Prediction model for foreign direct investment in thai nguyen province

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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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