 1-15.

Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and economic growth: The role of local financial markets. Journal of International Economics, 64(1), 89–112. doi:10.1016/S0022-1996(03)00081-3.

Huynh, C. M. (2021). Foreign direct investment and income inequality: Does institutional quality matter? Journal of International Trade & Economic Development, 30(8), 1231–1243. doi:10.1080/09638199.2021.1942164.

Litjobo, R. (2009). FDI, governance and development: the case of Lesotho emerging from the periphery. Master Thesis, University of Witwatersrand, Johannesburg, South Africa.

Jude, C., & Levieuge, G. (2017). Growth Effect of Foreign Direct Investment in Developing Economies: The Role of Institutional Quality. World Economy, 40(4), 715–742. doi:10.1111/twec.12402.

Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70(1), 65–94. doi:10.2307/1884513.

Barro, R. J., Sala-I-Martin, X., Blanchard, O. J., & Hall, R. E. (1991). Convergence across States and Regions. Brookings Papers on Economic Activity, 1991(1), 107. doi:10.2307/2534639.

Songkajorn, Y., Aujirapongpan, S., Promma, W., Dowpiset, K., & Jutidharabongse, J. (2022). Attribute Implications and Reverberations of the Japanese Foreign Policy for Technology and Innovation Business in Thailand. Emerging Science Journal, 6(3), 544-552. doi:10.28991/ESJ-2022-06-03-09.

Ho, S. C., Kauffman, R. J., & Liang, T. P. (2007). A growth theory perspective on B2C e-commerce growth in Europe: An exploratory study. Electronic Commerce Research and Applications, 6(3), 237–259. doi:10.1016/j.elerap.2006.06.003.

De Mello, L. R. (1997). Foreign direct investment in developing countries and growth: A selective survey. Journal of Development Studies, 34(1), 1–34. doi:10.1080/00220389708422501.

Hijzen, A., & Swaim, P. (2008). Do multinationals promote better pay and working conditions? The effect multinationals have on wages and working conditions can be positive, but there are conditions to bear in mind, not least for policymakers wishing to attract foreign direct investment. OECD observer, (269), 15-18.

Ozturk, I. (2007). Foreign direct investment-growth nexus: a review of the recent literature. International Journal of Applied Econometrics and Quantitative Studies, 4(2), 79-98.

Moran, T. (2011). Foreign direct investment and development: Launching a second generation of policy research: Avoiding the mistakes of the first, re-evaluating policies for developed and developing countries. Columbia University Press, New York City, United Staters.

Olofsdotter, K. (1998). Foreign direct investment, country capabilities and economic growth. Weltwirtschaftliches Archive, 134(3), 534–547. doi:10.1007/bf02707929.

Acemoglu, D., Johnson, S., Robinson, J., & Thaicharoen, Y. (2003). Institutional causes, macroeconomic symptoms: Volatility, crises and growth. Journal of Monetary Economics, 50(1), 49–123. doi:10.1016/S0304-3932(02)00208-8.

Tintin, C. (2012). Does foreign direct investment spur economic growth and development: A comparative study? 14th Annual European Trade Study Group Conference, 13-15 September 2012, Leuven, Belgium.

Ahmad, M. S., Szczepankiewicz, E. I., Yonghong, D., Ullah, F., Ullah, I., & Loopesco, W. E. (2022). Does Chinese Foreign Direct Investment (FDI) Stimulate Economic Growth in Pakistan? An Application of the Autoregressive Distributed Lag (ARDL Bounds) Testing Approach. Energies, 15(6). doi:10.3390/en15062050.

Yimer, A. (2023). The effects of FDI on economic growth in Africa. Journal of International Trade & Economic Development, 32(1), 2–36. doi:10.1080/09638199.2022.2079709.

Nguyen, C. T., & Tran, S. H. (2011). Economic Development under Reform and World Integration and the Main Factors Influencing the Economic Growth in Vietnam. Vnuhcm Journal of Science and Technology Development, 14(1), 5-27.

Dat, P. M., Huan, N. V., & Hang, N. T. (2020). Applying the goal management model on the business governance in Vietnam in the context of international integration. World Scientific News, (149), 64-80.

Nguyen, C. P., Su, T. D., & Nguyen, T. V. H. (2018). Institutional Quality and Economic Growth: The Case of Emerging Economies. Theoretical Economics Letters, 08(11), 1943–1956. doi:10.4236/tel.2018.811127.

Hayat, A. (2019). Foreign direct investments, institutional quality, and economic growth. Journal of International Trade & Economic Development, 28(5), 561–579. doi:10.1080/09638199.2018.1564064.

Adegboye, F. B., Osabohien, R., Olokoyo, F. O., Matthew, O., & Adediran, O. (2020). Institutional quality, foreign direct investment, and economic development in sub-Saharan Africa. Humanities and Social Sciences Communications, 7(1), 1–9. doi:10.1057/s41599-020-0529-x.

Miao, M., Lang, Q., Borojo, D. G., Yushi, J., & Zhang, X. (2020). The impacts of Chinese FDI and China-Africa trade on economic growth of African countries: The role of institutional quality. Economies, 8(3), 53. doi:10.3390/ECONOMIES8030053.

Dada, J. T., & Abanikanda, E. O. (2022). The moderating effect of institutions in foreign direct investment led growth hypothesis in Nigeria. Economic Change and Restructuring, 55(2), 903–929. doi:10.1007/s10644-021-09332-w.

Ullah, S., Ali, K., & Ehsan, M. (2022). Foreign direct investment and economic growth nexus in the presence of domestic institutions: a regional comparative analysis. Asia-Pacific Journal of Regional Science, 6(2), 735–758. doi:10.1007/s41685-022-00236-9.

Mathur, S. K. (2017). Effects of Corruption & FDI on Income Inequality: Empirical Investigation. Final Report, IIT Kanpur, India, 1-14.

Van Bon, N. (2019). The Role of Institutional Quality in the Relationship between FDI and Economic Growth in Vietnam: Empirical Evidence from Provincial Data. The Singapore Economic Review, 64(03), 601–623. doi:10.1142/s0217590816500223.

Nguyen, H. T., Vo, T. H. N., Le, D. D. M., & Nguyen, V. T. (2020). Fiscal Decentralization, Corruption, and Income Inequality: Evidence from Vietnam. The Journal of Asian Finance, Economics and Business, 7(11), 529–540. doi:10.13106/jafeb.2020.vol7.no11.529.

Teixeira, A. A. C., & Loureiro, A. S. (2019). FDI, income inequality and poverty: a time series analysis of Portugal, 1973–2016. Portuguese Economic Journal, 18(3), 203–249. doi:10.1007/s10258-018-00152-x.

Kim, S., & Choi, B. (2020). The impact of the technological capability of a host country on inward FDI in OECD countries: The moderating roles of institutional quality. Sustainability (Switzerland), 12(22), 9711. doi:10.3390/su12229711.

de Haan, J., & Sturm, J. E. (2017). Finance and income inequality: A review and new evidence. European Journal of Political Economy, 50, 171–195. doi:10.1016/j.ejpoleco.2017.04.007.

Wooldridge, J. M. (2013). Correlated random effects panel data models. IZA Summer School in Labor Economics. Michigan State University, East Lansing, United States. Available online: https://www.iza.org/conference_files/SUMS_2013/slides_ 2_nonlin_iza.pdf (accessed on November 2023).


Full Text: PDF

DOI: 10.28991/ESJ-2023-07-06-05

Refbacks

  • There are currently no refbacks.


Copyright (c) 2023 Thuy T Dang, Tran Thi Kim Oanh, Le Kieu Oanh Dao