Tài liệu Impact asessment of foreign direct investment (fdi) on the economy of hung yen province (1998 2010

IMPACT ASSESSMENT OF FOREIGN DIRECT INVESTMENT (FDI) ON THE ECONOMY OF HUNG YEN PROVINCE (1998-2010) ___________________________ A DISSERTATION Presented to the Faculty of the Graduate School Southern Luzon State University, Lucban, Quezon, Philippines in Collaboration with Thai Nguyen University, Socialist Republic of Vietnam ___________________________ In Partial Fulfillment of the Requirements for the Degree Doctor of Business Administration ___________________________ By PHAM THI TUYET NHUNG (ANNA) December 2013 i APPROVAL SHEET The Dissertation of PHAM THI TUYET NHUNG entitled IMPACT ASSESSMENT OF FOREIGN DIRECT INVESTMENT (FDI) ON THE ECONOMY OF HUNG YEN PROVINCE (1998-2010) Submitted in Partial Fulfilment of the Requirements for the Degree DOCTOR OF BUSINESS ADMINISTRATION A program offered by Southern Luzon State University, Republic of the Philippines in collaboration with Thai Nguyen University, Socialist Republic of Vietnam has been approved by Oral Examination Committee WALBERTO A. MACARAAN, EdD Expert CONRADO L. ABRAHAM, PhD Expert MELCHOR MELO O. PLACINO, PhD Expert EDWIN P. BERNAL, DBA External Panel CECILIA N. GASCON, PhD Chairman Endorsed by: Recommended by: TRAN CHI THIEN, PhD Adviser APOLONIA A. ESPINOSA, PhD Dean Accepted in Partial Fulfilment of the Requirements for the Degree Doctor of Business Administration _____________________ Date WALBERTO A. MACARAAN, EdD Vice President for Academic Affairs ii CERTIFICATE OF ORIGINALITY This is to certify that the dissertation entitled: “IMPACT ASSESSMENT OF FOREIGN DIRECT INVESTMENT (FDI) ON THE ECONOMY OF HUNG YEN PROVINCE (1998-2010)”, orally defended 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 dissertation 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. PHAM THI TUYET NHUNG Candidate Date Orally Defended: June 24, 2013 iii ACKNOWLEDGMENT Throughout the course of research leading to the completion of this dissertation, the researcher would like to express her deep gratitude to the following persons who have supported her with tremendous help in one way or another: Associate Professor, Dr. Tran Chi Thien, her advisor, for his invaluable thoughts, insightful suggestions and useful guidance throughout the writing of the dissertation; Committee Members, for their propositions, valuable comments, and constructive suggestions, which were of substantial value to this study; Professors of Southern Luzon State University (SLSU) and Thai Nguyen University (TNU), for their insightful lectures in different subjects that provided her knowledge and technique to develop a good research. Friends and colleagues, for their meaningful discussion, hospitality and friendship; Finally, her parents, her husband, her sons and her brother, who always encourage and help her in every situation. They have been a great source of encouragement, enhancing her strength to overcome difficulties during the completion of the DBA program. Pham Thi Tuyet Nhung iv DEDICATION This intellectual endeavor is wholeheartedly dedicated to my friends and colleagues, my parents, my husband, my sons and my brother. Pham Thi Tuyet Nhung v TABLE OF CONTENTS PAGE TITLE PAGE ……………………………………………………………….. i APPROVAL SHEET ………………………………………………………. ii CERTIFICATE OF ORIGINALITY ……………………………………….. iii ACKNOWLEDGMENT ………………………………………………….. iv DEDICATION ……………………………………………………………… v TABLE OF CONTENTS ………………………………………………….. vi LIST OF TABLES …………………………………………………………. viii LIST OF FIGURES ………………………………………………………... ix LIST OF APPENDICES …………………………………………………... x ABSTRACT ………………………………………………………………… xi CHAPTER I 2 Objectives of the Study ……………………………………. 3 Hypothesis of the Study …………………………………… 4 Significance of the Study ………………………………….. 4 Scope and Limitations of the Study ……………………… 5 Definition of Terms …………………………………………. 5 REVIEW OF LITERATURE ………………………………. 7 Theoretical Framework ………………………………….… III 1 Background of the Study ………………………………….. II INTRODUCTION …………………………………………… 29 METHODOLOGY Research Design …………………………………………… Data Gathering Procedure …………………...…………… 32 Statistical Treatment …………………..…………………… 33 Analytical Framework …….……………………….…….…. IV 30 44 RESULTS AND DISCUSSIONS …………………………. 46 vi V SUMMARY, CONCLUSIONS AND RECOMMENDATIONS Summary ……………….…………………………………… 79 Conclusions ………………………………………………… 79 Recommendations ………………………………………… 80 REFERENCES …………………………………………………………….. 82 APPENDICES ……………………………………………………………... 87 CURRICULUM VITAE ……………………………………………………. 95 vii LIST OF TABLES TABLE 1 PAGE Comparison of the Component Indicators of PCI of Hung Yen Province to the Highest Score of Vietnam in 2010 …... 49 Comparison of the Component Indicators of PCI of Hung Yen Province to the Highest Score of Vietnam In 2012 …... 50 3 Summary of ADF Unit Root Test Result ……………………. 53 4 Summary of PP Unit Root Test Result ……………………… 54 5 The Result of the Model (I) Estimation ……………………… 56 6 The Result of the Serial Correlation Test in Model (I) …….. 58 7 The Result of the Heteroskedasticity Test in Model (I) ……. 59 8 Result of the Model’s (II) Estimation ………………………… 61 9 Result of the Serial Correction Test in Model (II) ………….. 63 10 The Result of the Heteroskedasticity Test in Model (II) …… 64 11 The Result of the Model (III) Estimation ……………………. 66 12 The Result of the Serial Correction Test in Model (III) ……. 68 13 The Result of the Heteroskedasticity Test in Model (III) ….. 69 14 The Result of the Model (IV) Estimation ……………………. 70 15 Result of the Serial Correction Test in Model (IV) …………. 73 16 Result of the Heteroskedasticity Test in Model (IV) ……….. 74 17 Summary of the Result of the OLS Estimation …………….. 76 18 The Result of Projection ……………………………………… 2 viii 78 LIST OF FIGURES FIGURE PAGE 1 Foreign Direct Investment in Vietnam from 1988-2012 …….. 17 2 Rate of the Implemented FDI capita in Vietnam in 19882012 ……………………………………………………………… 17 3 Theoretical Framework ……………………………………………….. 29 4 Analytical Framework …………………………………………... 44 5 PCI of Hung Yen Province from 2005-2012 …………………. 48 6 Impact of PCI on FDI Inflows in Hung Yen Province ……….. 51 7 The Development Trends of Variables ……………………….. 52 8 Result of the Normal Distribution Test for Residual in Model (I) …………………………………………………………………. 57 The Result of the Normal Distribution Test for Residual in Model (II) ………………………………………………………… 62 The Result of the Normal Distribution Test for Residual in Model (III) ………………………………………………………... 67 The Result of the Normal Distribution Test for Residual in Model (IV) ………………………………………………………... 72 9 10 11 ix LIST OF APPENDICES APPENDIX PAGE A Provincial Competitiveness Index of Hung Yen Province . 88 B Correlation Matrix of Variables …………………………….. 89 C Data on the Indicators in Hung Yen Province ……………. 90 D FDI in Vietnam for the Period 1988-2012 ………………… 91 E Descriptive Statistics of Variables …………………………. 92 F FDI inflows in Vietnam by Province up to December 2012 93 ` x ABSTRACT Title of Research : IMPACT ASSESSMENT OF FOREIGN DIRECT INVESTMENT (FDI) ON THE ECONOMY OF HUNG YEN PROVINCE (1998-2010) Researcher : PHAM THI TUYET NHUNG (ANNA) Degree Conferred : DOCTOR OF BUSINESS ADMINISTRATION Name and Address of Institution : Southern Luzon State University Lucban, Quezon, Philippines and Thai Nguyen University, Socialist Republic of Vietnam Adviser : Dr. Tran Chi Thien Year Written : 2013 ______________________________________________________________ Foreign Direct Investment (FDI) is often seen as an important catalyst for economic growth in developing countries. It affects the economic growth of the host country by stimulating domestic investment, increasing human capital formation and facilitating technology transfer. Regional Gross Domestic Product, Taxes Generation, Export and FDI Labor are often considered the indicators to evaluate the contribution of FDI on the economy of a province. The main purpose of the study is to investigate impacts of FDI on the economy of Hung Yen, measured by four economic indicators, i.e. Regional Gross Domestic Product, Taxes Generation, Export and FDI Labor. The study used annual data series for the period of 1998-2010. The relationships between FDI and the indicators were analyzed by using Distributed-Lag models. The results of the study showed positive and statistically insignificant relations between FDI inflows and the Regional Gross Domestic Product, Taxes Generation, Export, FDI Labor respectively in Hung Yen. Policy xi recommendations are suggested in the light of the results obtained, regarding FDI in the province. xii 1 Chapter I INTRODUCTION Today, globalization is an increasingly recognized process and becomes an inevitable trend of development in human history. When globalization and international economic integration take place more rapidly in both size and speed, competition becomes tougher in the world market. Foreign Direct Investment (FDI) is increasingly important for development of economy of nations. It is claimed that FDI can create employment, increase technological development in the host country and improve the economic condition of the country in general. FDI is a sign to evaluate the policy and economic outlook of a nation. FDI is the motivation to make extensive changes in the development of international relations such as political, economic, diplomatic, etc. Simultaneously, FDI becomes a sharp instrument for development and global integration, market extension, cost reduction and enhancement of competitive advantages of nations. Townsend (2003) said the relationship between foreign direct investment and economic growth is not so clear. There are different views by researchers on the contributions of FDI to economic growth, based on theoretical and analytical findings. Some scholars see FDI as a very important tool for economic growth especially in the less developed countries (LDCs), but others claim that the contribution of FDI to economic development is not as pronounced as most people believe, even some think FDI has no positive contribution to the economic growth of the host country. For example, Nuzhat Falki (2009) examined the Impact of FDI on Economic Growth of Pakistan from 1980 to 2006. She concluded that it has a negative and 2 statically insignificant relationship between GDP and FDI inflows in Pakistan in this period. Pardeep (2000) founded that the increase in FDI inflows in South Asia were associated with a many-fold increase in the investment by national investors, suggesting that there exist linkage effects between FDI and GDP. The impact of FDI on GDP growth was found to be negative prior to 1980, mildly positive for early eighties and strongly positive over the late eighties and nineties. It could be seen that there has been no consensus opinion on FDI and economic growth. Background of the Study In Vietnam, the important role of FDI has been acknowledged for the last 20 years. Since the launch of market-oriented economic reforms in 1986, Vietnam has been among the fastest growing countries in Southeast Asia with the active participation of foreign investors in all fields of the economy. Vietnamese government has quickly jointed the competition for foreign direct investment into regional and global markets by restructuring the domestic economy and opening up the economy to external trade and investment (Hoang Thi Thu, 2013). The FDI capital has been supporting provinces to restructure the economy towards industrialization and modernization to create many new industries and products. It also contributed to improving management capacity, increasing labor productivity, developing technology, expanding export markets, creating jobs, and improving living standards of workers. However, in recent years, some problems, related to FDI, occurred in Vietnam. For example, Vedan company discharged the waste to the ThiVai 3 River, over 100 golf course projects were licensed, capacity of cement plants increased rapidly to levels that exceed the domestic demand, etc. Hung Yen is a delta province, located in the key economic zone of Northern Vietnam. It has advantages of natural conditions and infrastructure. After the Foreign Investment Law was issued (in December, 1987), Hung Yen has attracted a flow of FDI capital to some of its key industries, and this contributed significantly to the restructuring of the province economy. The attraction and use of FDI capital not only contribute to economic development of the province, but also the entire key economic zone in Northern Vietnam. Hung Yen’s economy has greatly transformed since FDI activities were implemented. Therefore, it is highly necessary to conduct assessment of the impact of FDI on the economy of Hung Yen province. This assessment would be a good basis for the authority to issue appropriate policies on economic development of the province. Objectives of the Study In this study, the relationship between FDI and the economy in the province was discussed, and the contribution of FDI to growth was investigated. To perform this analysis, scholarly opinions and suggestions were discussed and empirical analysis on FDI was carried out. The objectives of the study are: 1. Investigate the effect of PCI on FDI inflows in Hung Yen Province. 2. Assess the contribution of FDI on the economy of Hung Yen Province in terms of economic indicators namely: 2.1 RGDP 4 2.2 Taxes Generation 2.3 Export 2.4 FDI Labor 3. Prepare a 5-year projection (2013-2017) using the given models on the following: 3.1 FDI inflows 3.4 Exports 3.2 RGDP 3.5 FDI Labor 3.3 Taxes Hypotheses Hypothesis 1: PCI affects FDI in Hung Yen province in the period of 20052012. Hypothesis 2: FDI inflows positively contribute to RGDP of Hung Yen province. Hypothesis 3: FDI inflows positively contribute to Taxes Generation of Hung Yen province. Hypothesis 4: FDI inflows positively contribute to Export of Hung Yen province. Hypothesis 5: FDI inflows positively contribute to FDI Labor of Hung Yen province. Significance of the Study The study shall become noteworthy to the following subjects: Officials of the Province. The result of the study can serve as a basis to revise some policies as well as devise an appropriate attraction towards FDI strategy for the development of the province. 5 Investors. The result of the study may help investors realize the advantages they can have in doing business in the province, so that they may get interested to make new or expand existing investments in the province. Business students and Future Researchers. This study can serve as benchmark information for related studies. Researcher. This work is a test of her knowledge in business and her ability to engage in a research work. Scope and Limitation of the Study Hung Yen province is located next to Hanoi, the capital of Vietnam. Hung Yen province includes nine districts: Van Lam, My Hao, Yen My, Kim Dong, Phu Cu, Tien Lu, Van Giang, Khoai Chau, An Thi, and one city under province is Hung Yen. The author studied the influences of PCI on the FDI attraction and the impacts of FDI on fours economic indicators: Regional Gross Domestic Product, Export, Taxes Generation and FDI Labor. The thesis concentrated on the period between 1998 and 2010 based on the secondary data. Definition of Terms For better understanding of the study, the following terms were operationally defined: Domestic Investment. Investment in the companies and products of the host country rather than in those of foreign countries. 6 Export. The value of goods and services sold overseas. Foreign Direct Investment (FDI). Investment directed to production or services in a country by a company located in another country, either by buying a company of the host country or expanding the existing business to the host country. FDI Labor. These are the total employees working in FDI enterprises. The FDI Labor is one of the economic indicators to evaluate the contribution of FDI inflows in the economy. Provincial Competitiveness Index (PCI). An index used to evaluate and rank the performance of economic governance including the construction of a favorable business environment for enterprise development of Vietnam’s provinces. Regional Gross Domestic Product (RGDP). The market value of all officially recognized final goods and services produced within a region in a given period of time. Taxes Generation. The total tax revenue of the province’ budget contributed by the FDI enterprise. 7 Chapter II REVIEW OF LITERATURE In analyzing the contribution of FDI on economy, it is necessary to know the type of investment that is qualified as FDI. This section discusses the investments that can be called FDI and those involved in it. Simultaneously, the factors of economy are effected by FDI will be discussed. It also reviews previous researches on the relationship between FDI and economic growth on FDI flows to developing countries in general and to Vietnam in particular. Provincial Competitiveness Index (PCI) The Provincial Competitiveness Index (PCI) was developed in 2005 by the Vietnamese Chamber of Commerce and Industry (VCCI) and the U.S. Agency for International Development-supported Vietnam Competitiveness Initiative (USAID/VNCI). As one of the largest and most comprehensive social surveys in Vietnam, the PCI became a critical tool for measuring and assessing the standards of economic governance in Vietnam’s 63 provinces from the perspective of private sector businesses, covering business-critical issues of entry costs, compliance costs, land access, informal charges and governance qualities on pro-activity, transparency, labor development and legal institutions. The PCI also includes an index assessing quality of provinces’ infrastructure as one of the most critical barriers to investment and growth in the country. The PCI exercise is not intended to be a purely academic exercise, nor to ‘point fingers’ at individual provinces that rank lowest or highest. Rather, the PCI attempts to provide provinces robust 8 information that can help provinces and municipalities to identify where and how they can pursue economic governance reforms to optimal effect. The PCI has triggered a radical change in motivating provincial reform efforts with over 40 provinces conducting PCI diagnostic workshops to engage public-private dialogue or issue resolutions to improve governance performance. To position the PCI on a higher level, surveys have been expanded to reach FDI business voices to draw a more comprehensive picture of Vietnam business climate for policy-makers during their decision-making process. (www.pcivietnam.org) Foreign Direct Investment Foreign Direct Investment (FDI) is investment flowing directly into production or services in a country by a company located in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is made for many reasons including to take advantage of cheaper wages in the host country, special investment privileges such as tax exemptions offered by the country as an incentive to gain tariff-free access to the market of the host country or of the host region. Foreign direct investment is in contrast to portfolio investment, which is a passive investment in the securities of another country such as stocks and bonds. As a part of the national accounts of a country, FDI refers to the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown on the balance of