Positive impacts: The appearance of FDI enterprises created a large number of
jobs for Vietnam’s employees. Also, Vietnam’s labor working for FDI enterprises
would be equipped with export manufacturing knowledge and skills based on the
requirements of foreign investors. Finally, local export enterprises in Vietnam might
access and receive knowledge transfer from FDI enterprises through labor movement
from FDI enterprises to these local ones. The application of export manufacturing
knowledge, skill and experiences of this labor movement would bring about favorable
conditions for the improvement of local human resource quality, which would promote
export competence of local enterprises, enhancing national export competence.
Negative impacts: Labor movement not only takes place in one way from FDI
enterprises to Vietnam’s local export ones but also in the reversed way, which was even in
a stronger basis. After working and getting experiences from local export enterprises, a
large number of employees moved to FDI ones. This caused “brain drain” of local export
enterprises. This phenomenon might result in negative impacts on export business
activities in local enterprises due to the loss of human resource, especially, qualified and
skillful labor in the area of manufacturing export goods
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over the market of
local enterprises.
(2) Channel of technology transfer and R&D activity: First, channel of
technology transfer from FDI enterprises: In addition to capital, FDI enterprises also
bring about advanced manufacturing technology, skills and management competence,
etc, to which the local enterprises can access through the channel of technology
transfer. Second, R&D activity of FDI enterprises: This activity can have
spreadingpositive technological impacts on local export enterprises, which contributes
to the improvement of export capacity of these enterprises, increasing export turnover
of the receiving country.
(3) Channel of labor movement and knowledge transfer: First, local enterprises
can access and receive knowledge transfer from FDI enterprises because there is
labor movement from FDI enterprises to these enterprises. Second, labour movement
does not happen one way from FDI enterprises to local ones, but it does reverse. A part
of labor might work for FDI enterprises after having achieved great experiences.
b. FDI’s impacts on import tunrover
b1. Direct impact channels
(1) FDI enterprises’ goods in replace of exported goods: Together with the
appearance of FDI enterprises, the import of receiving country would decrease because
previous imported goods can be replaced by those manufactured by FDI enterprises. This
is FDI’s positive impact on import, helping in the reduction of import and improvement
of balance of trade in the receiving country.
(2) FDI enterprises’ import of machine, technology and manufacturing input: At
the beginning, FDI enterprises, expecially business and manufacturing ones related to
technology, usually have to import machine, technology, materials, even high quality
human resource due to limited supply of the country.
(3) FDI enterprises’ import of supporting industrial goods not produced by local
market: In the early stage of attracting FDI, receiving countries, especially developing
ones are normally uncapable of producing appropriate supporting industrial goods in
response to FDI enterprises’ requirement. Therefore, FDI enterprises have to import
these goods from their own home or another country. This results in an increase in
import turnover of the receiving country.
b2. Indirect impact channels
(1) Spillover effect through reversed connection between FDI enterprises and
local ones to increase manufacturing input supply capacity of local suppliers: Due to
spreadingimpact of technology and knowledge transfer from FDI enterprises,
manufacturing level of local enterprises can be improved, progressing to self-production of
machine, input accessories, and even advancement of new technology that had to be
imported beforehand. This impact of FDI would help in decreasing import value of the
receiving country.
(2) Channel of attracting more satellite FDI enterprises, developing domestic
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supporting industries: The establishment of satellite FDI enterprises helps to provide
products of supporting industries that had to be imported by both FDI and local
enterprises in the past, which contributes to the limitation of these products’ import,
gradually decreasing import turnover of FDI and local country, and increasing VA as well
as localization of exported goods of the receiving country.
2.1.3.2. FDI impact channels over the structure of import export goods in the
receiving country
a. FDI’s impacts on the structure of export goods: (1) Increase in the proportion
of processed-refined goods and high knowledge-based ones; (2) High value added
thanks to FDI’s concentration on serving the transition of export goods under the
orientation of raising the proportion of processed-refined goods and high knowledge-
based ones; (3) Growth in the proportion of new products in the structure of export
goods.
b. Impact on the structure of import goods: (1) Increase in the proportion of capital
goods in the structure of import goods; (2) Decrease in the proportion of consumer goods
in the structure of import goods; (3) Changes in the proportion of supporting industrial
goods in the structure of import goods.
2.1.3.3. FDI impact transmission channels over import export market in the
receiving country
a. Impact on the scope of import export market: FDI can widen the area of
import export market of the receiving country through the following channels: (1)
FDI’s capability of promoting international trade between the receiving country and
investing ones; (2) distributing networks of TNCs; (3) information channel of import
export market.
b. Impact on the structure if import export market: Major import export market
of a country can be altered through changes in the structure of FDI investors int his
country. It is that fact that, in many countries, the greater the investment size is, the
greater the bilateral trade value between the investing country and the receiving one is.
Big investors would become key and strategic trade partners instead of traditional ones
of the receiving country. So, FDI can change the structure of major import export
market in the receiving country.
2.2. International experiences in fostering FDI’s positive impacts and
mitigating its negative impacts on the receiving country
Emperical study on lessons learnt in China and Thailand helps the author to
summarize five experiences for the case of Vietnam: (1) Developing local supporing
industries; (2) Improving high quality human resource; (3) Encouraging FDI
enterprises’ close connection with local ones; (4) Consistently upgrading infrastructure;
(5) Selecting technology and foreign direct invetors; (6) Regulating and orienting FDI
inflow in Vietnam with specific aims of developing the economy in each period; (7)
Creating a favorable and transparent business environment.
2.3. Proposal of research frame on FDI’s impacts on import and export
in Vietnam
2.3.1. Research frame on FDI’s impacts on import export of Vietnam
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Based on the theory and practice of FDI’s impacts on import export of receiving
country, the author modelized the research frame on FDI’s impacts on Vietnam’s
import export as the following diagrams (2.1 and 2.2).
Diagram 2.1: Resaech frame on FDI’s impacts on Vietanam’s export
Source: Revised and proposed by the author
Technology transfer and
R&D activites
FDI
Direct
FDI enterprises performing
Export activities
Competitiveness pressure
over local export enterprises
Export
Structure of
export
goods
Export
turnover
Knowledge transfer and
labor movement
Export
market
Information about export market
Indiect
FDI
Direct
Import
Import
turnover
Struture of
import
goods
FDI enteprises’ import of
machine, equipment,
technology and
manufacturing inputs
Import replacement by FDI
enterprises’ goods
FDI enterprises’ import of
supporting industries non-
prodcued by local market
Reversed connection between
FDI anterprises and local
ones to improve
manufacturing inputs supply
of local enterpises
Import
market
Attraction of more satellite
FDI enterprises in the
development
of local industries of
12
Diagram 2.2: Resaech frame on FDI’s impacts on Vietanam’s import
Source: Revised and proposed by the author
2.3.2. Proposal of model for evaluating FDI’s impacts on Vietnam import export
The thesis aims at evaluating FDI’s impacts on Vietnam’s import export in three
aspects: (1) FDI’s impacts on import export turnover; (2) FDI’s impacts on the
structure of import export goods; (3) FDI’s impacts on import export market. However,
due to time and data limits, in the quantitative analysis, the author only proposed the
model for evaluating FDI’s impacts on import turnover and export turnover in Vietnam
in order to provide partial proof for qualitative findings. This is the research drawback,
which is expected to be completed in the upcoming studies.
2.3.2.1. Model to assess the impact of FDI on import-export turnover in Vietnam
In this research, the author followed the gravity model by Magalhaes & Africano
(2007), Zhang & Li (2007), Zhang & Song (2000), Jing Xiao (2009) with adjustment to
be in appropriate with the case of Vietnam. Specifically, it is supposed that both import
and export are mainly influenced by: (1) foreign direct investment capital (implemented
by FDI); (2) Vietnam’s GDP; (3) GDP of partner countries; (4) geographical distance
between Vietnam and partner countries; (5) foreign exchange between VND and
currency of partner countries. The author proposed the research model on FDI’s
impacts on import turnover and export turnover in Vietnam as the following:
Ln(EXPit) = β0 + β1ln(FDIit) + β2ln(GDPPCit) + β3ln(VNGDPPCt) + β4ln(RERit) + β5(Distancei) + it0
Ln(IMPit) = β0 + β1ln(FDIit) + β2ln(GDPPCit) + β3ln(VNGDPPCt) + β4ln(RERit) + β5(Distancei) + it0
From the author’s perspective, the participation in WTO changed level of FDI’s
impacts on Vietnam’s import and export turnover, and decreased influencing level of
other independent variables like average GDP per capita, geographical distance and
foreign exchange. Therefore, the author estimated FDI’s impacts and other independent
variables on Vietnam’s import export turnover in two periods of pre and post WTO
participation (1991-2006 and 2007-2016) to prove the conclusion.
2.3.2.2. Description of model’s variables
+ EXPit: Vietnam’s export turnover to partner country i in year t
+ IMPit: Vietnam’s import turnover from partner country i in year t
+ FDIit: implemented FDI capital in Vietnam of partner country i in year t
+ GDPPCit: Average Gross Domestic Product per capita of partner country i in year t
+ VNGDPPCt: Vietnam’s average Gross Domestic Product per capita in year t
+ DISi: Distance between Vietnam and partner country i
+ RERit: Foreign exchange between VND and currency of partner country i in year t
+ it0: deviation
2.3.2.3. Testing and estimation methods
2.3.2.4. Research data
a. Data description
The thesis applied panel data to evaluate FDI’s impacts on impoer turnover and
export turnover in Vietnam. The author only considered 10 nations with biggest FDI
Indirect
13
and bilateral trade value with Vietnam. The limitation of research scope waws decided
based on the following reason: these 10 countries accounted for more than 90% total
FDI in Vietnam and more than 80% total bilateral trade value between Vietnam and the
world. Therefore, the consideration of 10 countries could assure representativeness and
did not cause excessive data as an obstacle for the research. The collected data was in
the period of 1992-2016. All of the above mentioned data regarding import turnover,
export turnover, FDI, GDP...is calculated by USD with reference in the year 2000 to
exclude inflation.
b. Data collection source: Different sources.
2.3.2.5. Research hypothesis (related to the main variable)
H1: FDI volume of partner country i in Vietnam has positive relationship with
Vietnam’s export turnover to partner country i.
H2: FDI volume of partner country i in Vietnam has positive relationship (in short
term) and negative relationship (in long term) with Vietnam’s import turnover from
partner country i.
H3: WTO participation changed FDI’s impact level on Vietnam’s import
turnover and export turnover.
CHAPTER 3: STATUS OF FOREIGN DIRECT INVESTMENT’S IMPACTS
ON VIETNAM’S IMPORT EXPORT IN THE PERIOD 1988-2018
3.1. Status of foreign direct investment and Vietnam’s import export in
1988-2018
3.1.1. Status of foreign direct investment in Vietnam in the period of 1988-2018
3.1.1.1. Size and number of projects
Since the beginning of FDI attraction to the end of 2018, Vietnam obtained 29.643
projects with total amount of registered capital of 413,486 billion USD. The total
implemented capital of 190,33 billion USD, accounting for 46,03% of total registered capital.
Despite various changes in the period of 1988-2018, FDI inflow in Vietnam obviously
showed an increasing tendency through thouse years. However, the rate of implemented
capital compared with registered capital was at low level in relation to other countries in the
region and in the world, which was 46,03% in the whole period of 1988-2018.
3.1.1.2. Investment structure
Sectoral basis: In the period of 1988-2018, processing and manufacturing
industries attracted 13.306 projects with total registered capital of 195,911 billion USD,
accounting for 57,48% of total FDI. The second biggest FDI attracting sector was real
estate business with 760 projects, equal to 57,933 billion USD, accounting for 17%.
The third biggest one was manufacturing and distribution of electricity, water resource
and air conditioner with 119 projects, equal to 23,093 billion USD, accounting for 6,78%.
The rest 16 sectors accounted for nearly 20%.
Investment mode basis: Most foreign investors chose the kind of business with
100% foreign capital. This was the favorable selection in terms of the number of
projects and totoal registered capital with 20.772 projects, equal to 231,166 billion USD,
accounting for 72,33%, which excelled the rest types of investment.
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Investment place basis: Currently, all 63 provinces and cities in Vietnam have got FDI.
With data in the period of 1988-2017, the leading city was Ho Chinh Minh, which was followed
by Bình Dương, Hanoi, etc. The provinces attracting the least FDI in this period were Hà Giang,
Lai Châu and Điện Biên.
Investment partner basis: Until 2017, there had been 125 nations and territories
directly investing in Vietnam. This number partially revealed the attraction of Vietnam
in the eye of foreign investors. The four leading among them were South Korea, Japan,
Singapore and Taiwan, of which the number of licienced projects and the amount of
registered FDI were the highest.
3.1.2. The status of import export in Vietnam in the period of 1988-2017
3.1.2.1. Import export turnover and the balance of trade
Regarding export turnover: Vietnam’s export turnover experienced steady
growth in the period of 1988-2017 with relatively stable growth speed. From 3,795
billion USD in 1988, Vietnam’s export turnover grew up to 14,449 billion USD in
2000, 72,237 billion USD in 2010 and 214,019 billion USD in 2017.
Regarding import turnover: Import turnover tended to increase in the period of
1988-2017. There were only three years 1989, 1991 and 2009 when the growth rate
was negative with -6,93%; -15,04% and -13,34% respectively.
Regarding total import export turnover: According to General Department of
Vietnam Customs, until 31/12/2017, the Customs system recorded total import export
turnover of Vietnam’s goods at 425,123 billion USD, which marked the highest growth
in those past years.
Regarding balance of trade: With the exclusion of the early period post Doi Moi,
(1988-1995), from 1996 to 2015, Vietnam always suffered from trade deficit.
Especially, during the strategic period, there was deep trade deficit with 81,329 billion
USD, accounting for 20,76% of total export turnover in this period. In the period of
2016-2018, together with the increase in totoal import export turnover, Vietnam succeeded
in trade surplus with 2,521 billion USD in 2016 and 2,915 billion USD in 2017 and 6,79
billion USD in 2018.
3.1.2.2. Structure of import export goods
The structure of export goods: In 2018, goods with the highest proportion in the
export structure were industrial ones with 82,8%, increasing by 1,7% compared with
2017. The following goods in the list were based on agriculture, aquaculture, with
10,9%, decreasing by 1,2% compared with 2017 and those belonging to fuel, mineral
with 1,9% of total export turnover.
The structure of import goods: In 2018, this structure was rather diversified with
the main focus on goods serving export purpose such as computer and electronic
accessories with 42,2 billion USD, increasing by 11,7% compared with 2017; machine,
equipment, accessories with 33,73 billion USD, equal to 2017; iron and steel with 9,9
billion USD, increasing by 9%; plastic fuel with 9,1 billion USD, increasing by 19,6%.
3.1.2.3. Import export market
Export market in 2018, Asia was the biggest commercial partner of Vietnam’s
enterprises in 2018 with export value of 43,95%; the next continents were America
15
with 23,84%; European with 19,01%, of which EU-28 accounted for 17,2%; Australia
with 2% and Africa with 1,2%.
Import market in 2018, the countries from which Vietnam imported the biggest
number of goods were situated in Asia with 80,29% of total import turnover of the nation.
The following continents were the America with turnover of 20,33 billion U.SD., European
with nearly 17,81 billion U.SD., in which, that number of E.U. market was. 13,89 billion
U.SD., accounting for 5,87% of totoal import turnover of the nation.
3.2. Status of foreign direct investment’s impacts on Vietnam’s import
export in the period of 1988-2018
3.2.1. Status of FDI’s impacts on Vietnam’s import export turnover
3.2.1.1. FDI’s impacts on export turnover
a. Direct impact channels: The export value of. FDI area continuously increased
through those years and accounted for higher and higher proportion in total export
turnover of the country. From only 6,81 billion USD and 47% of total export turnover
in 2000, the export value of FDI area increased to 175,5 billion USD and accounted for
72,08% of total export turnover in 2018. So, FDI put positive impact on export
turnover. National export turnover was raised thanks to FDI’s increase in export value.
b. Indirect impact channels
(1) Competitiveness pressure
Positive impacts: The establishment of FDI enterprises in Vietnam resulted in
pressure of competitiveness for local export enterprises, forcing these enterprises to
invest in improving manufacturing technology, labour’s skills and qualification and
management skills in order to produce and export competitive goods under the
pressure of competitivess with FDI enterprises. Consequently, this would lead to the
the increase in export opportunities and capability of local enterprises, which would
raise Vietnam’s export turnover. However, the level of this impact in Vietnam was
limited because foreign investors were not interested in joint venture and cooperation
with local enterprises.
Negative impacts: First, the appearance of FDI enterprises in Vietnam shifted the
commerce of local export enterprises, which was from serving the export of those FDI
enterprises to supplying them with products manufactured in Vietnam. Therefore, FDI
resulted in the loss of export opportunities of local enterprises, which would decrease
Vietnam’s export value. Second, the operation of FDI enterprises with strong financial
background, high technology and good quality human resource caused harsh
competitiveness, making many local export enterprises lose the input supply source for
export and output consume market, which were achieved by FDI enterprises. Third, this
race for cost reduction might make local enterprises choose poor quality manufacturing
materials, use excessive labour compared with regulations of the export market.
(2) Channels of technology transfer and R&D activity
Positive impacts: First, through technology transfer channel of FDI
enterprises: Technology transfer was FDI’s spillover effect channel over Vietnam’s
export. FDI’s spreadingtechnological impacts on Vietnam were transmitted by two
approaches: (i) foreign investors’ transfer of available technology to Vietnam; (ii) local
16
export enterpirses’ study of tips and techniques of applying technology through joint
venture in business with FDI enterprises. Bofth of these two ways contributed to the
increase in productivity of local export enterprises, which would lead to the rise in export
turnover and local value of Vietnam’s export goods. Second, through R&D activity of
FDI enterprises: Although there were big MNCs such as Nissan, Samsung, Hewlett-
Parkard (HP), Bosch, Panasonic, Yamaha, Piaggio which established R&D center in
Vietnam; their R&D activity in Vietnam only stopped at small and simple technology
or researched suitable technology for the adaptation to Vietnam’s situation. Therefore,
spreadingpositive technological impact of FDI on Vietnam’s export through R&D
activity was still limited.
Negative impacts: According to Report on implementation of technology transfer
law by Ministry of technology and science, Vietnam in 2016, technology transfer
activity through FDI’s projects in Vietnam in the past time was neither as successful as
expected nor met the demand of economic development process. In fact, the technology
transferred to Vietnam by foreign enterprises were not the advanced ones, some of
which were at intermediate quality whereas most of which were out of date. This could
make Vietnam become “a technology landsfill site”.
(3) Channels of labor movement and knowledge transfer
Positive impacts: The appearance of FDI enterprises created a large number of
jobs for Vietnam’s employees. Also, Vietnam’s labor working for FDI enterprises
would be equipped with export manufacturing knowledge and skills based on the
requirements of foreign investors. Finally, local export enterprises in Vietnam might
access and receive knowledge transfer from FDI enterprises through labor movement
from FDI enterprises to these local ones. The application of export manufacturing
knowledge, skill and experiences of this labor movement would bring about favorable
conditions for the improvement of local human resource quality, which would promote
export competence of local enterprises, enhancing national export competence.
Negative impacts: Labor movement not only takes place in one way from FDI
enterprises to Vietnam’s local export ones but also in the reversed way, which was even in
a stronger basis. After working and getting experiences from local export enterprises, a
large number of employees moved to FDI ones. This caused “brain drain” of local export
enterprises. This phenomenon might result in negative impacts on export business
activities in local enterprises due to the loss of human resource, especially, qualified and
skillful labor in the area of manufacturing export goods.
3.2.1.2. FDI’s impacts on import turnover
a. Direct impact channels
Positive impacts: In the past, when Vietnam’s economy was outdated with
underdeveloped manufacturing activities, there were numerous goods that could not be
domestically produced even the basic ones. So, the only solution to this trouble was
import. However, since the open-door period and foreign investment attraction,
especially FDI inflow, Vietnam’s manufacturing experienced positive changes. FDI
enterprises were established in different sectors and areas in Vietnam. There were
various goods produced, many of which had been imported beforehand like electric
ones, computer, phones, medicine, health equipment, car, motorbike, etc. So, FDI could
17
replace import goods with those of FDI enterprises made in Vietnam, which
contributed to Vietnam’s import turnover decline.
Negative impacts: (1) FDI enterprises’s import of equipment, technology and
manufacturing inputs: In the early period of joining Vietnam’s market, FDI enterprises,
especially those related to technology had to import machine, technology, input fuels and
accessories, even high quality human resource; which were not provided by the local
enterprises. So, in compliance with FD.I increase in Vietnam, import turnover of FDI area
grew up, which resulted in Vietnam’s increasing import turnover. This impact was obvious
in Vietnam because this was a developing country, of which technology level was low,
human resource qualification was limited, and most FDI enterprises had to import
equipment, technology and input fuel as well as accessories from investing countries. (2)
FDI enterprises’ import of supporting industrial goods: Supporting industries played an
important role in the economy, which directly created value added, improving
competitiveness for the products and speeding up national industrialization. However,
due to its weak supporting industries, Vietnam’s industry development largely depended
on external resources. FDI enterprises in Vietnam had to import most goods of
supporting industries to serve business and manufacturing activities.
b. Indirect impact channels
(1) Spillover effects through reversed connections between FDI enterprises and
local ones to improve local suppliers’ capacity
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