An Empirical Study On Two-Way Linkage Between Fdi And Economic Growth In Vietnam

Since economic renovation in 1986, Vietnam's economic construction has recorded great achievements. According to a report published by United Nation Conference on Trade and Development (UNCTAD), Vietnam see as one of the top favored destination for FDI as well as to keep on attracting huge amount FDI flows for a long time in Asian region.Vietnam's economic scale has increased nearly 5 times from 1986 to 2010, average GDP accounted for 6.93% in the same period. It is a great contribution of Vietnam's government of economic policies which stimulate Vietnam's economic growth in general and attract huge FDI inflows in particular. From 1986 until now, Vietnam's trade openness level for foreign investors is more and more widespread which allowed them to invest in many sensitive industries such as: financial, energy industry, retail and telecommunication service, military industry and so on…Vietnam ranked third for FDI attraction among Asian nations with flows reaching a historic record of 95.8 billion in 2008.The role of FDI in the growth process has been a hot topic of discussion in many countries. These discussions have provided a rich insight into the relationship between FDI and Economic Growth. Although several studies on FDI and Growth in developing economies exist, however, few studies on this subject have been done in Vietnam. The available study mainly research direct or indirect effect of foreign direct investment on the host country economic growth, very few researches on the causal nexus between FDI and Growth.Thus, the general objective of this paper to examine the causality between FDI and Growth in Vietnam.The paper use econometrics techniques, international trade and macro econometrics theories and employs IPI, GDP, FDI as the measure of growth in the analysis using available data from 1995 to 2009 for Vietnam which obtained from GSO, UNCTAD, MPI, WB,IMF. In the first step of the analysis process, the paper found that unbalance distribution FDI in Vietnam as a result of long gap economic growth among cities in Vietnam. In order to improve business environment, Vietnam's Government has revised law on foreign investment for five times and has get a significant rise in attraction foreign investors in Vietnam from 1986 until now. Besides, the comparison of Vietnam's law on foreign investment with other Asian countries is also introduced in this part. In second step of the estimation process, the paper using integrated of order1or 2,Granger Co-integration, ADF test, least square, linear regression to found that GDP and FDI have existed in a long term stable relation. FDI inflows are not only effect positively on GDP but also one of the most important determinants in Vietnam economy. Finally, the conclusion and policy recommendations might assist the host country authority in the definition of FDI policies that allow to levelage the positive effects of FDI on the host country economic growth.