PREDICTION MODEL IN ATTRACTING FOREIGN DIRECT
INVESTMENT IN THAI NGUYEN PROVINCE
A Doctor Thesis Presented to
The Faculty of Graduate School
Southern Luzon State University, Lucban, Quezon, Philippines
in Collaboration with
Thai Nguyen University, Socialist Republic of Vietnam
In Partial Fulfillment of the
Requirement for the Degree
Doctor of Business Administration
Trinh Viet Hung
(Hung)
April 2014
CERTIFICATE OF ORIGINALITY
This is to certify that the research work / thesis entitled “Analysis of
Factors Affecting Foreign Direct Investment and the Construction Of Prediction
Model for a Sustainable FDI Attraction to Thai Nguyen Province”, orally
defended/ presented under the DBA Program jointly offered by Southern Luzon State
University of the Republic of the Philippines and Thai Nguyen University of the
Socialist Republic of Vietnam, embodies the result of original and scholarly work
carried out by the undersigned.
This thesis does not contain words or ideas taken from published sources
or written works by other persons which have been accepted as basis for the award of
any degree from other higher education institutions, except where proper referencing
and acknowledgement were made.
_____________________
Researcher/Candidate
Date Orally Defended: __________________
Noted:
ASSOC. PROF. NGUYEN TUAN ANH
Dean
International School
Thai Nguyen University
Date: __________________
2
ABSTRACT
The objectives of the study is to analyse the factors affecting FDI attraction to
Thai Nguyen Province. The study was conducted in August 2013 in Thai Nguyen.
The data utilized in the research included primary data obtained through a
questionnaire survey with 32 FDI investors in Thai Nguyen Province in August 2013
and secondary data from statistical yearbook and reports of the provincial and central
government. The results obtained from exploratory factor analysis and multivariate
regression analysis showed that factors affecting FDI attraction to Thai Nguyen
Province included: Policy, Confidence of Investors, Infrastructure. In which, Policy
has the highest fluence on FDI attraction. The study also constructed a prediction
model for FDI attraction to Thai Nguyen Province.
3
ACKNOWLEDGEMENTS
4
Table of content
CERTIFICATE OF ORIGINALITY ................................................................................. 2
ABSTRACT ........................................................................................................................ 3
ACKNOWLEDGEMENTS ................................................................................................ 4
LIST OF TABLES .............................................................................................................. 8
LIST OF FIGURES ............................................................................................................ 9
CHAPTER 1...................................................................................................................... 10
INTRODUCTION ............................................................................................................ 10
Background of the study ............................................................................................... 10
Statements of the problem ............................................................................................ 15
Research objectives ....................................................................................................... 16
1.1.
Hypothesis .......................................................................................................... 16
1.2.
Scope and Delimitation of the Study ................................................................. 17
1.3.
Significance of the study .................................................................................... 18
CHAPTER 2...................................................................................................................... 21
REVIEW OF RELATED LITERATURE AND STUDIES............................................. 21
2.1. Review of Related Literatures ................................................................................ 21
2.2. Review of related studies ........................................................................................ 24
2.3. Conceptual Framework.......................................................................................... 30
CHAPTER 3...................................................................................................................... 32
RESEARCH METHODOLOGY ..................................................................................... 32
3.1. Locale of the study .................................................................................................. 32
3.2. Research Design ..................................................................................................... 32
Figure 6. Research Design............................................................................................. 32
3.3. Unit of analysis ....................................................................................................... 33
3.4. Data ......................................................................................................................... 33
Sources of Data .............................................................................................................. 33
Population, Sample size and Sampling Techniques ....................................................... 33
Instrument of data collection ......................................................................................... 33
3.5. Description of Respondents .................................................................................... 34
3.6. Statistical Treatment .............................................................................................. 35
CHAPTER 4...................................................................................................................... 37
DATA PRESENTATION, ANALYSIS AND INTERPRETATION ............................... 37
4.1. Analysis of primary data on investors’ expert opinion on factors affecting FDI
attraction to Thai Nguyen Province.............................................................................. 37
4.2. Analysis of secondary data on factors affecting FDI in Thai Nguyen Province ... 51
5
CHAPTER 5...................................................................................................................... 59
Summary of Findings, Conclusions and Recommendations ............................................ 59
5.1. Summary of Findings ............................................................................................. 59
5.2.
Conclusion ......................................................................................................... 69
5.3.
Recommendations .............................................................................................. 71
1. Thai Nguyen Province should focus on offering financial incentives for FDI
investors. For real estate businesses, Thai Nguyen Province should focus on interest
rate preferentials; for companies in manufacturing and processing industries, tax and
land incentives for factory construction may take better effects. ................................ 71
2. Thai Nguyen Province should develop its electric and water supply to ensure the
production and manufacturing of FDI investors and have contingency plans for
emergency cases. ........................................................................................................... 71
3. Thai Nguyen Province should improve the confidence of investors by applying
transparent and equal policies for all investors. Information about investment and
investment policies should be published in the portal of Thai Nguyen Province. The
province should also increase its PCI to improve the confidence of foreign investors. 71
4. Thai Nguyen Province should support foreign investors in training human
resource by cooperating with foreign companies in recruitment process and training
(such as language and skills in working in an international environment). Workers
who are introduced to foreign companies should be the ones who are skillful and has
strong sense of discipline. .............................................................................................. 71
5. Thai Nguyen Province should develop its supporting industries to supply
materials and reduce the costs for major industries. ................................................... 72
6.
The transport system should be improved. ........................................................... 72
7. Thai Nguyen Province should maintain its stable economic growth, which is
attractive to the investors. ............................................................................................. 72
8. Based on the changes of variables in the model (3), Thai Nguyen Province can
make decisions on how to attract FDI appropriately. .................................................. 72
9. The following further research can be conducted to develop the result of this
study: ............................................................................................................................. 72
Direction 1: quantify the policy factors into an equivalent amount of money that the
investors may receive from the application of specific policies so that the model can
approach the reality. ..................................................................................................... 72
Direction 2: further research can be conducted to explore specific needs of the
investors, focusing on the factors which have been found in this study as well as the
the fulfilment ability of Thai Nguyen Province in those factors. Solutions should be
proposed for both sides. ................................................................................................ 72
Direction 3: the study has proposed solutions to attract FDI, but has not suggested
any solution to retain the investors and expand their business in Thai Nguyen.
Therefore further study can be conducted with this objective. ................................... 72
REFERENCES ................................................................................................................. 73
6
Hair, J.F. et. al. 2009. Multivariate Data Analysis (7th Edition). Prentice Hall .............. 74
Stevens, J.P. 2002. Applied Multivariate Statistics for the Social Sciences, Fifth Edition.
Taylor and Francis group. ................................................................................................ 74
APPENDIX ....................................................................................................................... 76
Appendix A.................................................................................................................... 77
QUESTIONNAIRE SURVEY FORM FOR INVESTORS/ ........................................ 77
BẢNG CÂU HỎI ĐIỀU TRA ....................................................................................... 77
Appendix B .................................................................................................................... 81
RESULT OF REGRESSION ANALYSIS ON SAS ..................................................... 81
2
GDP
2
0.1739
0.6926
14.5651
5.66 0.0387 ........................... 86
CURRICULUM VITAE ............................................................................................... 87
Major Field:
Economics ......................................................................................... 87
Degree obtained: Masters’ Degree .......................................................................... 87
Year of Graduation: 2010 ........................................................................................ 87
WORK EXPERIENCES........................................................................................... 88
7
LIST OF TABLES
Table
Page
Table 1.
Correlation Analysis between FDI and socio-economic
index (2000-2012)
Table 2.
Five point Likert’s Scale
Table 3.
Description of Respondents’ Profile
Table 4.
Factors before conducting EFA
Table 5.
Correlation among variables (survey questions)
Table 6.
Rotated component matrix
Table 7.
Component Score Coefficient Matrix
Table 8.
Reliability of the Exploratory Factors
Table 9.
Average Mean Distribution of Investors’ Responses to
Factors affecting FDI attractiveness of Thai Nguyen
Province
Table 11.
Simple correlation between FDI attractiveness and its
predictor factors
Table 12.
Result of simple linear regression analysis on FDI
attractiveness as perceived by investors and its predictor
variables
Table 13.
Summary of Backward Elimination
Table 14.
Descriptive statistics of FDI and its predictor variables
from 2000 to 2013
Table 15.
Simple Correlation Analysis between FDI and its
predictor variables
Table 16.
Result of simple linear regression analysis on FDI in Thai
Nguyen Province and its predictor variables
Table 17.
Summary of Forward Selection
8
LIST OF FIGURES
Figure
Page
Figure 1.
Gross Domestic Products of Thai Nguyen Province (20002013)
Figure 2.
GDP by sectors in Thai Nguyen Province (2000-2013)
Figure 3.
Registered FDI in Thai Nguyen Province (2000-2013)
Figure 4.
Comparison of registered FDI among provinces (20102013)
Figure 5.
Conceptual Framework
Figure 6.
Research Design
Figure 7.
Model testing (primary model)
Figure 8.
Model testing (secondary model)
9
CHAPTER 1
INTRODUCTION
In recent years, a big change in trend of FDI inflows with a remarkable growth
in FDI to developing countries has been witnessed. Especially in 2012, developing
countries have surpassed their developed counterparts in attracting FDI with 9
developing countries ranked in top 20 FDI attractive countries (UNCTAD, 2013).
As reported by the United Nations Conference on Trade and Development
(UNCTAD, 2012), developing countries in Asia are the leadings to attract FDI during
the period from 2008 to 2012. Despite the decrease of 7% in FDI inflows in the whole
region in 2012, some countries including Vietnam were bright spots for laborintensive FDI. Vietnam was also considered one of most FDI attractive among lowincome host countries (together with Combodia, Myanmar and Philippines).
UNCTAD (2012) forecasted that Vietnam would be one of the potential attractive
hosts for the period 2013-2015.
Background of the study
Thai Nguyen Province is the central province of the Northern mountainous and
midland region of Vietnam in terms of politics and economy. It is also considered the
socio-economic gateway connecting the mountainous and the Red River Delta. Thai
Nguyen Province has border with Bac Can province in the North, Vinh Phuc, Tuyen
Quang in the West, Lang Son and Bac Giang in the East and Hanoi capital in the
South.
Thai Nguyen also has a very convenient location for transportation which is 50
kilometers far from Noi Bai International airport, 200 kilometers far from China and
200 kilometers from Hai Phong port. Thai Nguyen is also a transporting intersection
10
through the system of roads, railways, waterways. Thai Nguyen is located on the
highway 3 from Hanoi to Bac Can, Cao Bang and the border gate with China.
Thai Nguyen has a population of more than 1.2 million with variety of ethnic
groups such as King, Tay, Nung, San Diu, H’mong, San Chay, Hoa and Dao. In
addition, Thai Nguyen is also known as the third largest human resource development
center after Hanoi and Ho Chi Minh City with Thai Nguyen University, more than 11
colleges, 9 vocational colleges which offers training for more than 100.000 people
every year.
Thai Nguyen has abundant and diverse natural resources which can be
considered as a comparative advantage for the development of mining, and
metallurgical industry. Coal reserves in Thai Nguyen ranked second in the country
with fat coal reserves of more than 15 million tons, charcoal reserves of around 90
million tons, ferrous metals include tin, lead, zinc, tungsten, gold, copper, nickel,
mercury, etc. Minerals for construction materials are also potentials for cement and
paving stones manufacturing.
Infrastructures
of
the
province
such
as
electricity,
water
supply,
telecommunications and transportation have also been developed and convenient.
In recent years, there have been positive changes in the socio-economy of the
province with the growth in production in important industries, growth has been
witnessed in all sectors, especially non-public sector has shown its roles in the multisector economy.
11
35000
GDP (Billion VND)
30000
25000
20000
15000
10000
5000
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Figure 1. Gross Domestic Products of Thai Nguyen Province (2000-2013)
Figure 1 illustrates annual GDP growth of Thai Nguyen Province, from which
it can be seen that GDP increased gradually with years at the equal or higher in
compared with the whole country. In 2012, GDP of the province reached 29.508
billion VND, increased by 16% in compared with 2011.
100
GDP by sector (%)
80
60
Agriculture and Forestry
Industry and Construction
Service
40
20
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Figure 2. GDP by sectors in Thai Nguyen Province (2000-2013)
12
Figure 2 shows GDP by sectors in Thai Nguyen Province, which has
transformed positively from 2000 to 2013. Growth in Industry and Construction
sector increased faster while that in Agriculture and Forestry sector grew slower than
the other sectors. The economy transformed sustainably.
Registered FDI(Million USD)
2500
2000
1500
1000
500
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Year
Figure 3. Registered FDI in Thai Nguyen Province (2000-2013)
Figure 3 describes foreign direct investment registered to Thai Nguyen
Province in the duration of 2000-2013. In general, registered FDI in Thai Nguyen
Province had not many changes during 2000-2012 except for 2004 and 2007 when
registered FDI reached 148.1 million USD and 117.8 million USD.
However, in the first six months of 2013, registered FDI soared to 2.14 billion
USD which is an extraordinary increase in FDI inflows to the province.
13
Registered FDI (Million USD)
2500
2000
1500
Thái Nguyên
Bắc Giang
Phú Thọ
Quảng Ninh
Bắc Ninh
Vĩnh Phúc
1000
500
0
2009
2010
2011
2012
2013
Year
Figure 4. Comparison of registered FDI among provinces (2010-2013)
Figure 4 compares registered FDI between Thai Nguyen Province and other
provinces in the Northern region from 2010 to 2013. During 2010-2012, registered
FDI in Thai Nguyen Province was much lower than other provinces while that of Bac
Ninh, Quang Ninh and Phu Tho was quite high. However, in 2013, registered FDI to
Thai Nguyen Province increased dramatically to times of FDI to other provinces.
FDI had a positive effect to the economic growth, export and unemployment of
Thai Nguyen and contributed to the development of the province.
Table 1. Correlation Analysis between FDI and socio-economic index
(2000-2012)
FDI
FDI
GDP
EXP
UNE
1
0.554
0.719**
-0.574*
GDP
1
0.931***
-0.387
* Significant a probability of 0.05
** Significant a probability of 0.001
*** Significant a probability of 0.0001
Where:
GDP : Gross Domestic Products (Billion VND)
FDI : Annual disbursed FDI (Million USD)
EXP : Export value (Thousand USD)
UNE : Unemployment rate (%)
14
EXP
1
-0.327
UNE
1
FDI had a significant positive correlation with GDP growth and export value of
the province and had a negative impact to reduce unemployment rate. However, in the
past thirteen years, FDI inflows to Thai Nguyen Province was instable and
unpredictable. Particularly in 2013, FDI inflows to Thai Nguyen Province increased
significantly.
This situation raised to the researcher a question on which factors affecting FDI
inflows to Thai Nguyen Province and what can be proposed as recommendation for
the province to maintain stable FDI inflows in order to help promote the socioeconomic development of the province.
After reviewing literature and studies relating to status of FDI in Vietnam,
especially in Thai Nguyen Province, the researcher came to a decision to conduct this
research with the aims of analyzing factors influencing FDI inflows and finding out
the core problems in FDI attraction to the province, from which to come up with
recommendations for Thai Nguyen to employ and apply the most effective methods
into FDI attraction.
For all the reasons above, the researcher would like to conduct the study entitled:
“Analysis of Factors Affecting Foreign Direct Investment and the Construction
Of Prediction Model for a Sustainable FDI Attraction to Thai Nguyen Province”
and propose it to Thai Nguyen Province with the expectation of supporting the
development of the province in particular and the whole region in general.
Statements of the problem
The research aims at determining and analyzing factors affecting foreign direct
investment to Thai Nguyen Province necessary in maintaining stable FDI inflows.
The factors that were taken into account came from the Economic and market factors,
Political and policy factors, Natural resources and geographical conditions, Social
15
conditions. Thereafter, the researcher will propose appropriate solutions and
suggestion to enhance the FDI inflows to Thai Nguyen Province.
Research objectives
This study aimed to formulate the prediction model in attracting FDI in Thai
Nguyen Province. Particularly, the purpose of this study is to answer the following
questions:
1. What is the profile of the company in terms of:
- Name;
- Country of investor;
- Years of investment in Thai Nguyen Province;
- Nature of business;
- Investment capital.
2. What are factors affecting FDI attractiveness of Thai Nguyen province based
from investors’ expert opinion in terms of:
- Economic and market factors;
- Natural conditions and infrastructure;
- Political and policy factors;
- Social condition factors;
What model can best predict FDI inflows to Thai Nguyen Province?
3. What strategies should be proposed for the enhancement of FDI inflows in
Thai Nguyen Province?
1.1.Hypothesis
The study focused to test these two hypotheses:
(1) Factors affecting FDI attractiveness to Thai Nguyen Province:
=
0
+
1
×
+
2
×
16
+
3
×
+
4
×
Where:
OAS
POL
ING
ECO
SOL
: Overall assessment of FDI attractiveness as perceived by investors
: Policy factors
: Natural resource, and geographical factors
: Economic and market factors
: Social conditions
The hypothesis to be tested is:
:
:
=
=
=
=0
≠ 0 ( = 1 ÷ 4)
(2) Prediction model of FDI registered to Thai Nguyen Province:
=
+
×
+
+
× .
×
+
+
×
×
+
+
×
× .
+
+
× .
×
+
Where:
FDI
GDP
EXP
PCI
P.FIN
P.LAND
P.ADMIN
INFR
INFL
URB
: FDI registered in Thai Nguyen Province in year t (Million USD)
: Gross domestic products in year t-1 (Billion VND)
: Export value of Thai Nguyen Province in year t-1 (Thousand USD)
: Provincial competitiveness index in year t-1
: Financial incentives for investors in year t (if yes: 1, if no: 0)
: Land incentives for investors in year t (if yes: 1, if no: 0)
: Administrative privileges for investors in year t (if yes: 1, if no: 0)
: National budget expenditure for development in year t-1 (Billion VND)
: Inflation rate in year t-1 (%)
: Urbanization year t-1 (%)
The hypothesis to be tested is:
:
:
=
=
=
=
=
=
=
=
=0
≠ 0 ( = 1 ÷ 9)
1.2.Scope and Delimitation of the Study
The study aims to determine and analyze the factors affecting FDI attraction to
Thai Nguyen Province. The researcher proposed to collect primary data through
information provided by questionnaire survey for respondents who were holding a
management position at 32 FDI enterprises in Thai Nguyen Province in August, 2013.
The secondary data was also obtained from reports on socio-economy, yearly
statistical books and reports of the Vietnam Chamber of Commerce and Industry from
2000 to 2013.
17
1.3.Significance of the study
The results of this research will be of benefit to the policy makers of Thai
Nguyen Province in shape an appropriate promotion policy to maintain the FDI
inflows to Thai Nguyen as what it performed in 2013. Also, limitation and drawbacks
in provincial strategy of FDI attraction will also be found, from which will help them
to design better strategy for FDI attraction for the province. Moreover, the results
shall be used as a significant reference for the provincial government to make the
most realistic development plan which is suitable with the characteristics of the
province, attach FDI attraction to the long-term development of Thai Nguyen
Province, and to draw focused policies in the development plan of the province.
If the results of this research is applied, it would help to enhance the FDI
attraction performance of Thai Nguyen Province in the most sustainable way. This, in
turn, will help to improve the growth and development of Thai Nguyen, create more
jobs and reduce poverty and unemployment.
The research will also enable FDI investors to raise the voice of their seeking
for an effective and competitive investing environment. This will create more
available opportunities for investors if they invest to Thai Nguyen.
The results shall also be applied to other provinces in the Northern mountainous
region of Vietnam which have similar conditions to Thai Nguyen, this will forms a
basis for nearby provinces to conduct further research to give their own solutions for
their provinces.
For the researcher, the study is considered as an opportunity for her to have a
better understanding about the investments of Thai Nguyen Province. This will also
bring her more broader and deeper research ideas on FDI.
18
1.4.Definition of terms
Foreign Direct Investment
Investment from one country into another
(normally by companies rather than
governments) that involves establishing
operations or acquiring tangible assets,
including stakes in other businesses
Registered FDI
Total amount of FDI as registered in the
business registration to Thai Nguyen
Province
Disbursed FDI
The amount of FDI disbursed at the time
of survey
Provincial Competitiveness Index
Introduced in 2005 as the results of
fruitful
collaboration
between
the
Vietnam Chamber of Commerce (VCCI)
and the U.S Agency for International
Development (USAID), the Provincial
Competitiveness Index (PCI), in order to
promote the development of the private
sector, is designed to assess the ease of
doing business, economic governance,
and administrative reform efforts by local
governments of 63 provinces and cities in
Vietnam.
Financial Incentives
Incentives given to the investors such as:
tax incentives, interest rate incentives.
19
Land Incentives
Incentives given to the investors such as:
land leasing, facilities
Administrative Incentives
Incentives given to the investors such as:
assistance
during
procedures,
investment
promotion, etc.
20
administrative
and
trade
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