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Impact of FDI on provincial economic growth in Vietnam

This paper shows that: FDI does Granger-cause private investment, human resources, taxation, infrastructure, trade openness and local technology, FDI has a positive impacts on provincial economic growth in the long term and FDI flows vary over provinces due to differences in geographical conditions and level of development. | JED No.221 July 2014| 65 Impact of FDI on Provincial Economic Growth in Vietnam SỬ ĐÌNH THÀNH University of Economics HCMC – dinhthanh@ueh.edu.vn NGUYỄN MINH TIẾN College of Foreign Economic Relations HCMC - minhtien.ktdn@gmail.com ARTICLE INFO ABSTRACT Article history: Received: Jan. 13 2014 Received in revised form May 07 2014 Accepted: June 30 2014 The impact of foreign direct imvestment (FDI) on economic growth is still a highly controversial issue as remarked by many researchers (Aitken et al.; 1997; Carkovic & Levine, 2002; Bende-Nabende et al., 2003; Durham, 2004; and Hsiao, 2006). Using a panel dataset of 43 provinces in Vietnam during 1997 – 2012 and the Granger causality test by Arellano-Bond GMM and PMG estimation, this paper shows that: (i) FDI does Granger-cause private investment, human resources, taxation, infrastructure, trade openness and local technology; (ii) FDI has a positive impacts on provincial economic growth in the long term; and (iii) FDI flows vary over provinces due to differences in geographical conditions and level of development. Keywords: FDI, economic growth, GMM method, PMG method 66 | Sử Đình Thành & Nguyễn Minh Tiến | 65 - 84 1. INTRODUCTION According to OECD (2002), benefits that developing countries may obtain from FDI are obviously certified. Several studies indicate that FDI can create spillover effects on technological advances, encourage investment in human resources, contribute to internationally commercial integration, improve competitive business environment, and strengthen development of firms. All these effects contribute to higher growth rates and are considered to be effective instruments for economic growth of developing countries. Besides economic benefits, FDI can improve social and environmental conditions of the host country by technology transfer and adjustments to corporate policies to make them more socially responsible. Furthermore, FDI flows serve as a .