This research employs a VAR model to analyze the relationship between FDI and Vietnam’s economic growth. The results suggest that FDI has a positive impact on the latter and vice versa. The research also finds that FDI stimulates export and improves the quality of human resources and technology - important prerequisites for the economic growth. | JED April 2014| 79 An Evaluation of Relationship between Foreign Direct Investment and Economic Growth in Vietnam PHẠM THỊ HOÀNG ANH Banking Academy - anhpham1076_bham@ LÊ HÀ THU Banking Academy - lehathu2011@ ARTICLE INFO Article history: Received: Aug. 1, 2013 Received in revised form Sep. 11, 2013 Accepted: March 31, 2014 Keywords: FDI, economic growth, VAR model, Vietnam ABSTRACT Foreign direct investment (FDI) is an essential source of capital in the gross investment conducive to national economic growth, including the case of Vietnam. Since the 1987 Foreign Investment Law, the country has attracted a large amount of foreign capital, which makes a significant contribution to economic development. This research employs a VAR model to analyze the relationship between FDI and Vietnam’s economic growth. The results suggest that FDI has a positive impact on the latter and vice versa. The research also finds that FDI stimulates export and improves the quality of human resources and technology - important prerequisites for the economic growth. 80 | Phạm Thị Hoàng Anh & Lê Hà Thu | 79 - 96 1. INTRODUCTION Foreign Direct Investment (FDI) plays an important role in economic growth of a nation, especially developing ones. Vietnam is not an exception since FDI flows tend to increase over the years and positively impact economic development. The introduction of the 1987 Foreign Investment Law, as a milestone, starts the country’s integration process, allowing FDI flows to be perceived as an additional source to fill the shortage of domestic investment. FDI inflows into Vietnam have since then increased significantly in terms of both quality and quantity. Some viewpoints suggest that FDI exerts many positive effects on Vietnam’s economy, such as job creation, income increase, export boosts, and improvement in the balance of payments, whereas others maintain that excessive FDI will lead to ‘bubbles’ in certain sectors like real estate and .
