The impact of foreign direct investment capital on the manufacturing industries in vietnam
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Ministry of Education and Training THE RESEARCH IS COMPLETED AT NATIONAL ECONOMICS
National Economics University UNIVERSITY
Scientific Supervisor: Prof.Dr. Do Duc Binh
DANG QUY DUONG
Reviewer 1:
THE IMPACT OF FOREIGN DIRECT INVESTMENT CAPITAL
ON THE MANUFACTURING INDUSTRIES IN VIETNAM Reviewer 2:
Specialized Reasearch: International economics (External economics)
Reviewer 3:
Code: 62310106
The thesis will be reviewed and marked by Government Thesis Examination
SUMMARY OF DOCTORAL THESIS IN ECONOMICS Committee
At:…………………
At…..On……..
You can read and refer more about the contents of research at:
- State library
- Library of National Economics University
Hanoi - 2014
Introduction Therefore, it can be affirmed that both FDI and the growth of the manufacturing
industry are key factors to stimulate the economic growth. This leaves a question for
us: Is there any relationship between FDI and the growth of the manufacturing
1. Reasons to do the research industry? and to what extent? What is the role of FDI in developing the
manufacturing industry? For answering these questions helps us allocate and use FDI
The economic growth and development are always the aims that many countries
reasonably as well as develop manufacturing industry, which contributes to the
around the world would like to achieve including Vietnam. Since Vietnam regained
growth of Vietnam economy.
independence in 1975 and especially after renewal policy was implemented in 1986,
the Party and State have set goals for economic development to the forefront with the In the world, there have been abundant of studies on the impact of FDI on the
orientation to 2020 that Vietnam will basically become a modern industrialized manufacturing industry. In Vietnam, there are a number of quantitative studies on the
country. impact of FDI on the process industry such as the research performed by Le Quoc
Hoi (2008), Nguyen Phi Lan (2008), Nguyen Ngoc Anh (2008). However, almost all
In order to achieve this objective, Vietnam needs to make the best use of existing
studies in Vietnam on the impact of FDI on manufacturing industry usually tend to
resources and simultaneously force international integration in order to attract outside
lean heavily toward one side: either quantitative analysis or qualitative analysis. In
resources. In recent times, Vietnam has attempted to attract outside resources, mainly
summary, up to now, there is no comprehensive and systematical study, combining
from foreign direct investment (FDI).
both quantitative and qualitative methodology, on the relationship and the impact of
Theories and practices show that FDI plays a very important role in the economic FDI on the manufacturing industry. That is why I selected the topic "The impact of
development of Vietnam. First, FDI contributes to the development of economic foreign direct investment capital on the manufacturing industries in Vietnam" for my
sectors through additional funding, technology transfer and restructuring the thesis.
economy towards modernization and industrialization. The development of the
2. The aims of the research
economy will facilitate the growth of the entire economy as higher growth rate,
creating more jobs, improving the workforce quality, infrastructure and raise the The purpose of the thesis is to analyse and assess the impact of FDI on the
technology level etc which helps to elevate the position of Vietnam in the region and manufacturing industries in Vietnam. On this basis, the author proposing solutions to
the world. take advantage of the positive effects and mitigate the negative impacts of FDI capital
on the manufacturing industries in Vietnam.
At the national level, there have been many studies on the impacts of FDI on
economic growth, economic restructuring, export promotion, infrastructure and Specifically, the research focuses on the following main points as below:
workforce quality improvement such as the studies conducted by Nguyen Thi Tue
- To formalize theories of FDI, FDI capital and the impacts of FDI capital on the
Anh (2005), Tran Ngoc Thin (2010), Bui Thuy Van (2011) and Nguyen Tien Long
manufacturing industries.
(2012). However, at the sector level, the number of researches on the impacts of FDI
on economic sectors is still modest. - To analyse and assess the impacts of FDI capital on the manufacturing industries in
Vietnam by using methodology of qualitative analyze and econometric models.
Besides, during the process of economic development, it is found that the
development of the process and manufacture industries, also known as manufacturing - To analyze the causes affecting the impact of FDI capital on the manufacturing
industry, is a key factor to speed up economic growth rate. Industry contributes the industries in Vietnam.
largest amount of money to GDP so the growth of manufacturing industry decides the
- Based on the results of research and analysis, to propose solutions that utilize the
growth level of Vietnam economy.
positive effects and mitigate the negative impacts of FDI capital on the
manufacturing industries in Vietnam.
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3. The objects and scope 5.2. The findings, new suggestions drawn from the results and surveys of research
3.1. The objects of the research FDI capital contributes to productivity growth, export promotion and economic
restructuring in the manufacturing industry in a reasonable way.
The thesis studies the impacts of FDI capital on the manufacturing industries in
Vietnam. In terms of levels: Manufacturing industries at level 2 and 3, the medium and low-
tech manufacturing industries at level 3 are affected negatively by forward linkages
3.2. The scope of the research
and backward linkages among FDI firms and domestic firms, which is shown through
- Spatial research: The thesis studies the impacts of FDI capital on the manufacturing output decline in these industries. Only the high-tech-3rd-level manufacturing
industries in Vietnam. industry is the exception because thanks to better internal resources and capabilities,
domestic firms in this sector co-operate with FDI enterprises more efficiently than
- Time range: The manufacturing industries in Vietnam: from 1988 to 2013.
enterprises in the medium-and-low-3rd-level industries.
4. Research methodology
The thesis has proposed some viewpoints of taking advantage of the positive effects
The thesis has employed a combination of different research methods such as and mitigating the negative effects of FDI capital on manufacturing industries,
statistics, analysis and synthesis, modeling method, using references to clarify the including some breakthrough points of view such as: (1) FDI capital is an important
contents of the thesis. The secondary data was collected from the General Statistics strategic capital for manufacturing industries; (2) The manufacturing industry need to
Office, Ministry of Industry and Trade and Foreign Investment Agency. The consider modern technology transfer as one of the fundamental interests; (3) FDI
theoretical framework contains groups of statistical indicators and econometric capital in the manufacturing industry must play an important role in the training of
models, used to assess the impacts of FDI capital on manufacturing industries on both human resources; (4) Do not distinguish between FDI firms and domestic enterprises;
direct and indirect aspect. (5) Appreciate the linkages between FDI firms and domestic enterprises; (6) The
industrial clusters supporting manufacturing industry have an important role to take
5. Contributions of the thesis
advantage of the positive impacts of FDI capital; (7) Need to respect both attracting
5.1. Academic and theoretical contributions and using FDI capital effectively in manufacturing industries; (8) The FDI strategy of
manufacturing industry need to be put in relation with the socio-economic policies.
The thesis has proved FDI capital impacts on the manufacturing industries on both
aspects of direct and indirect. Direct impacts includes: (1) The impact on total capital; On those bases, the thesis proposes two groups of solutions:
(2) The impact on the growth of the manufacturing industry; (3) The impact on
(i) The first is related to taking advantage of the positive impacts of FDI capital
economic restructuring in the manufacturing industry; (4) The impact on promoting
impact on the manufacturing industry in Vietnam. In which the breakpoints are: (1)
export in manufacturing industry; (5) The impact on the contribution to the state
strengthening the efficient of linkages and joint venture between enterprises in the
budget and job creating in the manufacturing industry; (6) The impact on the
manufacturing industry; (2) the development of industrial clusters supporting for the
formation of new industries in the manufacturing industry; (7) The impact on the
manufacturing industry; (3) boosting research and development (R & D)
formation and development of supporting industries for the manufacturing industry.
Indirect impacts includes 4 transmission channels: (1) Competition channel by (ii) The second is related to taking measures for restricting the negative impacts of
putting competitive pressure on enterprises in the manufacturing industry (2) FDI capital on the manufacturing industry in Vietnam. In which innovative solutions
Technology transfer and Research and Development; (3) Training and movement of are: (1) FDI policy to minimize attracting FDI capital into low-tech and low added
human resources; (4) Vertical and horizontal linkages among enterprises. value industries; (2) improving the efficiency of technology transfer activities; (3) the
State support for the fledgling industries.
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6. Organization of the research - FDI and spillover effect on knowledge and productivity
Besides the introduction, conclusion, appendices and reference lists, the structure of Caves are one of the first people studying quantitatively on spillover effect. Since the
the thesis is divided into four chapters as follows: study of the Caves, there are many studies on the spillover effect of FDI in the
developing world, including Asia, Latin America. In the most general sense, almost
Chapter 1: Overview of scientific work related to thesis topic.
all studies agree with the spillover effect of FDI on the manufacturing industry.
Chapter 2: Rationale for FDI capital and model for assessing the impacts of FDI However, the conclusions of these studies conflict each other because it is unclear
capital on the manufacturing industries. that whether the spillover effect of FDI is positive or negative. Spillover effect
depends on many factors such as the capacity of local businesses, the market share of
Chapter 3: The current situations of FDI capital impacts on the manufacturing
foreign investment, the policies of the State and enterprises and others, and the
industries in Vietnam.
studies have yet evaluated and compared the extent each factor to create spillover.
Chapter 4: Viewpoints and solutions for exploring the positive impacts and mitigating
- FDI and the linkages of firms
the negative impacts of FDI capital on the manufacturing industries in Vietnam.
The above studies agree that the relationship between domestic enterprises and
foreign enterprises will affect growth, productivity and export ... of enterprises.
Chapter 1 However, gap in the above study has not determined at what degree, the linkage
proves effective and at what degree the linkage need to reach in order to take full
LITERATURE REVIEW
advantage of the benefits that FDI brings.
1.1. Literature review conducted in the world
- FDI and exports of local manufacturing industries
In the world, science works studying on FDI in the manufacturing industry are very
The studies on evaluating the role of foreign ownership on the export of
diverse, abundant and on many different aspects.
manufacturing industry have given quite different results. To explain this, two
To set premise for research, the thesis will present an overview of the main research important points can be mentioned: export-oriented FDI plays an important role in
points relating to the relationship, the impacts of FDI on the manufacturing industry improving the export performance of the host country, and different countries have
on some main aspects such as imported technology, research and development, the different policies to attract FD, including export-oriented FDI. Although the
spillover effect, vertically associated linkages, technology selection, training and conclusions of the work are diverse on many different aspects, all show that each
salary for workers in the manufacturing industry in the developing countries. country's policy on FDI have a large impact on exports, export promotion, export
expansion of that country.
- FDI in relation to imported technology and local research & development
- FDI with technology selection and local industry
India is a country of many studies on the relationship between imported technology
and local research & development (R&D). These works show that the relationship All studies on the technology selection have concluded that technology affects
between imported technology and local R&D is both supplement and alternative. exports, the growth of the local industry. However, the level of impacts mainly
However, the findings also give many overlapping and unclear conclusion about this depends on the technology policy and the absorbsion ability in the industry of the
relationship. host country.
- FDI with labour and wages
The research on labor and wages give similar comments about the difference in the
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salaries between foreign firms and local ones. The distinction between unskilled key industrial sector of Vietnam, therefore, it is necessary to have a comprehensive
labors and expertise has provided a good basis for explaining this difference because study on the impacts of FDI in this industry. This thesis will evaluate
it helps to take human capital in the past into account. comprehensively the impacts of FDI on manufacturing industry in Vietnam by using
both qualitative and quantitative analysis with assessing the impacts of FDI from two
1.2. Literature review conducted in Vietnam
angles of the direct and indirect.
Since the foreign investment law came into effect in 1988, studies on FDI began to
appear in Vietnam. In particular, from 2000 onward, the recent researches on FDI CHAPTER 2
increased rapidly both in terms of qualitative and quantitative research.
THEORETICAL FRAMEWORK OF FOREIGN DIRECT INVESTMENT
The studies related to evaluation of the impacts of FDI on the economic growth, AND MODEL FOR ASSESSSING THE IMPACTS OF FOREIGN DIRECT
the productivity of the economic sectors INVESTMENT CAPITAL ON THE MANUFACTURING INDUSTRIES
From 2000 onwards, Vietnam has witnessed the appearance of many quantitative 2.1. The Theories of foreign direct investment capital
studies on assessing the impacts of FDI. Initially, they were the assessments of the
Foreign direct investment (FDI) always closely links with foreign direct investment
FDI impacts on the growth of the economy, then developed into more detailed studies
capital. Therefore, in order to make the general theory of FDI, first of all, the thesis
on the impacts of FDI on the economic sectors. After that, there appeared many more
will focus and clarify the theoretical issues about the concept of FDI.
detailed studies on the spillover effects of FDI such as assessing the impacts of FDI
on productivity, wages, technology transfer, level of linkages... 2.1.1. The FDI concept
The studies related to attracting and using FDI There are many definitions and aspects of FDI, but generally said that: FDI is the
process of moving the long-term capital from one country to another, foreign
The qualitative studies on FDI often research on attracting and using FDI. These
investors invest a certain capital ratio and directly involve in the production and
studies offer some solutions to attract FDI, such as creating a favorable investment
business management in relation to the capital they invest in order to achieve long-
environment, preferential policies for foreign investors and giving recommendations
term benefits not only in terms of economic but also the political and socio-cultural
to the State about the innovation mechanism, decentralization of the licensing and
aspect.
management of using FDI. Recently, to increase the reliability, the qualitative studies
often incorporate quantitative factors. 2.1.2. Concept and characteristics of FDI capital
The studies on the direct impacts of FDI Because the concept of foreign direct investment is the movement of capital, it can be
suggested that FDI and FDI capital are linked together.
These studies focus on the analysis of the impacts of FDI on economic restructuring,
export promotion, job creation and contribution to the state budget. The conception of FDI capital: FDI is a kind of capital formed in the process of
foreign direct investment, it is also the capital moved from one country to another by
It can be said that, since 2005, the domestic studies on FDI have shown a decrease in
foreign investors. Foreign investors will be directly involved in managing business
gap between qualitative and quantitative method by using combination of two
and production related to this moving capital with the aim of obtain long-term
methods in research.
benefits not only in terms of economic aspect but also other related benefits..
Through a review of the studies on FDI, we can see that there are many qualitative
Characteristics of FDI capital: (1) FDI capital can be expressed in many different
and quantitative studies related to FDI in Vietnam. There also have been some
forms such as cash, land, machinery, equipment, inventions, patents, trade secret,
quantitative studies assessing the impacts of FDI on productivity and growth in the
trademark; (2) FDI capital is the long-term capital but a loan; (3) FDI capital has a
manufacturing industry. However, the manufacturing industry has been and will be a
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minimum and maximum level that a foreign investor has to contribute; (4) FDI 2.2.1.4. The impact on export promotion in the manufacturing industry
capital link directly with the disposal of foreign investors; (5) The ratio of FDI capital
Output growth not only meets domestic demand but also contributes to promote
regulate dividing profits that foreign investors are entitled to; (6) FDI capital often
exports, this is the next step of development because when the manufacturing
move into areas that have many priorities and advantages of the host country; (7) FDI
industry meets domestic demand or takes advantage of comparative advantages to
capital may affects the economy of host country positively or negatively; (8) FDI
obtain more and more profits. Furthermore, FDI enterprises with multiple
capital is more common and profitable than indirect investment capital, it means that
relationships with international partners in global market with the brand prestige will
FDI is also risker.
be an important channel for promoting the exports of surplus products.
2.1.3. Some theories relating to FDI capital
2.2.1.5. The impact on the contribution to the state budget and job creation for the
The thesis cover some theories such as the theory of market power; the eclectic national economy
theory; the marginal productivity theory of capital in order to clarify the motive to
After receiving FDI capital, the manufacturing industry has continuously expanded
invest abroad of countries and multinational firms. These theories will support
production scale, employment, thereby creating greater added value and more jobs
analyzing the impacts of FDI on the manufacturing industries.
for the economy, increasing more revenues contributed to the state budget and
2.2. The impacts of FDI capital on the manufacturing industries reducing the pressure on increasing the number of jobs in the economy.
This thesis examined the impacts of FDI on manufacturing industries in two 2.2.1.6. Impact on the formation of new industries in the manufacturing industry
dimensions (direct and indirect) through channels to manufacturing industries.
FDI flows moving from the developed countries to the developing countries are
2.2.1. The direct impacts of FDI on the manufacturing industries characterized by often associated with technology, know-how and technology, better-
qualified workforce than developing countries. FDI capital has helped developing
2.2.1.1. The impact on the total investment capital in the manufacturing industry
countries to form new industries, develop and connect the fragmented industries in
FDI capital not only helps to supplement capital in the manufacturing industry but the developing countries. Developing countries which make good use of FDI will
also stimulate investment in this sector. This is very important for the manufacturing quickly complete the process of industrialization and modernization.
industry in the developing countries like Vietnam.
2.2.1.7. Impact on the formation and development of supporting industries for
2.2.1.2. The impact on the growth of the manufacturing industry manufacturing industry
FDI capital is one of the inputs besides other resources like natural resources and FDI flows from developing countries, multinational firms into developing countries
human resource. As an important input, the scale of FDI capital in manufacturing with the aim of finding and increasing profits. They can only earn sustainable profits
industry will affect the scale of the output. In other words, FDI capital has a direct when the industry in developing countries reaches a certain threshold of
impact on the growth of manufacturing industry. manufacturing capabilities, production cooperation and competition in the
international market. Thus, FDI flows are not directed at their main production
2.2.1.3. The impact on economic restructuring in the manufacturing industry
industry but moving into the supporting industries in order to be able to search for
FDI capital flows into the industry from other countries, multinational firms, different and exploit the maximum profit. This will help the developing countries have a great
sectors, which alters the overall capital structure in each industry and then alters opportunity to shape and develop the support industries.
structure and economic restructuring in the manufacturing industry
2.2.2. The indirect impacts of FDI capital on the manufacturing industry
In terms of indirect impacts, FDI capital affects industry through the following
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channels: 2.3. The statistical indicator groups of direct impacts and model of assessing
indirect impacts of FDI capital on the manufacturing industries
2.2.2.1. Competitive channel through creating competitive pressure for firms in the
manufacturing industry 2.3.1. The groups of statistical indicators of the FDI’s direct impacts on the
manufacturing industry
Positively speaking, the presence of FDI enterprises can stimulate local businesses
for innovating technology and creating new initiatives. Negatively speaking, FDI 2.3.1.1. The statistical indicators reflecting the scope of FDI capital in the
enterprises with superior dominance have dominated the market of local businesses manufacturing industry: they are the absolute indicators, calculated by money,
and force them to cut down production scale and maintain production activities at indicate the number of FDI projects, total value of FDI capital and average value of
non-optimal scale, which make the productivity decrease. FDI capital per project.
2.2.2.2. Technology transfer and research and development 2.3.1.2. The statistical indicators reflecting the structure of FDI capital in the
industry: FDI structure is divided by the form of investment criteria, investment
In order to use transferred technology effectively, both FDI and local businesses
sectors, economic sectors, economic zones, investment partners.
should have to research and develop technologies, modify technologies to suit the
local environment. The research may take place abroad or locally, but common 2.3.1.3. The statistical indicators reflecting the effect of FDI capital on the
purpose is to serve local production of technology-receiving country. manufacturing industry: the proportion of gross output of the manufacturing industry
sponsored by FDI in total FDI capital; the proportion of export value of FDI sector
2.2.2.3. Investment in developing human resource and labor movement
to the realized capital in the manufacturing industry; the proportion of contribution
FDI enterprises help in training highly-qualified workforce for local businesses. to the state budget of FDI sector to the realized capital in the manufacturing industry.
Initially, human resources are trained to become professional and skilled ones. After
2.3.1.4. The statistical indicators reflecting the impacts of FDI on the manufacturing
that, some will be moved to work for local businesses and so they become high-
industry: promoting growth and economic restructuring and export.
quality human resources of local businesses.
2.3.2. The model of assessing the impacts of FDI on the manufacturing industry
2.2.3.4. Linkages of firms
To assess the impact of FDI on the manufacturing industry in both aspects of direct
Horizontal linkages: Links between FDI firms and domestic firms in the same
and indirect, the thesis uses 4 groups of statistical indicators as described above and
industry. For local businesses, they can increase market share, learn experiences and
applies econometric models of impacts of FDI capital. This will also be the basis to
expand business co-operation.
use a combination of the two research methods of qualitative and quantitative in
Vertical linkages: Links between FDI firms and domestic firms in different industry. assessing the impacts of FDI to the manufacturing industry.
Forward linkage is a form of vertical linkage in case the FDI enterprises are the
Regression Model:
providers for domestic enterprises. Backward linkage is a form of vertical linkage in
case FDI enterprises are the distributors of domestic enterprises. Local businesses can Y jt = α + β1 K jt + β 2 L jt + β3 horizontal jt + β 4 Backward jt + β5 Forw jt + ε jt (2.1)
also benefit from the increase in demand of their products, the expansion of LnYjt = α + β1 ln K jt + β 2 ln L jt + β 3 horizontal jt + β 4 Backward jt + β 5 Forw jt + ε jt (2.2)
consumption market and thus they will increase production scale and achieve
economies of scale. Yjt: Output of industry j in year t, Kjt: Capital of industry j in year t; Ljt: Labor of
industry j in year t.
Horizontaljt: horizontal linkages between domestic firms and FDI firms of industry j
in year t, it shows the relationship between FDI firms and domestic firms in the same
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industry j. 3.1.2. The role of the manufacturing industry in the economy
Backwardjt: Backward linkages between domestic firms and FDI firms of industry j Compared to the whole economy, the number of employees working in the
in year t, in this case FDI enterprises are downstream buyers of domestic enterprises. manufacturing industry always accounts for over 15%, especially nearly 20% in some
The increase in backward variable shows that domestic suppliers are involved more periods. Manufacturing industries account for nearly 50% of the number of
in the production and business activites of FDI enterprises. enterprises. Compared to the entire industry, the proportion of employees and
enterprises is always so far the greatest at over 90%.
Forwardjt: Forward linkages between domestic firms and FDI firms of industry j in
year t, in this case FDI firms are upstream suppliers to domestic firms. Thus, the 3.1.3. The role of the manufacturing industry in industry sector
value of vertical linkage variable increases in case the output of foreign firms and
The contribution of the manufacturing sector in the industry tends to increase during
the proportion of intermediate products that foreign firms supply to domestic firms
the period from 2008 to 2013 and always accounts for over 80%. Until 2013, this
increased.
proportion had reached a high of 88.23%. The growth rate of gross output in the
2.3. The factors affecting the impacts of FDI capital on the manufacturing
manufacturing sector is always higher than the growth rate of the manufacturing
industries
industry’s contribution to GDP.
(1) the investment environment; (2) the strategy for developing the manufacturing
3.1.4. The role of the manufacturing industry in exports
industry; (3) the characteristics of the manufacturing industry; (4) the characteristics
of international investors and (5) the characteristic of movements of FDI inflows. From 2008 to 2013, the proportion of processed and refined products always stands at
above 50% of Vietnam export structure classified according to the SITC, in 2012 and
CHAPTER 3
2013, this ratio turns respectively 69% and 70%; light industry and handicraft always
THE CURRENT SITUATIONS OF FOREIGN DIRECT INVESTMENT account for over 75%, by 2013 the proportion has reached a peak at 82.4%.
CAPITAL IMPACTS ON THE MANUFACTURING INDUSTRIES IN
3.2. Foreign direct investment in the manufacturing industry in Vietnam
VIETNAM
In this section, the thesis will analyze and gather statistics on the attraction of FDI
3.1. Overview of the manufacturing industry in Vietnam
into the Vietnam manufacturing industry. This is the basis for the assessment of the
3.1.1. The manufacturing industry in Vietnam FDI impacts on the manufacturing industry.
“Manufacturing industry” is the term commonly used to refer to the processing and 3.2.1. Attracting FDI into Vietnam
fabricating industries. By this means, the manufacturing industry in Vietnam includes
By 15/12/2013, the manufacturing industry has attracted the largest FDI capital with
24 industrial sectors; each is encoded by two numbers according to the sub-sector
8620 projects equivalent to 122.71 billion US dollars, accounting for 53.32% of the
panel of the General Statistics Office (GSO).
total registered FDI capital in Vietnam from 1988 to present.
Food products and beverages; tobacco products; textiles; etc; tanning and dressing
3.2.2. Attracting FDI into the manufacturing industry
leather; wood and wood products; paper and paper products; publishing, printing etc;
refined petroleum etc; chemical products; rubber and plastic products; non-metallic In this section, the thesis will go into a detailed analysis of attracting FDI into the
mineral products; basic metals; fabricated metal products (except machinery and manufacturing industry based on timeline, forms, geographical areas and technology
equipment); machinery (incl. Office electrical; vehicles; transport equipment; degrees.
furniture; other manufacturing; repairing, maintaining and installing of machinery
3.2.2.1. Foreign direct investment in the manufacturing industries in Vietnam over
and equipment.
the years
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During the period 2000-2013, the amount of registered FDI capital in the 2011 and 2012, this ratio was above 10% and remained highly stable in the following
manufacturing industry tends to increase, the proportion of FDI in the manufacturing years. The registered FDI proportion of remaining industries is still low, which is
industry in total registered FDI capital in Vietnam was commonly at 60%. By 2012, inconsistent with the priority development of high-tech industry in the period of
this proportion was over 70% and in particular in 2013 the percentage of registered industrialization and modernization. In 2012, 4 out of 8 high-level manufacturing
capital in the manufacturing industry reached a peak at 86.24%., which equivalent to industries had the ratio of register FDI capital under 1%.
11.7 billion USD; 18.6 billion USD in 2012 and 2013 respectively. The number of
3.3. The current situations of the FDI capital impacts on the manufacturing
FDI projects in 2012 and 2013 are 561 and 662 respectively.
industry in Vietnam
3.2.2.2. Foreign direct investment in Vietnam manufacturing industry in the form of
3.3.1. The current situations of the direct impacts of FDI capital on the
investment
manufacturing industries in Vietnam
In recent times, FDI inflows into the manufacturing industry are mostly in the
3.3.1.1. The impact on the growth of the manufacturing industry
form of 100% foreign investment. By 31/12/2013, the proportion of projects and
registered capital of 100% foreign investment are 82,73% and 82,73% FDI sector has always contributed more than 30% of gross output of the
respectively; the corresponding figures of joint ventures are 14.96% and 28.25%; manufacturing industry. From 2010 up to now, this proportion has remained high at
the remaining belongs to cooperation contracts, BOT, BT and BTO. 40% or more.
3.2.2.3. Foreign direct investment in the Vietnamese manufacturing industry in local
3.3.1.2. The impact on economic restructuring in the manufacturing industry
areas
The proportion of gross output in the FDI sector classified by the level in the period
Up to now, there are 25 provinces that have attracted over 1 billion USD of registered
from 2005 to 2011: despite being at low level, the food the manufacturing industry
FDI capital in the manufacturing industry, accounting for 93.48% of the total
accounts for the highest yields in the FDI sector, during the period of 2005-2012, this
registered FDI in this sector. FDI mainly concentrates in the two major cities of
ratio remained stable at the highest point (above 14%). Regarding sectors with the
HCMC and Hanoi, and the vicinity of these cities. The mountainous or remote
ratio over 8%, the high-tech industry has two branches and the low-tech industry has
provinces, the amount of FDI capital flowing into the manufacturing industry is very
two branches, whereas the medium-level industry has no branch.
small.
The proportion of gross output of the FDI sub-manufacturing industries in the total
3.2.2.4. The proportion of FDI capital in the Vietnamese manufacturing industry
gross output of these during the period from 2005 to 2011: In almost all the high-
according to the technological level of industry
level industries, the gross output ratio of the FDI sector are above 40%; not any
The low-level manufacturing industries: In general, FDI inflows in these industries medium-level industries have the ratio over 50% ; considering the low-tech industries,
tend to decrease over the period from 2000 to 2012. However, this proportion there are two branches that FDI gross output account for over 60% of the total, they are
remains high in some fabricating, food processing and textile industries. the other the manufacturing industry and the leather and related products manufacturing.
In the remaining industries, this proportion is mainly below 40%.
The medium-level manufacturing industries: Beside the metal production industry,
only the industry of manufacturing products from rubber and plastic attracted high 3.3.1.3. The impact on export promotion in the manufacturing industry
and stable proportion of FDI capital over the period 2000-2012.
The manufacturing industries with low-technological content such as textiles,
The high-level manufacturing industries: Manufacturing of electronic products, footwear and furniture, the FDI export proportion of these sectors in comparison with
computer and optical products are the sectors that have the largest proportion of export value is fairly high and in the range of 50% - 70%. This proportion of the
registered FDI capital compared with other high-level manufacturing industries. In manufacturing industries with high-technological content such as electronics and
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electrical equipment is also very high - above 90% and even just under 100% in some The formation and development of the electronics supporting industry: Recently,
years. many major electronics manufacturers such as Samsung, Canon, Intel, Foxconn ...
undertook to invest in Vietnam. Most recently in 2009, Samsung had invested $670
3.3.1.4. The impact on additional investment capital in the manufacturing industry
million to conduct the first mobile phone manufacturing complex in Vietnam (Bac
According to the Foreign Investment Agency, FDI capital accounts for about 25% of Ninh) (later raised to $1.5 billion and $2.5 billion at present) and continuously
the total investment capital in the manufacturing industry for the period from 1988 to invested $2 billion to build the 2nd complex in Thai Nguyen. According to Samsung,
2013. Besides, FDI capital stimulates the increase in investment in the manufacturing there are about 4 Korean firms that have signed commitments and they are building
industry; for example, the manufacture and assembly of motorcycles and spare parts. the plants. In addition, about 10 other Korean satellite firms of Samsung are
FDI invested into this sector increased by 1.5 times, but domestic investment has promoting investment projects to build factories producing spare parts to supply to
increased by 7.9 times during the same period. Samsung.
3.3.1.5. The impact on the formation of new industries in the manufacturing industry The formation and development of the autos supporting industry
The formation and development of the automobile industry in Vietnam Typically, Toyota Vietnam has attempted to invite successfully other firms supplying
components owned by Toyota to invest in Vietnam as Denso, Toyota Boshoku Hai
By the end of 2009, there were 17 firms operating in the automotive assembly
Phong, Hai Phong Toyota Gosei and others to produce parts and at the same time
industry in Vietnam. The annual gross output continuously grows from 18,000
export auto parts to the whole world, the supplier has provided Toyota more than 300
vehicles in 2001 to 120,000 ones in 2009, within 9 years the output of Vietnamese
diverse categories of details, including the normal details and the functional details
automobile industry had increased by 6.7 times. However, since 2010, auto
requiring high technology and quality.
production has showed sign of a slowdown and a downward trend. In 2010, the
number of assembled autos was 112.3 thousand, which dropped to 108.2 thousand 3.3.1.7. The impact on the contribution to the state budget and creating jobs for the
units in 2011, and until 2012 only 99.2 thousand autos was assembled. economy of the manufacturing industry
The formation and development of the electronic industry in Vietnam The FDI enterprises play a huge role in creating jobs and contributing to the State
Budget. By 31/12/2013, the FDI sector had created 2.2 million jobs, about 70% of
With an annual average growth rate of 20-25%, the electronics industry has more
this came from the Vietnamese manufacturing industry. In addition to solve job
than 500 enterprises accounting for 1/3 of the FDI enterprises. The export value of
problem, the FDI sector helps to increase the contribution to the State Budget of the
electronics industry was about $100 million in 1996 and in recent times, this figure
manufacturing industry. By 31/12/2013, this sector had contributed $19.5 billion to
has increased significantly. According to statistics from the General Department of
the state budget, in which FDI-manufacturing industry accounted for about 50%.
Vietnam Customs, in the first 9 months of 2013, the export value of phones and
accessories reached $15.5 billion, increased 79.8% compared to 2012. Computers, 3.3.2. The current situations of indirect impacts of FDI capital on the
electronic products and components reached $7.7 billion, increased by 43.9% manufacturing industries in Vietnam through the channels
compared to the same period in 2012.
3.3.2.1. Competition channels - creating pressure on domestic firms to improve
Although there are about 500 enterprises in the electronics industry, the investment in productivity
this sector still poses many drawbacks such as limited investment capital,
In the manufacturing industry, the joint venture local businesses are more productive
spontaneous, incoherent and unprofessional operation.
than the normal ones. The impact of FDI through competition channels is very clear
3.3.1.6. The impact on the formation and development of supporting industries in the in the Vietnamese textile industry. For example, the Garco 10 Firm has invested
manufacturing industry much for renovation, advanced technology and highly-skilled workers recruitment in
17 18
order to convert the production of common garments to the manufacturing and level 2 consists of 23 branches and the industry level 3 consists of 59 branches.
trading of products that are expensive but of higher quality. 3.3.3.2. Results of regression estimates by ordinary differential equations
3.3.2.2. The investment in developing human resources and labor movement The estimation for the 23 manufacturing industries level 2 in Vietnam, including 161
observations classified into 13 groups shows that:
The 2011 Industrial Investment Report showed that about 11% of FDI enterprises
The test result from the FE model shows that the coefficients of L, K are positive
cooperating with domestic enterprises to improve the quality of such firms. Thus,
and have highly statistical significance at 1%, which means when labor and
beside the goal of enhancing the quality of FDI enterprises, a larger proportion of
investment capital in the industries level 2 increases, the yield in these industries also
these enterprises set goals to improve the quality of domestic enterprises and
increases. Forward linkages variables (forw), backward linkages variables (back)
specially focus on training human resources.
have negative coefficients and have high statistical significance at 1%, which reflects
3.3.2.3. The linkages between firms the linkages between FDI firms and domestic enterprises in the industries level 2
makes the yield of these industries decline. Coefficient of horizontal linkages (Hori)
According to the 2011 Industrial Investment Report, the proportion of input supply of
is positive but not statistically significant, there has been no evidence proving that the
local businesses was 26.6%. This level is relatively low, in the developed countries; it
presence of FDI firms in the industry level 2 increases the output of this sector.
is averagely above 50% for all industries. In some specific industries, this ratio can be
The estimation result for the 59 manufacturing industries level 3, including 410
up to 90%. Along with this conclusion, according to the Japanese External Trade
observations classified into 59 groups shows that:
Organization (JETRO), the current rate of inputs materials and spare parts purchase
that Japanese firms found in Vietnam reach 28%, meanwhile in Indonesia, Thailand In the sectors level 3, the coefficient of the variables L, K are positive and highly
and China, this rate is 43%, 53% and 61% respectively. The trending forward statistically significant at 1%. The coefficient of Hori is positive but not statistically
linkages as well as backward linkages when domestic firms accounted for 20.8% of significant. Similar to the sectors level 2, the coefficients of Backwards and forwards
sales of FDI firms while accounted for over 33% of total FDI’s customers. variables are negative and statistically significant at 1% and 5%, which continuously
reflects the negative impact of the linkages between FDI and domestic firms in level
3.3.2.4. The channel of technology transfer and research and development
3 on output decrease.
The number of FDI projects that have technology transfer contracts accounts for a
The estimation result for the manufacturing industries level 3 classified by level
small proportion, less than 7% of the total FDI projects being implemented
(high, medium and low)
manufacturing business in Vietnam. In addition, only 5-6% FDI enterprises using
advanced technologies, 80% using medium technology and some using outdated The test results show that in the low-tech industries level 3, Forward and Backward
technology. variables have negative coefficients and the statistical significance o 5%. The
linkages between FDI firms and domestic firms in the sectors level 3 make the output
Enterprises in the manufacturing industry in FDI sector invest in R&D more than
of these industries decline. For the medium-tech industries level 3, the Back and Hori
domestic firms, especially in sectors with high technological level.
variables have negative coefficients and highly statistical significance at 1%. The test
3.3.3. Applying the econometric model of assessing the impacts of FDI on the results are greatly different between the high-tech industries level 3 because the
manufacturing industries in Vietnam backward and forward linkages variables are not statistically significant at 5%.
3.3.3.1. Data description 3.3.3.3. Summary of estimation results
In order to assess the impacts of FDI on the manufacturing industry, the business The variables of labor (L) and capital (K) have positive coefficients and statistical
dates surveyed in the period of 2003-2009 were aggregated and classified by the significance in both level 2 and level 3 sectors, reflecting capital and labor have a
categories of manufacturing industries level 2 and level 3. In particular, the industry positive impact on increasing the output of the manufacturing industry.
19 20
The Horizongtal variable doesn’t have positive coefficient but no statistical
CHAPTER 4
significance in the level 2 and level 3 sectors, there is any evidence proving that the
presence of foreign parties has positive impact on output increase in the VIEWPOINTS, SOLUTIONS TO TAKING ADVANTAGE OF POSITIVE
manufacturing industry. IMPACTS AND MITIGATE NEGATIVE IMPACTS OF FOREIGN DIRECT
The variables of Forward linkages (forw) and backward linkages (Back) have INVESTMENT CAPITAL ON THE MANUFACTURING INDUSTRIES IN
negative coefficients and statistical significance for almost all the cases in the VIETNAM
industry level 2 and entire level 3. The coefficients of these variables indicate no
statistical significance in the high-qualified industries level 3. Thus, it can be 4.1. International and internal context
affirmed that forward linkages and backward linkages (vertical linkages) between
4.1.1. International context
FDI firms and domestic firms have negative impacts on the output decline of the
manufacturing industry. This is due to the internal resources and capabilities of most To clearly analyze the world context, the thesis analyzes the context of the
local firms are still weak, so they cannot effectively cooperate with FDI enterprises. following international issues: (1)The trend of shifting global FDI flows; (2) The
3.4. Overall assessment of the impacts of foreign direct investment on the trend of shifting FDI in industry and service; (3) The adjustments in the development
manufacturing industry in Vietnam model of China and ASEAN.
3.4.1. Achievements: (1) The gross output of the manufacturing industry has
4.1.2. Internal context
increased; (2) Promoting export and economic restructuring in the manufacturing
To clearly analyze of the internal context, the thesis analyzes the following
industry; (3) Contributing to the formation and development of new industries; (4)
issues: (1) The economic development strategy until 2020; (2) Make the international
Improving the competitiveness of the manufacturing industry; (5) Contributing to
integration commitment; (3) Some of the internal factors of the economy
train skilled human resources; (6) Contributing to the technology transfer; (7)
4.2. The viewpoints of utilize the positive impacts, mitigate the negative impact
Contributing to the research and development.
of FDI on the manufacturing industry in Vietnam
3.4.2. Weaknesses: (1) The impact of FDI on productivity and output of the
(1) FDI is an important strategic capital for manufacturing industries; (2) The
manufacturing industry is low; (2) The growth rate of the export value is still low; (3)
manufacturing industry need to consider modern technology transfer as one of the
The supporting industries the manufacturing industry remain underdeveloped; (4)
fundamental interests; (3) FDI in the manufacturing industry must play an important role
Investment in research and development (R & D) of domestic enterprises in the
in the training of human resources; (4) Do not distinguish between FDI firms and
manufacturing industry are modest; (5) FDI cannot create tight and effective linkages
domestic enterprises; (5) Appreciate the linkages between FDI firms and domestic
between enterprises in the manufacturing industry in Vietnam; (6) The transfer of
enterprises; (6) The industrial clusters supporting manufacturing industry have an
modern technology in FDI is still limited; (7) The competition effect tends to cause
important role to take advantage of the positive impacts of FDI; (7) Need to respect both
negative impacts.
attracting and using FDI effectively in manufacturing industries; (8) The FDI strategy of
3.4.3. The causes of weaknesses: (1) FDI policy is inadequate; (2) The human manufacturing industry need to be put in relation with the socio-economic policies.
resources of local enterprises in the manufacturing industry is still insufficient in
4.3. The orientation and goals of attracting foreign direct investment into the
quantity and poor in quality; (3)The industrial clusters supporting for the
manufacturing industry in Vietnam
manufacturing industry are underperforming capabilities; (4) The potential of
enterprises in the manufacturing industry is still weak; (5) The technological level is 4.3.1. Strategic development of the manufacturing industry
still low; (6) The infrastructure serving the development of the manufacturing
- To focus on developing the potential manufacturing industries to compete in the
industry are asynchronous.
future.
21 22
National Economics University UNIVERSITY
Scientific Supervisor: Prof.Dr. Do Duc Binh
DANG QUY DUONG
Reviewer 1:
THE IMPACT OF FOREIGN DIRECT INVESTMENT CAPITAL
ON THE MANUFACTURING INDUSTRIES IN VIETNAM Reviewer 2:
Specialized Reasearch: International economics (External economics)
Reviewer 3:
Code: 62310106
The thesis will be reviewed and marked by Government Thesis Examination
SUMMARY OF DOCTORAL THESIS IN ECONOMICS Committee
At:…………………
At…..On……..
You can read and refer more about the contents of research at:
- State library
- Library of National Economics University
Hanoi - 2014
Introduction Therefore, it can be affirmed that both FDI and the growth of the manufacturing
industry are key factors to stimulate the economic growth. This leaves a question for
us: Is there any relationship between FDI and the growth of the manufacturing
1. Reasons to do the research industry? and to what extent? What is the role of FDI in developing the
manufacturing industry? For answering these questions helps us allocate and use FDI
The economic growth and development are always the aims that many countries
reasonably as well as develop manufacturing industry, which contributes to the
around the world would like to achieve including Vietnam. Since Vietnam regained
growth of Vietnam economy.
independence in 1975 and especially after renewal policy was implemented in 1986,
the Party and State have set goals for economic development to the forefront with the In the world, there have been abundant of studies on the impact of FDI on the
orientation to 2020 that Vietnam will basically become a modern industrialized manufacturing industry. In Vietnam, there are a number of quantitative studies on the
country. impact of FDI on the process industry such as the research performed by Le Quoc
Hoi (2008), Nguyen Phi Lan (2008), Nguyen Ngoc Anh (2008). However, almost all
In order to achieve this objective, Vietnam needs to make the best use of existing
studies in Vietnam on the impact of FDI on manufacturing industry usually tend to
resources and simultaneously force international integration in order to attract outside
lean heavily toward one side: either quantitative analysis or qualitative analysis. In
resources. In recent times, Vietnam has attempted to attract outside resources, mainly
summary, up to now, there is no comprehensive and systematical study, combining
from foreign direct investment (FDI).
both quantitative and qualitative methodology, on the relationship and the impact of
Theories and practices show that FDI plays a very important role in the economic FDI on the manufacturing industry. That is why I selected the topic "The impact of
development of Vietnam. First, FDI contributes to the development of economic foreign direct investment capital on the manufacturing industries in Vietnam" for my
sectors through additional funding, technology transfer and restructuring the thesis.
economy towards modernization and industrialization. The development of the
2. The aims of the research
economy will facilitate the growth of the entire economy as higher growth rate,
creating more jobs, improving the workforce quality, infrastructure and raise the The purpose of the thesis is to analyse and assess the impact of FDI on the
technology level etc which helps to elevate the position of Vietnam in the region and manufacturing industries in Vietnam. On this basis, the author proposing solutions to
the world. take advantage of the positive effects and mitigate the negative impacts of FDI capital
on the manufacturing industries in Vietnam.
At the national level, there have been many studies on the impacts of FDI on
economic growth, economic restructuring, export promotion, infrastructure and Specifically, the research focuses on the following main points as below:
workforce quality improvement such as the studies conducted by Nguyen Thi Tue
- To formalize theories of FDI, FDI capital and the impacts of FDI capital on the
Anh (2005), Tran Ngoc Thin (2010), Bui Thuy Van (2011) and Nguyen Tien Long
manufacturing industries.
(2012). However, at the sector level, the number of researches on the impacts of FDI
on economic sectors is still modest. - To analyse and assess the impacts of FDI capital on the manufacturing industries in
Vietnam by using methodology of qualitative analyze and econometric models.
Besides, during the process of economic development, it is found that the
development of the process and manufacture industries, also known as manufacturing - To analyze the causes affecting the impact of FDI capital on the manufacturing
industry, is a key factor to speed up economic growth rate. Industry contributes the industries in Vietnam.
largest amount of money to GDP so the growth of manufacturing industry decides the
- Based on the results of research and analysis, to propose solutions that utilize the
growth level of Vietnam economy.
positive effects and mitigate the negative impacts of FDI capital on the
manufacturing industries in Vietnam.
1 2
3. The objects and scope 5.2. The findings, new suggestions drawn from the results and surveys of research
3.1. The objects of the research FDI capital contributes to productivity growth, export promotion and economic
restructuring in the manufacturing industry in a reasonable way.
The thesis studies the impacts of FDI capital on the manufacturing industries in
Vietnam. In terms of levels: Manufacturing industries at level 2 and 3, the medium and low-
tech manufacturing industries at level 3 are affected negatively by forward linkages
3.2. The scope of the research
and backward linkages among FDI firms and domestic firms, which is shown through
- Spatial research: The thesis studies the impacts of FDI capital on the manufacturing output decline in these industries. Only the high-tech-3rd-level manufacturing
industries in Vietnam. industry is the exception because thanks to better internal resources and capabilities,
domestic firms in this sector co-operate with FDI enterprises more efficiently than
- Time range: The manufacturing industries in Vietnam: from 1988 to 2013.
enterprises in the medium-and-low-3rd-level industries.
4. Research methodology
The thesis has proposed some viewpoints of taking advantage of the positive effects
The thesis has employed a combination of different research methods such as and mitigating the negative effects of FDI capital on manufacturing industries,
statistics, analysis and synthesis, modeling method, using references to clarify the including some breakthrough points of view such as: (1) FDI capital is an important
contents of the thesis. The secondary data was collected from the General Statistics strategic capital for manufacturing industries; (2) The manufacturing industry need to
Office, Ministry of Industry and Trade and Foreign Investment Agency. The consider modern technology transfer as one of the fundamental interests; (3) FDI
theoretical framework contains groups of statistical indicators and econometric capital in the manufacturing industry must play an important role in the training of
models, used to assess the impacts of FDI capital on manufacturing industries on both human resources; (4) Do not distinguish between FDI firms and domestic enterprises;
direct and indirect aspect. (5) Appreciate the linkages between FDI firms and domestic enterprises; (6) The
industrial clusters supporting manufacturing industry have an important role to take
5. Contributions of the thesis
advantage of the positive impacts of FDI capital; (7) Need to respect both attracting
5.1. Academic and theoretical contributions and using FDI capital effectively in manufacturing industries; (8) The FDI strategy of
manufacturing industry need to be put in relation with the socio-economic policies.
The thesis has proved FDI capital impacts on the manufacturing industries on both
aspects of direct and indirect. Direct impacts includes: (1) The impact on total capital; On those bases, the thesis proposes two groups of solutions:
(2) The impact on the growth of the manufacturing industry; (3) The impact on
(i) The first is related to taking advantage of the positive impacts of FDI capital
economic restructuring in the manufacturing industry; (4) The impact on promoting
impact on the manufacturing industry in Vietnam. In which the breakpoints are: (1)
export in manufacturing industry; (5) The impact on the contribution to the state
strengthening the efficient of linkages and joint venture between enterprises in the
budget and job creating in the manufacturing industry; (6) The impact on the
manufacturing industry; (2) the development of industrial clusters supporting for the
formation of new industries in the manufacturing industry; (7) The impact on the
manufacturing industry; (3) boosting research and development (R & D)
formation and development of supporting industries for the manufacturing industry.
Indirect impacts includes 4 transmission channels: (1) Competition channel by (ii) The second is related to taking measures for restricting the negative impacts of
putting competitive pressure on enterprises in the manufacturing industry (2) FDI capital on the manufacturing industry in Vietnam. In which innovative solutions
Technology transfer and Research and Development; (3) Training and movement of are: (1) FDI policy to minimize attracting FDI capital into low-tech and low added
human resources; (4) Vertical and horizontal linkages among enterprises. value industries; (2) improving the efficiency of technology transfer activities; (3) the
State support for the fledgling industries.
3 4
6. Organization of the research - FDI and spillover effect on knowledge and productivity
Besides the introduction, conclusion, appendices and reference lists, the structure of Caves are one of the first people studying quantitatively on spillover effect. Since the
the thesis is divided into four chapters as follows: study of the Caves, there are many studies on the spillover effect of FDI in the
developing world, including Asia, Latin America. In the most general sense, almost
Chapter 1: Overview of scientific work related to thesis topic.
all studies agree with the spillover effect of FDI on the manufacturing industry.
Chapter 2: Rationale for FDI capital and model for assessing the impacts of FDI However, the conclusions of these studies conflict each other because it is unclear
capital on the manufacturing industries. that whether the spillover effect of FDI is positive or negative. Spillover effect
depends on many factors such as the capacity of local businesses, the market share of
Chapter 3: The current situations of FDI capital impacts on the manufacturing
foreign investment, the policies of the State and enterprises and others, and the
industries in Vietnam.
studies have yet evaluated and compared the extent each factor to create spillover.
Chapter 4: Viewpoints and solutions for exploring the positive impacts and mitigating
- FDI and the linkages of firms
the negative impacts of FDI capital on the manufacturing industries in Vietnam.
The above studies agree that the relationship between domestic enterprises and
foreign enterprises will affect growth, productivity and export ... of enterprises.
Chapter 1 However, gap in the above study has not determined at what degree, the linkage
proves effective and at what degree the linkage need to reach in order to take full
LITERATURE REVIEW
advantage of the benefits that FDI brings.
1.1. Literature review conducted in the world
- FDI and exports of local manufacturing industries
In the world, science works studying on FDI in the manufacturing industry are very
The studies on evaluating the role of foreign ownership on the export of
diverse, abundant and on many different aspects.
manufacturing industry have given quite different results. To explain this, two
To set premise for research, the thesis will present an overview of the main research important points can be mentioned: export-oriented FDI plays an important role in
points relating to the relationship, the impacts of FDI on the manufacturing industry improving the export performance of the host country, and different countries have
on some main aspects such as imported technology, research and development, the different policies to attract FD, including export-oriented FDI. Although the
spillover effect, vertically associated linkages, technology selection, training and conclusions of the work are diverse on many different aspects, all show that each
salary for workers in the manufacturing industry in the developing countries. country's policy on FDI have a large impact on exports, export promotion, export
expansion of that country.
- FDI in relation to imported technology and local research & development
- FDI with technology selection and local industry
India is a country of many studies on the relationship between imported technology
and local research & development (R&D). These works show that the relationship All studies on the technology selection have concluded that technology affects
between imported technology and local R&D is both supplement and alternative. exports, the growth of the local industry. However, the level of impacts mainly
However, the findings also give many overlapping and unclear conclusion about this depends on the technology policy and the absorbsion ability in the industry of the
relationship. host country.
- FDI with labour and wages
The research on labor and wages give similar comments about the difference in the
5 6
salaries between foreign firms and local ones. The distinction between unskilled key industrial sector of Vietnam, therefore, it is necessary to have a comprehensive
labors and expertise has provided a good basis for explaining this difference because study on the impacts of FDI in this industry. This thesis will evaluate
it helps to take human capital in the past into account. comprehensively the impacts of FDI on manufacturing industry in Vietnam by using
both qualitative and quantitative analysis with assessing the impacts of FDI from two
1.2. Literature review conducted in Vietnam
angles of the direct and indirect.
Since the foreign investment law came into effect in 1988, studies on FDI began to
appear in Vietnam. In particular, from 2000 onward, the recent researches on FDI CHAPTER 2
increased rapidly both in terms of qualitative and quantitative research.
THEORETICAL FRAMEWORK OF FOREIGN DIRECT INVESTMENT
The studies related to evaluation of the impacts of FDI on the economic growth, AND MODEL FOR ASSESSSING THE IMPACTS OF FOREIGN DIRECT
the productivity of the economic sectors INVESTMENT CAPITAL ON THE MANUFACTURING INDUSTRIES
From 2000 onwards, Vietnam has witnessed the appearance of many quantitative 2.1. The Theories of foreign direct investment capital
studies on assessing the impacts of FDI. Initially, they were the assessments of the
Foreign direct investment (FDI) always closely links with foreign direct investment
FDI impacts on the growth of the economy, then developed into more detailed studies
capital. Therefore, in order to make the general theory of FDI, first of all, the thesis
on the impacts of FDI on the economic sectors. After that, there appeared many more
will focus and clarify the theoretical issues about the concept of FDI.
detailed studies on the spillover effects of FDI such as assessing the impacts of FDI
on productivity, wages, technology transfer, level of linkages... 2.1.1. The FDI concept
The studies related to attracting and using FDI There are many definitions and aspects of FDI, but generally said that: FDI is the
process of moving the long-term capital from one country to another, foreign
The qualitative studies on FDI often research on attracting and using FDI. These
investors invest a certain capital ratio and directly involve in the production and
studies offer some solutions to attract FDI, such as creating a favorable investment
business management in relation to the capital they invest in order to achieve long-
environment, preferential policies for foreign investors and giving recommendations
term benefits not only in terms of economic but also the political and socio-cultural
to the State about the innovation mechanism, decentralization of the licensing and
aspect.
management of using FDI. Recently, to increase the reliability, the qualitative studies
often incorporate quantitative factors. 2.1.2. Concept and characteristics of FDI capital
The studies on the direct impacts of FDI Because the concept of foreign direct investment is the movement of capital, it can be
suggested that FDI and FDI capital are linked together.
These studies focus on the analysis of the impacts of FDI on economic restructuring,
export promotion, job creation and contribution to the state budget. The conception of FDI capital: FDI is a kind of capital formed in the process of
foreign direct investment, it is also the capital moved from one country to another by
It can be said that, since 2005, the domestic studies on FDI have shown a decrease in
foreign investors. Foreign investors will be directly involved in managing business
gap between qualitative and quantitative method by using combination of two
and production related to this moving capital with the aim of obtain long-term
methods in research.
benefits not only in terms of economic aspect but also other related benefits..
Through a review of the studies on FDI, we can see that there are many qualitative
Characteristics of FDI capital: (1) FDI capital can be expressed in many different
and quantitative studies related to FDI in Vietnam. There also have been some
forms such as cash, land, machinery, equipment, inventions, patents, trade secret,
quantitative studies assessing the impacts of FDI on productivity and growth in the
trademark; (2) FDI capital is the long-term capital but a loan; (3) FDI capital has a
manufacturing industry. However, the manufacturing industry has been and will be a
7 8
minimum and maximum level that a foreign investor has to contribute; (4) FDI 2.2.1.4. The impact on export promotion in the manufacturing industry
capital link directly with the disposal of foreign investors; (5) The ratio of FDI capital
Output growth not only meets domestic demand but also contributes to promote
regulate dividing profits that foreign investors are entitled to; (6) FDI capital often
exports, this is the next step of development because when the manufacturing
move into areas that have many priorities and advantages of the host country; (7) FDI
industry meets domestic demand or takes advantage of comparative advantages to
capital may affects the economy of host country positively or negatively; (8) FDI
obtain more and more profits. Furthermore, FDI enterprises with multiple
capital is more common and profitable than indirect investment capital, it means that
relationships with international partners in global market with the brand prestige will
FDI is also risker.
be an important channel for promoting the exports of surplus products.
2.1.3. Some theories relating to FDI capital
2.2.1.5. The impact on the contribution to the state budget and job creation for the
The thesis cover some theories such as the theory of market power; the eclectic national economy
theory; the marginal productivity theory of capital in order to clarify the motive to
After receiving FDI capital, the manufacturing industry has continuously expanded
invest abroad of countries and multinational firms. These theories will support
production scale, employment, thereby creating greater added value and more jobs
analyzing the impacts of FDI on the manufacturing industries.
for the economy, increasing more revenues contributed to the state budget and
2.2. The impacts of FDI capital on the manufacturing industries reducing the pressure on increasing the number of jobs in the economy.
This thesis examined the impacts of FDI on manufacturing industries in two 2.2.1.6. Impact on the formation of new industries in the manufacturing industry
dimensions (direct and indirect) through channels to manufacturing industries.
FDI flows moving from the developed countries to the developing countries are
2.2.1. The direct impacts of FDI on the manufacturing industries characterized by often associated with technology, know-how and technology, better-
qualified workforce than developing countries. FDI capital has helped developing
2.2.1.1. The impact on the total investment capital in the manufacturing industry
countries to form new industries, develop and connect the fragmented industries in
FDI capital not only helps to supplement capital in the manufacturing industry but the developing countries. Developing countries which make good use of FDI will
also stimulate investment in this sector. This is very important for the manufacturing quickly complete the process of industrialization and modernization.
industry in the developing countries like Vietnam.
2.2.1.7. Impact on the formation and development of supporting industries for
2.2.1.2. The impact on the growth of the manufacturing industry manufacturing industry
FDI capital is one of the inputs besides other resources like natural resources and FDI flows from developing countries, multinational firms into developing countries
human resource. As an important input, the scale of FDI capital in manufacturing with the aim of finding and increasing profits. They can only earn sustainable profits
industry will affect the scale of the output. In other words, FDI capital has a direct when the industry in developing countries reaches a certain threshold of
impact on the growth of manufacturing industry. manufacturing capabilities, production cooperation and competition in the
international market. Thus, FDI flows are not directed at their main production
2.2.1.3. The impact on economic restructuring in the manufacturing industry
industry but moving into the supporting industries in order to be able to search for
FDI capital flows into the industry from other countries, multinational firms, different and exploit the maximum profit. This will help the developing countries have a great
sectors, which alters the overall capital structure in each industry and then alters opportunity to shape and develop the support industries.
structure and economic restructuring in the manufacturing industry
2.2.2. The indirect impacts of FDI capital on the manufacturing industry
In terms of indirect impacts, FDI capital affects industry through the following
9 10
channels: 2.3. The statistical indicator groups of direct impacts and model of assessing
indirect impacts of FDI capital on the manufacturing industries
2.2.2.1. Competitive channel through creating competitive pressure for firms in the
manufacturing industry 2.3.1. The groups of statistical indicators of the FDI’s direct impacts on the
manufacturing industry
Positively speaking, the presence of FDI enterprises can stimulate local businesses
for innovating technology and creating new initiatives. Negatively speaking, FDI 2.3.1.1. The statistical indicators reflecting the scope of FDI capital in the
enterprises with superior dominance have dominated the market of local businesses manufacturing industry: they are the absolute indicators, calculated by money,
and force them to cut down production scale and maintain production activities at indicate the number of FDI projects, total value of FDI capital and average value of
non-optimal scale, which make the productivity decrease. FDI capital per project.
2.2.2.2. Technology transfer and research and development 2.3.1.2. The statistical indicators reflecting the structure of FDI capital in the
industry: FDI structure is divided by the form of investment criteria, investment
In order to use transferred technology effectively, both FDI and local businesses
sectors, economic sectors, economic zones, investment partners.
should have to research and develop technologies, modify technologies to suit the
local environment. The research may take place abroad or locally, but common 2.3.1.3. The statistical indicators reflecting the effect of FDI capital on the
purpose is to serve local production of technology-receiving country. manufacturing industry: the proportion of gross output of the manufacturing industry
sponsored by FDI in total FDI capital; the proportion of export value of FDI sector
2.2.2.3. Investment in developing human resource and labor movement
to the realized capital in the manufacturing industry; the proportion of contribution
FDI enterprises help in training highly-qualified workforce for local businesses. to the state budget of FDI sector to the realized capital in the manufacturing industry.
Initially, human resources are trained to become professional and skilled ones. After
2.3.1.4. The statistical indicators reflecting the impacts of FDI on the manufacturing
that, some will be moved to work for local businesses and so they become high-
industry: promoting growth and economic restructuring and export.
quality human resources of local businesses.
2.3.2. The model of assessing the impacts of FDI on the manufacturing industry
2.2.3.4. Linkages of firms
To assess the impact of FDI on the manufacturing industry in both aspects of direct
Horizontal linkages: Links between FDI firms and domestic firms in the same
and indirect, the thesis uses 4 groups of statistical indicators as described above and
industry. For local businesses, they can increase market share, learn experiences and
applies econometric models of impacts of FDI capital. This will also be the basis to
expand business co-operation.
use a combination of the two research methods of qualitative and quantitative in
Vertical linkages: Links between FDI firms and domestic firms in different industry. assessing the impacts of FDI to the manufacturing industry.
Forward linkage is a form of vertical linkage in case the FDI enterprises are the
Regression Model:
providers for domestic enterprises. Backward linkage is a form of vertical linkage in
case FDI enterprises are the distributors of domestic enterprises. Local businesses can Y jt = α + β1 K jt + β 2 L jt + β3 horizontal jt + β 4 Backward jt + β5 Forw jt + ε jt (2.1)
also benefit from the increase in demand of their products, the expansion of LnYjt = α + β1 ln K jt + β 2 ln L jt + β 3 horizontal jt + β 4 Backward jt + β 5 Forw jt + ε jt (2.2)
consumption market and thus they will increase production scale and achieve
economies of scale. Yjt: Output of industry j in year t, Kjt: Capital of industry j in year t; Ljt: Labor of
industry j in year t.
Horizontaljt: horizontal linkages between domestic firms and FDI firms of industry j
in year t, it shows the relationship between FDI firms and domestic firms in the same
11 12
industry j. 3.1.2. The role of the manufacturing industry in the economy
Backwardjt: Backward linkages between domestic firms and FDI firms of industry j Compared to the whole economy, the number of employees working in the
in year t, in this case FDI enterprises are downstream buyers of domestic enterprises. manufacturing industry always accounts for over 15%, especially nearly 20% in some
The increase in backward variable shows that domestic suppliers are involved more periods. Manufacturing industries account for nearly 50% of the number of
in the production and business activites of FDI enterprises. enterprises. Compared to the entire industry, the proportion of employees and
enterprises is always so far the greatest at over 90%.
Forwardjt: Forward linkages between domestic firms and FDI firms of industry j in
year t, in this case FDI firms are upstream suppliers to domestic firms. Thus, the 3.1.3. The role of the manufacturing industry in industry sector
value of vertical linkage variable increases in case the output of foreign firms and
The contribution of the manufacturing sector in the industry tends to increase during
the proportion of intermediate products that foreign firms supply to domestic firms
the period from 2008 to 2013 and always accounts for over 80%. Until 2013, this
increased.
proportion had reached a high of 88.23%. The growth rate of gross output in the
2.3. The factors affecting the impacts of FDI capital on the manufacturing
manufacturing sector is always higher than the growth rate of the manufacturing
industries
industry’s contribution to GDP.
(1) the investment environment; (2) the strategy for developing the manufacturing
3.1.4. The role of the manufacturing industry in exports
industry; (3) the characteristics of the manufacturing industry; (4) the characteristics
of international investors and (5) the characteristic of movements of FDI inflows. From 2008 to 2013, the proportion of processed and refined products always stands at
above 50% of Vietnam export structure classified according to the SITC, in 2012 and
CHAPTER 3
2013, this ratio turns respectively 69% and 70%; light industry and handicraft always
THE CURRENT SITUATIONS OF FOREIGN DIRECT INVESTMENT account for over 75%, by 2013 the proportion has reached a peak at 82.4%.
CAPITAL IMPACTS ON THE MANUFACTURING INDUSTRIES IN
3.2. Foreign direct investment in the manufacturing industry in Vietnam
VIETNAM
In this section, the thesis will analyze and gather statistics on the attraction of FDI
3.1. Overview of the manufacturing industry in Vietnam
into the Vietnam manufacturing industry. This is the basis for the assessment of the
3.1.1. The manufacturing industry in Vietnam FDI impacts on the manufacturing industry.
“Manufacturing industry” is the term commonly used to refer to the processing and 3.2.1. Attracting FDI into Vietnam
fabricating industries. By this means, the manufacturing industry in Vietnam includes
By 15/12/2013, the manufacturing industry has attracted the largest FDI capital with
24 industrial sectors; each is encoded by two numbers according to the sub-sector
8620 projects equivalent to 122.71 billion US dollars, accounting for 53.32% of the
panel of the General Statistics Office (GSO).
total registered FDI capital in Vietnam from 1988 to present.
Food products and beverages; tobacco products; textiles; etc; tanning and dressing
3.2.2. Attracting FDI into the manufacturing industry
leather; wood and wood products; paper and paper products; publishing, printing etc;
refined petroleum etc; chemical products; rubber and plastic products; non-metallic In this section, the thesis will go into a detailed analysis of attracting FDI into the
mineral products; basic metals; fabricated metal products (except machinery and manufacturing industry based on timeline, forms, geographical areas and technology
equipment); machinery (incl. Office electrical; vehicles; transport equipment; degrees.
furniture; other manufacturing; repairing, maintaining and installing of machinery
3.2.2.1. Foreign direct investment in the manufacturing industries in Vietnam over
and equipment.
the years
13 14
During the period 2000-2013, the amount of registered FDI capital in the 2011 and 2012, this ratio was above 10% and remained highly stable in the following
manufacturing industry tends to increase, the proportion of FDI in the manufacturing years. The registered FDI proportion of remaining industries is still low, which is
industry in total registered FDI capital in Vietnam was commonly at 60%. By 2012, inconsistent with the priority development of high-tech industry in the period of
this proportion was over 70% and in particular in 2013 the percentage of registered industrialization and modernization. In 2012, 4 out of 8 high-level manufacturing
capital in the manufacturing industry reached a peak at 86.24%., which equivalent to industries had the ratio of register FDI capital under 1%.
11.7 billion USD; 18.6 billion USD in 2012 and 2013 respectively. The number of
3.3. The current situations of the FDI capital impacts on the manufacturing
FDI projects in 2012 and 2013 are 561 and 662 respectively.
industry in Vietnam
3.2.2.2. Foreign direct investment in Vietnam manufacturing industry in the form of
3.3.1. The current situations of the direct impacts of FDI capital on the
investment
manufacturing industries in Vietnam
In recent times, FDI inflows into the manufacturing industry are mostly in the
3.3.1.1. The impact on the growth of the manufacturing industry
form of 100% foreign investment. By 31/12/2013, the proportion of projects and
registered capital of 100% foreign investment are 82,73% and 82,73% FDI sector has always contributed more than 30% of gross output of the
respectively; the corresponding figures of joint ventures are 14.96% and 28.25%; manufacturing industry. From 2010 up to now, this proportion has remained high at
the remaining belongs to cooperation contracts, BOT, BT and BTO. 40% or more.
3.2.2.3. Foreign direct investment in the Vietnamese manufacturing industry in local
3.3.1.2. The impact on economic restructuring in the manufacturing industry
areas
The proportion of gross output in the FDI sector classified by the level in the period
Up to now, there are 25 provinces that have attracted over 1 billion USD of registered
from 2005 to 2011: despite being at low level, the food the manufacturing industry
FDI capital in the manufacturing industry, accounting for 93.48% of the total
accounts for the highest yields in the FDI sector, during the period of 2005-2012, this
registered FDI in this sector. FDI mainly concentrates in the two major cities of
ratio remained stable at the highest point (above 14%). Regarding sectors with the
HCMC and Hanoi, and the vicinity of these cities. The mountainous or remote
ratio over 8%, the high-tech industry has two branches and the low-tech industry has
provinces, the amount of FDI capital flowing into the manufacturing industry is very
two branches, whereas the medium-level industry has no branch.
small.
The proportion of gross output of the FDI sub-manufacturing industries in the total
3.2.2.4. The proportion of FDI capital in the Vietnamese manufacturing industry
gross output of these during the period from 2005 to 2011: In almost all the high-
according to the technological level of industry
level industries, the gross output ratio of the FDI sector are above 40%; not any
The low-level manufacturing industries: In general, FDI inflows in these industries medium-level industries have the ratio over 50% ; considering the low-tech industries,
tend to decrease over the period from 2000 to 2012. However, this proportion there are two branches that FDI gross output account for over 60% of the total, they are
remains high in some fabricating, food processing and textile industries. the other the manufacturing industry and the leather and related products manufacturing.
In the remaining industries, this proportion is mainly below 40%.
The medium-level manufacturing industries: Beside the metal production industry,
only the industry of manufacturing products from rubber and plastic attracted high 3.3.1.3. The impact on export promotion in the manufacturing industry
and stable proportion of FDI capital over the period 2000-2012.
The manufacturing industries with low-technological content such as textiles,
The high-level manufacturing industries: Manufacturing of electronic products, footwear and furniture, the FDI export proportion of these sectors in comparison with
computer and optical products are the sectors that have the largest proportion of export value is fairly high and in the range of 50% - 70%. This proportion of the
registered FDI capital compared with other high-level manufacturing industries. In manufacturing industries with high-technological content such as electronics and
15 16
electrical equipment is also very high - above 90% and even just under 100% in some The formation and development of the electronics supporting industry: Recently,
years. many major electronics manufacturers such as Samsung, Canon, Intel, Foxconn ...
undertook to invest in Vietnam. Most recently in 2009, Samsung had invested $670
3.3.1.4. The impact on additional investment capital in the manufacturing industry
million to conduct the first mobile phone manufacturing complex in Vietnam (Bac
According to the Foreign Investment Agency, FDI capital accounts for about 25% of Ninh) (later raised to $1.5 billion and $2.5 billion at present) and continuously
the total investment capital in the manufacturing industry for the period from 1988 to invested $2 billion to build the 2nd complex in Thai Nguyen. According to Samsung,
2013. Besides, FDI capital stimulates the increase in investment in the manufacturing there are about 4 Korean firms that have signed commitments and they are building
industry; for example, the manufacture and assembly of motorcycles and spare parts. the plants. In addition, about 10 other Korean satellite firms of Samsung are
FDI invested into this sector increased by 1.5 times, but domestic investment has promoting investment projects to build factories producing spare parts to supply to
increased by 7.9 times during the same period. Samsung.
3.3.1.5. The impact on the formation of new industries in the manufacturing industry The formation and development of the autos supporting industry
The formation and development of the automobile industry in Vietnam Typically, Toyota Vietnam has attempted to invite successfully other firms supplying
components owned by Toyota to invest in Vietnam as Denso, Toyota Boshoku Hai
By the end of 2009, there were 17 firms operating in the automotive assembly
Phong, Hai Phong Toyota Gosei and others to produce parts and at the same time
industry in Vietnam. The annual gross output continuously grows from 18,000
export auto parts to the whole world, the supplier has provided Toyota more than 300
vehicles in 2001 to 120,000 ones in 2009, within 9 years the output of Vietnamese
diverse categories of details, including the normal details and the functional details
automobile industry had increased by 6.7 times. However, since 2010, auto
requiring high technology and quality.
production has showed sign of a slowdown and a downward trend. In 2010, the
number of assembled autos was 112.3 thousand, which dropped to 108.2 thousand 3.3.1.7. The impact on the contribution to the state budget and creating jobs for the
units in 2011, and until 2012 only 99.2 thousand autos was assembled. economy of the manufacturing industry
The formation and development of the electronic industry in Vietnam The FDI enterprises play a huge role in creating jobs and contributing to the State
Budget. By 31/12/2013, the FDI sector had created 2.2 million jobs, about 70% of
With an annual average growth rate of 20-25%, the electronics industry has more
this came from the Vietnamese manufacturing industry. In addition to solve job
than 500 enterprises accounting for 1/3 of the FDI enterprises. The export value of
problem, the FDI sector helps to increase the contribution to the State Budget of the
electronics industry was about $100 million in 1996 and in recent times, this figure
manufacturing industry. By 31/12/2013, this sector had contributed $19.5 billion to
has increased significantly. According to statistics from the General Department of
the state budget, in which FDI-manufacturing industry accounted for about 50%.
Vietnam Customs, in the first 9 months of 2013, the export value of phones and
accessories reached $15.5 billion, increased 79.8% compared to 2012. Computers, 3.3.2. The current situations of indirect impacts of FDI capital on the
electronic products and components reached $7.7 billion, increased by 43.9% manufacturing industries in Vietnam through the channels
compared to the same period in 2012.
3.3.2.1. Competition channels - creating pressure on domestic firms to improve
Although there are about 500 enterprises in the electronics industry, the investment in productivity
this sector still poses many drawbacks such as limited investment capital,
In the manufacturing industry, the joint venture local businesses are more productive
spontaneous, incoherent and unprofessional operation.
than the normal ones. The impact of FDI through competition channels is very clear
3.3.1.6. The impact on the formation and development of supporting industries in the in the Vietnamese textile industry. For example, the Garco 10 Firm has invested
manufacturing industry much for renovation, advanced technology and highly-skilled workers recruitment in
17 18
order to convert the production of common garments to the manufacturing and level 2 consists of 23 branches and the industry level 3 consists of 59 branches.
trading of products that are expensive but of higher quality. 3.3.3.2. Results of regression estimates by ordinary differential equations
3.3.2.2. The investment in developing human resources and labor movement The estimation for the 23 manufacturing industries level 2 in Vietnam, including 161
observations classified into 13 groups shows that:
The 2011 Industrial Investment Report showed that about 11% of FDI enterprises
The test result from the FE model shows that the coefficients of L, K are positive
cooperating with domestic enterprises to improve the quality of such firms. Thus,
and have highly statistical significance at 1%, which means when labor and
beside the goal of enhancing the quality of FDI enterprises, a larger proportion of
investment capital in the industries level 2 increases, the yield in these industries also
these enterprises set goals to improve the quality of domestic enterprises and
increases. Forward linkages variables (forw), backward linkages variables (back)
specially focus on training human resources.
have negative coefficients and have high statistical significance at 1%, which reflects
3.3.2.3. The linkages between firms the linkages between FDI firms and domestic enterprises in the industries level 2
makes the yield of these industries decline. Coefficient of horizontal linkages (Hori)
According to the 2011 Industrial Investment Report, the proportion of input supply of
is positive but not statistically significant, there has been no evidence proving that the
local businesses was 26.6%. This level is relatively low, in the developed countries; it
presence of FDI firms in the industry level 2 increases the output of this sector.
is averagely above 50% for all industries. In some specific industries, this ratio can be
The estimation result for the 59 manufacturing industries level 3, including 410
up to 90%. Along with this conclusion, according to the Japanese External Trade
observations classified into 59 groups shows that:
Organization (JETRO), the current rate of inputs materials and spare parts purchase
that Japanese firms found in Vietnam reach 28%, meanwhile in Indonesia, Thailand In the sectors level 3, the coefficient of the variables L, K are positive and highly
and China, this rate is 43%, 53% and 61% respectively. The trending forward statistically significant at 1%. The coefficient of Hori is positive but not statistically
linkages as well as backward linkages when domestic firms accounted for 20.8% of significant. Similar to the sectors level 2, the coefficients of Backwards and forwards
sales of FDI firms while accounted for over 33% of total FDI’s customers. variables are negative and statistically significant at 1% and 5%, which continuously
reflects the negative impact of the linkages between FDI and domestic firms in level
3.3.2.4. The channel of technology transfer and research and development
3 on output decrease.
The number of FDI projects that have technology transfer contracts accounts for a
The estimation result for the manufacturing industries level 3 classified by level
small proportion, less than 7% of the total FDI projects being implemented
(high, medium and low)
manufacturing business in Vietnam. In addition, only 5-6% FDI enterprises using
advanced technologies, 80% using medium technology and some using outdated The test results show that in the low-tech industries level 3, Forward and Backward
technology. variables have negative coefficients and the statistical significance o 5%. The
linkages between FDI firms and domestic firms in the sectors level 3 make the output
Enterprises in the manufacturing industry in FDI sector invest in R&D more than
of these industries decline. For the medium-tech industries level 3, the Back and Hori
domestic firms, especially in sectors with high technological level.
variables have negative coefficients and highly statistical significance at 1%. The test
3.3.3. Applying the econometric model of assessing the impacts of FDI on the results are greatly different between the high-tech industries level 3 because the
manufacturing industries in Vietnam backward and forward linkages variables are not statistically significant at 5%.
3.3.3.1. Data description 3.3.3.3. Summary of estimation results
In order to assess the impacts of FDI on the manufacturing industry, the business The variables of labor (L) and capital (K) have positive coefficients and statistical
dates surveyed in the period of 2003-2009 were aggregated and classified by the significance in both level 2 and level 3 sectors, reflecting capital and labor have a
categories of manufacturing industries level 2 and level 3. In particular, the industry positive impact on increasing the output of the manufacturing industry.
19 20
The Horizongtal variable doesn’t have positive coefficient but no statistical
CHAPTER 4
significance in the level 2 and level 3 sectors, there is any evidence proving that the
presence of foreign parties has positive impact on output increase in the VIEWPOINTS, SOLUTIONS TO TAKING ADVANTAGE OF POSITIVE
manufacturing industry. IMPACTS AND MITIGATE NEGATIVE IMPACTS OF FOREIGN DIRECT
The variables of Forward linkages (forw) and backward linkages (Back) have INVESTMENT CAPITAL ON THE MANUFACTURING INDUSTRIES IN
negative coefficients and statistical significance for almost all the cases in the VIETNAM
industry level 2 and entire level 3. The coefficients of these variables indicate no
statistical significance in the high-qualified industries level 3. Thus, it can be 4.1. International and internal context
affirmed that forward linkages and backward linkages (vertical linkages) between
4.1.1. International context
FDI firms and domestic firms have negative impacts on the output decline of the
manufacturing industry. This is due to the internal resources and capabilities of most To clearly analyze the world context, the thesis analyzes the context of the
local firms are still weak, so they cannot effectively cooperate with FDI enterprises. following international issues: (1)The trend of shifting global FDI flows; (2) The
3.4. Overall assessment of the impacts of foreign direct investment on the trend of shifting FDI in industry and service; (3) The adjustments in the development
manufacturing industry in Vietnam model of China and ASEAN.
3.4.1. Achievements: (1) The gross output of the manufacturing industry has
4.1.2. Internal context
increased; (2) Promoting export and economic restructuring in the manufacturing
To clearly analyze of the internal context, the thesis analyzes the following
industry; (3) Contributing to the formation and development of new industries; (4)
issues: (1) The economic development strategy until 2020; (2) Make the international
Improving the competitiveness of the manufacturing industry; (5) Contributing to
integration commitment; (3) Some of the internal factors of the economy
train skilled human resources; (6) Contributing to the technology transfer; (7)
4.2. The viewpoints of utilize the positive impacts, mitigate the negative impact
Contributing to the research and development.
of FDI on the manufacturing industry in Vietnam
3.4.2. Weaknesses: (1) The impact of FDI on productivity and output of the
(1) FDI is an important strategic capital for manufacturing industries; (2) The
manufacturing industry is low; (2) The growth rate of the export value is still low; (3)
manufacturing industry need to consider modern technology transfer as one of the
The supporting industries the manufacturing industry remain underdeveloped; (4)
fundamental interests; (3) FDI in the manufacturing industry must play an important role
Investment in research and development (R & D) of domestic enterprises in the
in the training of human resources; (4) Do not distinguish between FDI firms and
manufacturing industry are modest; (5) FDI cannot create tight and effective linkages
domestic enterprises; (5) Appreciate the linkages between FDI firms and domestic
between enterprises in the manufacturing industry in Vietnam; (6) The transfer of
enterprises; (6) The industrial clusters supporting manufacturing industry have an
modern technology in FDI is still limited; (7) The competition effect tends to cause
important role to take advantage of the positive impacts of FDI; (7) Need to respect both
negative impacts.
attracting and using FDI effectively in manufacturing industries; (8) The FDI strategy of
3.4.3. The causes of weaknesses: (1) FDI policy is inadequate; (2) The human manufacturing industry need to be put in relation with the socio-economic policies.
resources of local enterprises in the manufacturing industry is still insufficient in
4.3. The orientation and goals of attracting foreign direct investment into the
quantity and poor in quality; (3)The industrial clusters supporting for the
manufacturing industry in Vietnam
manufacturing industry are underperforming capabilities; (4) The potential of
enterprises in the manufacturing industry is still weak; (5) The technological level is 4.3.1. Strategic development of the manufacturing industry
still low; (6) The infrastructure serving the development of the manufacturing
- To focus on developing the potential manufacturing industries to compete in the
industry are asynchronous.
future.
21 22