Openness to trade, foreign direct investment, and economic growth in Vietnam

ABSTRACT

Using data over the period 1986 to 2020 and employing the Auto Regressive Distributed Lag bounds testing technique, we examine the linkages amongst economic growth, foreign direct investment (FDI), exports, and imports in Vietnam. The ARDL technique is particularly well-suited in the presence of a mixture of stationary and non-stationary variables. We find a long-run relationship indicating that FDI strongly promotes economic growth, but exports and imports do not have a statistically significant impact on growth. The robustness of these results is confirmed by a range of diagnostic tests and alternative methods of estimation. Additionally, the vector error correction model reveals that, in the short-run, both imports and exports have bidirectional Granger causality with FDI, while FDI has bidirectional Granger causality with economic growth in the long-run. Our findings suggest some policies to develop FDI to bolster economic growth.

KEYWORDS:

• Foreign Direct Investment
• trade openness
• autoregressive distributed lag, Vietnam

JEL CODES:

• F13
• F23
• O53

Data availability

Nguyen, Anh-Tu (2020), ‘Openness to trade, Foreign direct investment, and economic growth in Vietnam’, Mendeley Data, V1, doi: 10.17632/kfcv24xryp.2.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ At present Hong Kong, South Korea and China and the major sources of foreign investment in Hong Kong. In the first 7 months of 2019, there was about a 7% increase in foreign investment in Vietnam (Trading-Economics, 2019).

² Using annual data over the 1990–2007 period, Anwar and Nguyen (2011) found a complementary relationship between FDI and exports and FDI and imports.

³ We thank an anonymous referee for suggesting the use of FMOLS here.

⁴ Again, our thanks to an anonymous reviewer for this suggestion.