Foreign direct investment and endogenous growth in Vietnam

Abstract

Foregin Direct Investment's (FDI's) contribution to growth has been a controversial topic in economic literature and appears to be country specific. In this article, we use time-varying coefficients in an augmented production function and let FDI indirectly affect Gross domestic product growth through labour productivity. This approach creates built-in heteroskedasticity, so the feasible generalized least square estimation is employed. The results show that FDI has significant and positive effect on labour productivity and economic growth in Vietnam, but the effect is not equally distributed among economic sectors.

Acknowledgements

The author wishes to thank Drs Byron Ganges, Illan Noy and Adam Fforde for their comments and information concerning empirical literature on the growth effect of FDI and stylised facts on Vietnam's economy.

Notes

¹See Fforde (2005), pp. 63–91.

²For discussions on time-varying coefficients, see Griffiths et al . (1993), pp. 412–3, and Greene (2003), pp. 132–3.

³See, for example, Babnoli et al . (1995), and Romer (1994).

⁴For detailed analysis of the LSDV model and its FGLS, see Greene (2003), pp. 287–95.