INTRODUCTION
R ATIONALE
Foreign direct investment (FDI) refers to the investment made by individuals or firms in one country into business interests in another country, typically through establishing operations or acquiring assets in a foreign company Unlike portfolio investments, which involve merely purchasing stocks of foreign companies, FDIs play a crucial role in enhancing economic conditions within regions By attracting FDI, provinces can specialize more effectively, yielding greater benefits for local communities and the nation as a whole This strategic investment not only strengthens the negotiating power of provincial governments with foreign investors but also reduces unfavorable competition among provinces.
Policies aimed at attracting foreign direct investment (FDI) in economic regions are designed to centralize resources and clarify the responsibilities of each province, fostering a competitive environment and leveraging the region's market potential to entice investors However, these policies can inadvertently diminish the individual appeal of provinces, leading to a reluctance among foreign investors to commit to the region Additionally, a lack of coordination among provinces can hinder investor engagement, as concerns about the sustainability of partnerships arise, ultimately affecting trust in the overarching economic zone policies.
Socio-economic development in the region hinges on the availability of capital, as a lack of it halts all socio-economic activities and leaves local priorities unmet Investment capital, encompassing both domestic and foreign sources, remains a crucial input resource Developing countries often struggle with low accumulation capacity and weak domestic capital markets, making access to external funding challenging Consequently, foreign direct investment (FDI) plays a vital role in enhancing investment capital for development, alleviating capital shortages without the political constraints typically associated with investing nations, and mitigating debt risks Furthermore, in the event of financial risks, FDI tends to have minimal impact on local finances, as losses are primarily borne by foreign investors With numerous developed countries eager to invest abroad for profit, developing nations, including Vietnam, have the opportunity to attract significant FDI, thereby addressing capital constraints in their socio-economic development efforts.
Attracting foreign direct investment (FDI) is essential for enhancing the production and business efficiency of local regions Foreign investors primarily seek profit, leading them to invest in local facilities that optimize production activities This influx of FDI not only benefits investors but also provides host country enterprises with opportunities to learn, adapt, and compete effectively To thrive in this competitive landscape, domestic businesses must evolve by improving management practices, investing in advanced technology and equipment, enhancing product quality, reducing costs, and expanding both domestic and export markets to boost worker income and overall business profitability.
Foreign Direct Investment (FDI) inflows into Vietnam have seen a significant increase, with both registered and implemented capital improving compared to previous years Data from the first quarter of 2019 highlights this trend, showing that total registered capital during this period reached impressive levels.
US $ 10.8 billion, up 86.2% over the same period in the first quarter of 2018.
In the recent period, Hanoi has seen a significant increase in foreign direct investment (FDI), with 785 newly registered projects totaling $3.8 billion, marking an 80% rise Additionally, contributed capital and share purchases reached nearly $5.7 billion, reflecting over a 200% increase, while FDI disbursement grew by 6.2% to $4.12 billion compared to 2018 This influx of FDI is crucial for infrastructure development, which is essential for accelerating growth in the provinces As the political center of Vietnam, Hanoi requires robust infrastructure and socio-economic development to align with national objectives, making the attraction of FDI vital However, FDI inflows to Hanoi remain lower compared to other provinces like Da Nang and Ho Chi Minh City, highlighting the need for a thorough analysis of the factors influencing FDI attraction in Hanoi to formulate effective strategies for improvement.
R ESEARCH OBJECTIVES
This thesis aims to identify and evaluate the factors influencing Foreign Direct Investment (FDI) in Hanoi, assessing their impact through a comprehensive analysis of both theoretical and practical dimensions.
This article will closely examine theoretical frameworks related to foreign direct investment (FDI) attraction and its driving factors By investigating the current FDI inflow situation in Vietnam, a proposed analysis model will identify the key factors influencing FDI.
Hanoi's foreign direct investment (FDI) inflows will be assessed to identify key determinants, followed by recommendations aimed at enhancing FDI attraction in the city for the foreseeable future.
This thesis aims to explore three key objectives: first, to establish a theoretical framework for foreign direct investment (FDI) and its influencing factors; second, to identify the specific factors that impact FDI in Hanoi; and third, to propose policy recommendations to enhance FDI attraction in Hanoi in the future.
R ESEARCH SUBJECT
This thesis focuses on identifying the factors influencing foreign direct investment (FDI) inflows in Hanoi over a five-year period The relevance of this research is underscored by Vietnam's current economic landscape and the growing interest from multinational corporations and foreign investors in the region.
R ESEARCH SCOPE
This thesis examines data from Vietnam over a 10-year period, specifically from 2014 to 2018, utilizing capital calling and PCI reports The focus is on foreign direct investment (FDI) enterprises that have branches or headquarters in Hanoi This research scope aligns with the academic requirements of the thesis and the researcher's capabilities.
R ESEARCH METHODOLOGY
This research employs a quantitative methodology, utilizing data gathered from PCI reports and the Yearbook of the General Statistics Office of Vietnam covering the years 2014 to 2018 The analysis will be conducted using various statistical methods, including the Pooled OLS model, Fixed Effect model, and Random Effect model.
N EW CONTRIBUTION OF THE THESIS
This research focuses on the significant topic of foreign direct investment (FDI) in Vietnam, particularly in Hanoi, aiming to provide concrete evidence regarding foreign investors' perceptions of the current investment climate Utilizing a mixed-method approach, the study seeks to identify key factors influencing FDI attraction, revealing that investor decisions are shaped not only by current data but also by historical context Consequently, the findings will inform policy recommendations aimed at enhancing the investment environment and bolstering FDI inflows in Hanoi.
T HESIS STRUCTURE
The remainder of this thesis is structured into 4 main chapters:Theoretical Background and Literature Reviews, Research Methodology,Data Analysis and Findings, Implications.
THEORETICAL BACKGROUND AND LITERATURE REVIEWS
2.1.1 Definition and classification of foreign investment
Under Vietnam's 2014 investment law, foreign investment is categorized into two types: foreign direct investment (FDI) and foreign indirect investment (FPI) FDI involves foreign investors directly investing their capital into projects, allowing them to maintain control over these investments In contrast, FPI entails investing through the purchase of shares and securities without direct involvement in management Both investment types share common characteristics, such as being driven by the need for international economic integration and aiming to generate profits proportional to the invested capital Additionally, both FDI and FPI are governed by various laws, including those of the host country and international treaties, despite their differing characteristics.
Form Foreign Direct Foreign indirect
Investors have the option to either take direct control of their investments or allow the investee to operate independently When investors choose not to exert direct control, the investee maintains full autonomy over capital investments, production, and business decisions, bearing responsibility for both profits and losses.
Foreign investors are required to contribute a minimum percentage of capital in accordance with the legal or charter capital regulations of each country Additionally, the amount of securities that foreign companies are permitted to purchase may be limited, varying by country.
Level of risk Risks as a proportion of Low risk invested capital
Profit Obtained according to Proceeds are divided the company's profits according to dividends and divided according to or the sale of Difference the capital contribution securities. ratio.
Purpose Profit and control or Profits, only control expectations of a range of future profits in the form of dividends, dividends or price differences.
Appearance Capital is associated Simply circulating with trade, technology capital from direct to the transfer and host country. international labor movement.
The trend of rotation From developed From developing countries to developing countries or developing countries countries rather than rotating underdeveloped countries.
Table 1 FDI and FPI characteristics 2.1.2 Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI) plays a crucial role in economic growth, particularly in developing countries, as highlighted by Borensztein (2008), who found a positive correlation between FDI and real per capita GDP growth, especially in nations with higher human capital Educated workforces are better positioned to leverage advanced technologies from FDI, which also brings essential capital, job creation, and the transfer of managerial skills and technology, thereby fostering economic development Recognizing its significance, Southeast Asian governments, including Vietnam, actively seek to attract FDI to enhance their development efforts in a competitive global market FDI flows encompass cross-border transactions related to direct investment, including equity transactions, reinvested earnings, and intercompany debt There are two types of FDI flows: outward flows, which increase investments by domestic investors in foreign enterprises, and inward flows, which reflect investments from foreign investors in domestic enterprises Ultimately, FDI is a product of globalization, integrating local economies with global markets by allowing foreign investors to establish businesses within domestic sectors.
2.1.2.1 Definition and concept of FDI
International capital flows, primarily through Foreign Direct Investment (FDI), play a crucial role in economic development, particularly in developing regions like Sub-Saharan Africa (SSA) Unlike other private capital flows, FDI demonstrates remarkable stability during financial crises and continues to grow even when global trade slows This resilience makes FDI a vital source of private external finance, as many developing countries actively seek to attract it to enhance their economic development FDI contributes to growth by facilitating technology transfer, stimulating domestic market competition, and fostering human capital development through employee training Additionally, profits from FDI bolster corporate tax revenues in host countries Given that domestic investment often falls short of the levels needed for significant GDP growth, FDI serves as a bridge to close this gap Modern growth theories suggest that FDI enhances economic prospects through capital accumulation, technology transfer, and skill development, prompting policies in developing regions to focus on attracting foreign investment as a pathway to economic progress.
Foreign direct investment (FDI) is primarily conducted by Multinational Corporations (MNCs), which facilitate net transfers of real capital between countries These corporations signify the establishment of business operations in a foreign market, thereby entering and influencing the host economy.
“Financing Gap Model” as evidenced in early growth theories by Harrod
Foreign Direct Investment (FDI) plays a crucial role in the expansion of multinational corporations (MNCs) through both vertical and horizontal strategies Horizontal expansion allows companies to produce the same goods in different countries, capitalizing on demand in geographically segmented or tariff-controlled markets In contrast, vertical expansion enables MNCs to access cheaper production markets for intermediary goods, often found in developing regions like Africa, which benefit from favorable exchange rates and abundant labor As a result, MNCs are increasingly employing a larger share of labor in these developing countries.
Foreign Direct Investment (FDI) definitions and regulations differ across countries, as each nation establishes its own investment laws This article examines the FDI definitions and related concepts as outlined by three major economic organizations: the International Monetary Fund (IMF), the Organization for Economic Co-operation and Development (OECD), and the World Trade Organization (WTO).
The International Monetary Fund (IMF) defines Foreign Direct Investment (FDI) as a long-term investment that establishes a significant relationship between a direct investor in one economy and an enterprise operating in another This investment aims to provide the direct investor with substantial management control, typically requiring ownership of more than 10% of the business.
The Organization for Economic Co-operation and Development (OECD) defines Direct Investment, as outlined in the Benchmark Definition of Foreign Direct Investment (BMD4), 4th edition, as an investment aimed at establishing a long-term economic relationship with an enterprise while exerting control over it.
- Founding or expand an enterprise or a branch under control of investor
- Issuing long-term credit (more than 5 years)
World Trade Organization (WTO) (Trade and Foreign Direct
Foreign Direct Investment (FDI) is defined as the ownership of property and the rights to control it by a foreign investor from the home country in a host country The key distinguishing factor of FDI is the control power exercised by the investor, setting it apart from other investment types.
Foreign Direct Investment (FDI), as defined by the United Nations Conference on Trade and Development (UNCTAD) in the World Investment Report 2007, represents a long-term investment activity that establishes a significant relationship and control between an investor's holding company and an enterprise receiving the investment FDI empowers investors with substantial management authority over the recipient enterprise, involving initial transactions and ongoing interactions with foreign branches, whether merged or unmerged This investment encompasses three key components: the initial capital invested by the investor, reinvested earnings, and internal loans exchanged between the companies.
Ordinance No 06/2013/PL-UBTVQH13, enacted on March 18, 2013, amends the Foreign Exchange Ordinance of Vietnam, defining Foreign Direct Investment (FDI) as the capital investment and management participation of foreign investors in Vietnam.
In summary, Foreign Direct Investment (FDI) involves investors allocating either partial or complete capital into a business within a host country, with the intention of gaining management and control over that enterprise.
Foreign Direct Investment (FDI) is defined by several key characteristics, with the four most prominent being profit orientation, control authority, autonomy in decision-making, and the transfer of technology These elements highlight FDI's role in driving economic growth and innovation.
METHODOLOGY
Chapter 3 will utilize quantitative research methods to analyze the factors influencing outward foreign direct investment (FDI) in Vietnam, as established in the theoretical framework of Chapters 1 and 2 The dependent variable will be outward FDI, while the explanatory variables will include firm-specific and province-specific factors, such as entry costs, land access, and security of tenure The analysis will draw on data from 63 provinces in Vietnam, covering the period from 2014 to 2018, resulting in a total of 63 observations.
The evolution of the world economy has led to the emergence of various economic analysis methods, primarily grounded in quantitative and qualitative research approaches (Holcomb, 2016) However, advancements in computer science and mathematics have resulted in a preference for quantitative methods, which Nermend and Łatuszyńska (2019) argue are superior in economic research due to their ability to precisely analyze variables and their correlations In contrast, qualitative methods may introduce subjective interpretations from researchers, potentially skewing results This perspective is echoed by Ross et al (2016), who highlight the prevalence of quantitative research in evaluating the correlation effects of diverse factors within the economic domain.
The econometric model enables the measurement of the relationship between a dependent variable, which signifies the economic object of interest in volatility studies, and independent variables that provide alternative economic explanations for this volatility Furthermore, this approach facilitates the testing of hypotheses and economic theories using real data, and in certain cases, it can also be utilized to predict the volatility of the subject under investigation.
The article "Foreign Direct Investment in Vietnam: An Overview and Analysis of the Determinants of Spatial Distribution Across Provinces" by Nguyen Ngoc Anh, published by the Development and Policies Research Center (DEPOCEN) and the Center for Analysis and Forecasting (CAF), provides a comprehensive guide on conducting research in this area The author utilizes the Provincial Competitiveness Index (PCI) as the primary data source to examine how various provincial factors influence FDI attraction Additionally, Nguyen Ngoc Anh employs the Pooled OLS model method for this analysis, creating a structured research model to elucidate the findings.
Foreign Direct Investment (FDI) is influenced by various factors, including market conditions, labor availability, infrastructure quality, and government policies In their research, the authors utilized the Pooled OLS model to analyze the significance of these factors on FDI, incorporating data on local consumer market size, per capita income, human capital development, and infrastructure conditions across 63 provinces in Vietnam from 2010 to 2014 The mathematical model proposed by Nguyen Ngoc Anh can be expressed as a function where “i” represents each province and city, and “t” denotes the year, capturing the flow of Japanese FDI while accounting for a vector of sub-indices related to market, labor, infrastructure, and policy, along with control variables reflecting provincial characteristics and an error term.
The author categorizes the nine elements of the Provincial Competitiveness Index (PCI) into four key groups: Market factors, Labor factors, Infrastructure, and Government policy These elements include Entry cost, Land Access and Security of Tenure, Transparency and Access to Information, Time Costs and Regulatory Compliance, Informal Charges, Policy Bias, Proactivity of Provincial Leadership, Legal Institutions, and Labour and Training Each group reflects critical components that influence the overall competitiveness of provinces.
Labour factors Labour and Training
Infrastructure Land Access and Security of Tenure
Transparency and Access to Information
In the article "Using Pooled Model, Random Model and Fixed Model Multiple Regression to Measure Foreign Direct Investment in Taiwan," Thomas Hiestand presents a research model that analyzes the impact of Foreign Direct Investment (FDI) on various cities in Taiwan His methodology incorporates the Pooled Ordinary Least Squares (OLS) model, the Random Effects Model, and the Fixed Effects Model to ensure the most accurate measurement of FDI influences.
Panel data is essential for assessing the volatility of macroeconomic objects, as it combines cross-sectional units, such as provinces or countries, over time This dual-dimensional structure offers several advantages, as highlighted by Baltagi (2008), including the ability to address heteroscedasticity through specific variable considerations, enhanced information diversity, reduced multicollinearity, and increased degrees of freedom Furthermore, panel data allows for a more nuanced analysis of dynamic changes and complex behavioral patterns, such as economies of scale and technical change, which may be overlooked in pure time series or cross-sectional data Additionally, by leveraging available data across multiple units, panel data minimizes potential sampling biases.
In this graduation thesis, the writer selected the evaluation method through econometric model with data on 63 provinces in the period 2014-
In 2018, this study analyzed a total of 315 observations using regression models suited for table data The research specifically employed three types of models: the Pooled OLS model, the Fixed Effects model, and the Random Effects model.
To assess the impact of institutional performance on the entry rates of new foreign firms in Vietnam from 2014 to 2018, this study employs Pooled OLS, Fixed Effects, and Random Effects Models using panel data across 63 provinces and cities The methodology mirrors that of Nguyen Ngoc Anh, with the addition of a logarithmic transformation to summarize the data Transitioning from a linear regression model to a log-log regression model helps to mitigate the influence of skewness in the dataset and supports the assumption that the effect of explanatory variables diminishes Furthermore, the log-log model enhances the interpretability of results, indicating that a 1% change in the explanatory variable results in a corresponding x% change in the dependent variable, rather than a fixed unit change.
Therefore, the basic model for panel regression models is specified in a reduced form as follows:
FDI = f (Market factors, Labour factors, Infrastructure, Government policy)
The values for the groups can be represented using the components of the PCI, where "i" denotes the province or city and "t" indicates the year, specifically focusing on the Foreign Direct Investment (FDI) within that context.
63 provinces and cities over five years from 2014 to 2018; Log(Entry cost;
Land Access and Security of Tenure; Transparency and Access to Information; Time Costs and Regulatory Compliance; Informal Charges; Policy Bias; Proactivity of Provincial Leadership; Legal Institution; and
The Provincial Competitiveness Index and its sub-indices across 63 provinces are influenced by labor and training factors Additionally, control variables such as the size of the local consumer market, per capita income, human capital development, and infrastructure conditions play a significant role in this analysis, with an error term accounting for any discrepancies.
The Provincial Competitiveness Index (PCI) in Vietnam assesses and ranks the performance, capacity, and willingness of provincial governments It aims to foster business-friendly regulatory environments that promote private sector development.
In 2008, the PCI reaffirmed that effective economic governance significantly influences a nation's development Provinces with better governance are more adept at utilizing resources efficiently, which subsequently enhances business performance and boosts income in the following years.
The Provincial Competitiveness Index (PCI) is a collaborative project between the Vietnam Chamber of Commerce and Industry (VCCI) and the U.S Agency for International Development (USAID), supported by the Vietnam Competitiveness Initiative (VNCI) and The Asia Foundation (TAF) Led by Edmund Malesky from the University of California - San Diego, the PCI employs a robust research methodology to analyze provincial performance VCCI and VNCI are committed to producing the PCI annually, enabling provinces to monitor their progress through relative rankings and absolute scores over time.
DATA ANALYSIS AND FINDINGS
In Chapter 4, the research will utilize a multi-collinearity test and a correlation matrix to validate the research model, ensuring the accuracy and reliability of the results The analysis will focus on data from all 63 provinces, including Hanoi, using three models: Pooled OLS, Fixed Effect, and Random Effect The chapter will conclude with a comparison of the findings from the 63 provinces against those from Hanoi.
4.1 Overview of FDI in Vietnam
Vietnam's integration into the global economy began with the Doi Moi policy, marking a shift from a hybrid of Confucianism and Soviet traditions to a market economy model This transition necessitated significant legal and economic reforms, highlighting the importance of cultural adaptation alongside political and economic changes The radical transformation required for success was encapsulated in the Doi Moi policy, which emphasizes the critical role of cultural transition in fostering growth.
„changing into something new‟, but is more commonly referred to as
The Doi Moi reform initiated a significant transformation by dismantling cooperatives and transitioning from a household economy to a focus on the private sector, while also restructuring state-owned enterprises for enhanced competitiveness (Salemink, 2003).
Vietnam aimed to establish a new globalized economic position, initially focusing on trade with regional neighbors and eventually expanding to international markets However, the country's isolationist policies and strict Soviet-style administration during the late 1970s and early 1980s necessitated a significant transformation in its political, economic, and social practices The legal framework of Vietnam served as a crucial mechanism for implementing this new economic model, transitioning from a hybrid of socialism and Confucianism This legacy has left enduring habits and norms that may continue to influence and constrain foreign direct investment (FDI) growth in Vietnam for years to come.
Over the past two decades, Vietnam has developed a solid foundation for attracting foreign direct investment (FDI), balancing both positive and negative impacts through a "learning by doing" approach As global competition for FDI intensifies, Vietnam has positioned itself as an attractive investment destination, particularly as developed economies retract and offer fewer lucrative opportunities According to Nguyen Mai, chairman of the Vietnam State Commission for Cooperation and Investment, the lucrative returns from oil exports during the high price period of 2008 have left a lasting impression on investors, reinforcing Vietnam's appeal for future investments Additionally, Vietnam has learned from past experiences and is now more selective about FDI projects, with the government prioritizing profitability and the public becoming more discerning about the benefits of foreign investment.
According to Nguyen Thu Quang from the Ministry of Planning and Investment, Vietnam's approach to foreign direct investment (FDI) has evolved over the past decade Previously, projects were licensed primarily based on available funding; however, the focus has shifted towards assessing the potential success and public benefits of these investments As Vietnam continues its industrialization journey, it is crucial to direct foreign investment towards sectors that promise sustainable and environmentally friendly growth, ensuring a prosperous economic future.
Mai emphasizes the importance of careful investment practices, highlighting the need for thorough research on foreign investors and their projects before granting licenses The reform process should enhance incentives like tax holidays and establish a more efficient administration for revoking licenses of FDI projects that fail to launch, thereby returning land to circulation Strong and consistent reforms are crucial, enabling Vietnamese managers to monitor economic fluctuations and accurately forecast trends, which can guide the development of effective plans by central planners Had there been awareness of the impending consequences of the US financial crisis and the subsequent global recession, many errors could have been avoided.
The Vietnam case study offers a distinctive perspective for analyzing economic theory and practice, as the nation endured decades of conflict followed by significant global isolation During this period, foreign investment primarily came from the Soviets and Chinese, driven by ideological commitments rather than genuine economic considerations A former senior Communist Party official noted that this financial support was merely a means to maintain political alliances, ultimately leaving Vietnam economically isolated and hindering its development.
Vietnam's journey from poverty and starvation to economic reform through Doi Moi represents a significant ideological and economic shift, allowing the Communist Party to embrace a free market model This compromise reflects the need to adapt to global economic realities while maintaining core beliefs Analyzing the reform process is essential for future decision-makers to learn from both successes and mistakes The Foreign Direct Investment (FDI) landscape in Vietnam has played a crucial role in its transition to an export-oriented economy, demonstrating that the relationship between FDI, export orientation, and economic growth can lead to successful development As a result, Vietnam stands on the brink of evolving from a less developed nation to a developing country, with aspirations of becoming a fully industrialized economy.
The research highlights the interconnectedness of political, economic, cultural, and social factors in successful development, emphasizing that isolating these elements is ineffective While official data sources may be unreliable, a focused study on two foreign-invested firms allows for a robust assessment of national data alongside personal accounts from those involved in their market entry in Vietnam Despite the enduring central control over Vietnam's economy and politics, which complicates data reliability, the study reveals that corruption remains a challenge, impacting investment decisions and outcomes Ultimately, the findings underscore Vietnam's emergence as a highly attractive destination for foreign investment, bolstered by its accession to the WTO and integration into the global economic landscape.
Based on Vietnam's PCI report from 2014 to 2018 and the log-log model, variables summary of this study are as follows:
The analysis of various variables reveals significant insights into their distributions and characteristics across a dataset of 315 observations The variable log_fdi has a mean of 4.14 with a standard deviation of 2.41, ranging from 0 to 8.93 Log_entry shows a mean of 2.09 and a narrower standard deviation of 0.08, with values between 1.83 and 2.24 Log_land has a mean of 1.80 and a standard deviation of 0.11, ranging from 1.42 to 2.06 The variable log_trans has a mean of 1.82 and a standard deviation of 0.07, with values between 1.59 and 1.99 Log_time_cost shows a mean of 1.89 and a standard deviation of 0.12, ranging from 1.57 to 2.19 Log_informal has a mean of 1.67 with a standard deviation of 0.16, ranging from 1.03 to 2.06 Log_policy_bias has a mean of 1.64 and a standard deviation of 0.17, with values between 1.14 and 2.06 Lastly, log_proactivity has a mean of 1.61 and a standard deviation of 0.17, ranging from 1.13 to 2.06, while log_law has a mean of 1.76 with a standard deviation of 0.13, ranging from 1.35 to 2.08 These statistics provide a comprehensive overview of the variables, indicating variability and trends essential for further analysis.
Data was collected from 63 provinces and cities between 2014 and 2018, resulting in a balanced dataset of 315 observations A multi-collinearity test was conducted to determine if any two individual variables were collinear; a result greater than 0.8 indicates significant collinearity errors affecting the model In regression analysis, closely related independent variables suggest a linear relationship, leading to the issue of multicollinearity, where variables A and B increase or decrease together This phenomenon implies a strong interdependence between the variables, which should ideally be represented as a single variable in the research model The presence of multicollinearity violates the classical linear regression assumption that independent variables are not linearly related.
Table 6 Results of Multi-collinearity test for independent variables
As it can be seen in Table, virtually all the test results are smaller than 0.8,indicating no collinearity Therefore, OLS Model has no collinearity problem.
55 model is legit to conduct research In other words, the research results will be reliable and workable The expected value sign is as follows:
Land Access and Security of Tenure (+)
Table 7 Expected value signs of variables
Among the key values affecting foreign direct investment (FDI), three stand out as potentially detrimental: entry cost, informal charges, and the proactivity of provincial leadership When these values are positive, they indicate adverse impacts on the ability of provinces and cities to attract FDI.
4.3 Evaluation of PCI index of 63 provinces
This section will analyze the Provincial Competitiveness Index (PCI) across 63 provinces and cities using three models: the Pooled OLS model, the Fixed Effect model, and the Random Effect model Additionally, the findings for each model will be thoroughly explained.
The least squares model is a fundamental method for processing tabular data, aggregating information across provinces and years, though it may not account for unique country-specific characteristics The Ordinary Least Squares (OLS) model assumes constant error variance, but table data often reveals that residuals among provinces are interdependent To address this issue, cluster regression can be employed, providing robust standard errors that accurately reflect variance changes The analysis of 63 provinces and cities yielded significant results, with key coefficients indicating that log_informal (2.481, p=0.004), log_policy_bias (-1.556, p=0.037), log_law (-1.678, p=0.036), and log_labor_policy (5.480, p=0.000) are statistically significant, while log_entry (-1.080, p=0.360), log_land (0.283, p=0.819), log_trans (0.819, p=0.528), and log_time_cost (1.876, p=0.137) did not show significance.
Mean dependent var 4.145 SD dependent var 2.407
Overall r-squared 0.514 Number of obs 315.000
Table 8 Results of Pooled OLS model
IMPLICATIONS
5.1 Boosting trade openness by conducting promotion schemes
Promotion activities significantly influence Foreign Direct Investment (FDI) by effectively communicating favorable investment environment factors to potential investors As global investment opportunities are vast, timely and accurate information is crucial for investors to assess risks and returns on their projects Additionally, competition to attract FDI extends to investment promotion efforts, making it essential for Vietnam to implement strategic measures that encourage FDI inflows.
The Vietnamese government should prioritize mobilizing investments through targeted programs and projects, focusing on specific industries, sectors, and areas that attract foreign investors with strong financial and technological capabilities Additionally, Vietnamese enterprises should aim to collaborate with large corporations that possess advantages in capital, technology, and market reach.
Sеcondly,condly, thе coordination bеtwееn Ministry of Forеign Affairs,
The Ministry of Planning and Investment, along with the Ministry of Industry and Trade, must conduct thorough research on global and regional investment markets and facilitate information exchange Additionally, these Vietnamese government offices should enhance investment and trade promotion activities through Vietnam's diplomatic and trade representatives abroad to improve efficiency and reduce costs.
To enhance collaboration among foreign direct investment (FDI) enterprises in Vietnam, it is essential to establish a club or union that works closely with trade promotion offices from various countries This organization would facilitate the introduction of relevant laws, policies, and investment programs Additionally, regular meetings and discussions among foreign investors should be held to share insights, address challenges, and support the growth of FDI enterprises in Vietnam.
The government should widely publish a portfolio of investment projects to increase access to the Vietnamese market for more investors It is essential to create and distribute documents and books on the legal and policy framework related to Foreign Direct Investment (FDI) in popular languages such as English, French, Japanese, and Chinese Additionally, both central and local authorities must take responsibility for actively guiding and overseeing the negotiation and finalization of FDI contracts Investment promotion efforts should be diversified through the diplomatic initiatives of the Central Government, international forums, and collaborations within the frameworks of AIA, ASEAN, APAC, and ASCM, as well as through domestic and international investment conferences These promotional activities should leverage mass media, the internet, and direct engagement to maximize outreach.
Economic experts emphasize the necessity of advancing a socialist rule of law State while fostering a market economy amidst international integration, highlighting the theoretical and practical challenges that must be addressed to enhance economic law effectively.
In the coming time, in order to perfect the development of economic law in the context of international integration, it is necessary to pay attention to the following contents:
To institutionalize the socialist orientation of the market economy, it is essential to integrate this viewpoint into state legal frameworks and policies Additionally, it is crucial to balance the regulatory role of the state in upholding socialist principles with the natural progression of market economic laws.
The XII Party Congress Resolution outlines that Vietnam's market economy, guided by socialist principles, features production relations that align with the development of productive forces It encompasses diverse ownership forms and economic sectors, with the state economy leading and the private sector serving as a vital economic driver All entities, regardless of their economic sector, operate on equal footing, fostering cooperation and competition within a legal framework The market is crucial for mobilizing and efficiently distributing development resources, acting as the primary force for unleashing production capabilities, while state resources are allocated based on strategies and plans that adhere to market mechanisms.
The State is essential in shaping and enhancing economic institutions while fostering a fair, transparent, and competitive environment By utilizing its tools, policies, and resources, the State regulates the economy, encourages production and business, and safeguards the environment Additionally, it ensures social progress and equity in every developmental policy, emphasizing the importance of people's ownership in socio-economic development.
To foster development, it is essential to reform and innovate institutions, aiming to establish a socialist-oriented market economy that aligns with modern international standards by 2020 Future efforts should focus on enhancing production factors that generate significant added value, including creativity, knowledge, science and technology, and advanced management practices.
Legal institutional reform is essential for enhancing national governance and competitiveness among state-owned enterprises and those in other sectors, as well as between domestic and foreign enterprises It aims to advance administrative reform and strengthen institutional capacity, ensuring that businesses and individuals enjoy equal opportunities to compete in the market economy.
To effectively address long-standing weaknesses in economic law construction, it is crucial to expedite the issuance of implementation guidelines, as delays hinder progress Additionally, the frequent modifications and overlapping regulations complicate compliance for businesses Enhancing the quality of economic law and policy promulgation is essential to align with the management demands of a Rule of Law framework.
To successfully navigate the challenges of globalization and international integration, it is essential to strengthen the State's role in regulating macro policies and coordinating solutions to global issues A well-organized and democratic State is crucial for fostering innovation, as it effectively mobilizes and manages resources to address complex challenges.
Our country is currently facing significant challenges in achieving fast and sustainable economic growth while addressing the negative aspects of the market economy Economic development must align with social justice, necessitating the strengthening of legal frameworks and the establishment of a clean, robust, and professional state to ensure strict law enforcement Additionally, enhancing the quality of forecasting and theoretical research is crucial for formulating policies and laws that meet practical demands It is essential to address the shortcomings in the legal system, mechanisms, and policies to ensure compliance with market economy principles, particularly in areas such as resource allocation, commodity price management, and the provision of essential public services to promote fair competition.
In the development of economic law, it is essential for Vietnam to study and incorporate legal provisions from other countries, as many relevant issues have already been addressed through international research and legal frameworks This approach not only saves time and resources but also enhances the compatibility of Vietnamese laws with global standards.