THE IMPACT OF SIX PROVINCES OF THE SOUTHEAST REGION TO FDI IN VIET NAM IN PERIOD 20092013

Foreign Direct Investment (FDI) is one of the most important parts of the economic development strategy in Viet Nam, also the practice of attracting FDI into the country has received more and more attention from the Government. In our country, The South East is a region which has kept its leading position in attracting FDI for many years, however, it has 6 provinces with different factors and there has been a significant disparity between provinces in the region. Therefore, this study was carried out to find the impact of Southeastern provinces to attracting FDI in Viet Nam, and also to find the shift of FDI between the provinces in recent years (period 20092013)

THE MINISTRY OF EDUCATION AND TRAING

FOREIGN TRADE UNVERSITY Department: external economic

-oOo -

THE IMPACT OF SIX PROVINCES OF THE SOUTHEAST REGION TO FDI IN VIET NAM IN

PERIOD 2009-2013

Teacher: Tran Van Hoang

Class: K51C

Group: 5

Ho Chi Minh city, March, 2014

MEMBER LIST OF THE 5th GROUP

Abstract

Foreign Direct Investment (FDI) is one of the most important parts of the economic development strategy in Viet Nam, also the practice of attracting FDI into the country has received more and more attention from the Government In our country, The South East

is a region which has kept its leading position in attracting FDI for many years, however,

it has 6 provinces with different factors and there has been a significant disparity between provinces in the region Therefore, this study was carried out to find the impact of Southeastern provinces to attracting FDI in Viet Nam, and also to find the shift of FDI between the provinces in recent years (period 2009-2013) The study uses one-way Analysis of Variance theory (one-way ANOVA) and Honestly Significant Differences method (HSD) or Tukey method with data collected from Foreign Investment Agency, Ministry of Planning and Investment The results revealed that the amount of FDI into each province is different from the others in the period from 2009-2013

Key words: ANOVA, FDI, Tukey, Vietnam, Southeast Vietnam

1 Introduction

FDI is an area which received much attention and interest from both domestic and foreign researchers In Viet Nam, researches mainly focuses on analyzing the reality of attracting FDI and its impact on the socio-economic development Recently there have been a number of studies identifying factors having effects on attracting FDI inflows into Viet Nam include: “impact of provincial institutions” (Tran Thi Giang Quynh, 2011),

“impact of corruption” (Le Thi Hai Yen, 2011), “impact of economic freedom” (Doan Ngoc Dieu Hang, 2012),…However, there have been few studies on the impact of specific localities to FDI into a specific region This experiment use one-way ANOVA method to analyze the impact of Southeastern provinces to attracting FDI into the South East region of Viet Nam, they include: Ho Chi Minh City, Vung Tau, Dong Nai, Binh Duong, Binh Phuoc and Tay Ninh

This research focuses on solving 2 main problems: (1) Find the differences between the provinces in attracting FDI into the South East Region of Viet Nam; (2) Find the tendency of FDI shift in recent years

2 Theory and research methodology

2.1 Theory:

ANOVA stands analysis of variance - variance analysis Analysis of variance is a collection of statistical models used to analyze the differences between group means and their associated procedures In ANOVA setting, variance in a particular variable is partitioned into components due to different sources of variation In its simplest form, ANOVA provides a statistical test and generalizes T-Test to more than two groups Therefore, ANOVA is often used in comparing three or more means for statistical significance

A common use of the method is the analysis of experimental data or the development of models The simplest experiment suitable for ANOVA analysis is the completely randomized experiment with a single factor If experiments are happened with too many factors, it is very difficult to specific the result and the experiment will be more complex It is named ANOVA for a single factor or one-way ANOVA

ANOVA for a single factor is used when there is only 1 considered factor to define its influences on the other factors The considered factor is used in distributing observe into many groups When we conduct a T-Test, we usually make Type 1 error with 5% If

we run some T-Test on 1 data, the chance to make errors will be increased These are unacceptable errors because it influences on the experiment results Therefore, ANOVA controls for these errors and remain Type 1 error at 5% with the advantage is no limited

by the number of trials

Supposing that there are k groups n1, n2,…, nk They can have difference sizes

µ1, µ2,…, µk are the means of groups

Group 1 Group 2 … Group k

X11

X12

…

X1n1

X21

X22

…

X2n2

…

…

…

…

Xk1

Xk2

…

Xknk

X ij is the 𝑗𝑡ℎ observation of group i Hypothesis H0:µ1=µ2=…=µk

H1:µ1≠µ2≠…≠µk

Step 1:

Calculating mean 𝑥̅for each group 𝑖 𝑥̅ =𝑖 ∑𝑛𝑗=1𝑥𝑖𝑗

𝑛 1

Calculating mean 𝑥̅ for many groups 𝑥̅ =∑𝑘𝑖=1∑𝑛𝑗=1𝑥𝑖𝑗

𝑛

Step 2: Finding square difference in sum

Square difference within group

SSW=SS1+SS2+…+SSk

With SS1=∑𝑛1 (𝑥1𝑗 − 𝑥̅ )1 2

𝑗=1

SS2=∑𝑛2 (𝑥2𝑗 − 𝑥̅̅̅)2 2

𝑗=1

Square difference between: SSG=∑𝑘 𝑛𝑖

𝑖=1 (𝑥̅ − 𝑥̅)𝑖 2

Square difference in sum: SST=SSW+SSG

Step 3: Counting variances

Variances within group MSW=𝑆𝑆𝑊

𝑛−𝑘

Variances between groups MSG=𝑆𝑆𝐺

𝑘−1

Step 4: Finding F ratio

Crucial rule: Reject H0 when F>Fk-1, n-k,α

ANOVA Table

Difference Square differences in

sum

Degree of

freedom (df)

Variance Testing

value

𝑘−1 F=𝑀𝑆𝐺

𝑀𝑆𝑊

𝑘−1

Tukey’s test also known as HSD Tukey – Honestly Significant Differences, is a single test multiple comparison procedure and statistical test Named after John Tukey, it compares all possible pairs of means The confidence coefficient for the set, when all sample sizes are equal, is exactly 1 − α For unequal sample sizes, the confidence coefficient is greater than 1 − α In other words, the Tukey method is conservative when there are unequal sample sizes

Before running an experiment, we must design the experiment including the necessary test to analysis data In some cases, Tukey's HSD test comes in handy, allowing the researcher to further research the matter even after data has been collected and analysis run HSD Tukey is a post-hoc test, meaning that it is performed after an analysis of variance test The purpose is to define many differences in group Meanwhile, ANOVA only detect there are differences between groups, but don’t know ecxactly which groups and which groups among the sample in specific have significant differences Therefore, Tukey’s test compares mean of each population pair

Suppose H0: µ1=µ2 H0: µ2=µ3 H0: µ3=µ1

H1: µ1≠µ2 H1: µ2≠µ3 H1: µ3≠µ1

With k population, the mean pair need comparing is:

𝐶𝑘2 = 𝑘!

2! (𝑘 − 2)=

𝑘(𝑘 − 1) 2 Tukey standard: 𝑇 = 𝑞𝛼,𝑘,𝑛−𝑘√𝑀𝑆𝑊𝑛

𝑖

With q is value in distributing table

MSW is variance within group

k and n-k are degrees of freedom

Testing value D1= |𝑥̅ - 𝑥1 ̅̅̅| 2

D2= |𝑥̅̅̅ - 𝑥2 ̅̅̅| 3

Crucial rule: Reject H0 if D>T

2.2 Research methodology:

To study the impact of the regional capital direct investment FDI into Vietnam, we mainly use quantitative research methods Besides, combined with the methods of analysis, synthesis methods such as ANOVA analysis of variance a variable, a method is used quite common in studies in Vietnam and worldwide

Quantitative research method is the collection and analysis of information on the basis of data obtained from the market The purpose of the study is to make quantitative conclusions about market research through the use of statistical methods for data processing and data Content analysis of quantitative data is collected from the market, the data processing through the conventional statistical methods, simulation or run the data processing software and provides the main conclusions determined

Research on the impact of the regional capital direct investment FDI is proposed as follows: FDI = f (Market, labor, infrastructure, government policy, the cumulative impact) In particular, each element team uses a number of indicators to represent Specifically:

Market - Factor: The average population of the area and the population growth rate Population growth areas or high bronze promises to attract more FDI Also, instead of using GDP, the study used the average monthly income of workers by local government management, representing purchasing power market, with expectations high monthly

income will be the potential for health high consumption, thus stimulating FDI inflows into the region

- Labor factor: Which areas have abundant labor resources, the region has the potential to generate enough labor to meet the manufacturing process

- Infrastructure factors:

Technical infrastructure: The quality of the technical infrastructure and the level of industrialization influence

It’s very important to the inflow of foreign investment in a country or a locality A system of technical infrastructure complete (including the system of roads, rail, aviation, power supply network, water, telecommunications and other utility services), is wishes to all foreign investors In the 80s and 90s, to attract investment, many countries have established export processing zones (EPZ) Shenzhen Export Processing Zone of China is

a successful example of this model However, not all countries achieved similar results Infrastructure modern techniques within EPZs are important factors but the human resources to serve the export processing zones, geographical location and other policy mechanisms also significantly affected the success of the export processing zones Speaking of technical infrastructure not only comes to roads , bridges, warehouses, yards but also not to mention other support services such as banking, auditing firms, investment problems, Lack of support needed by these activities, the investment environment will be seriously affected In addition, the performance of the local industrial base, the presence of industry support, the existence of a reliable partner for foreign companies and joint venture may also be important requirements need to be considered Social Infrastructure:

In addition to the technical infrastructure, attract investment environment is influenced by fairly large social infrastructure Social infrastructure including health systems and health care for the people, the education system and training, recreation and other services In addition, the social value, customs, religion, and culture which constitute the general picture of the social infrastructure of a country or a locality Research by UNDP / World Bank showed tendency to invest in Southeast Asia has many

positive changes thanks to the “discipline of the labor force”, “as well as” political stability and economic “in many countries in the region” - A key element of government policy:

Foreign investment flows into developing countries is not only determined by economic factors, but also be governed by political factors The stability of the macro economy, combined with political stability is considered very important Some recent research suggests very tight relationship between the stability diagram Factors affecting the choice of investment location political attracting foreign investment Policy of openness and consistency of government also play a very important role Using a dummy variable number of key economic areas industrial zones 2, saying that the macro-economic policies are aimed towards facilitating investors PCI components are also used Because of differences in measurement methods in 2007 and 2009 PCI team should not use the composite index, instead we use the PCI training employees, an index has been Malesky (2008 ) documents Union has a strong impact on the rate of realized capital registered capital and new capital in 2006 Since the object of this report is for the people,

we do not use synthetic PAPI, instead, we I only use the index to provide public services, saying it would ensure better measure the impact of the public sector This index includes private security, public health, education and basic infrastructure Our hypothesis is that the only place this number as high investment environment proved more favorable, thereby enhancing FDI Regarding to competitiveness index provincial, we get index Training employees to represent the support of local government, including 1 index components as the number of vocational training centers under local management reason, the job placement center, the quality of education provided by the provinces Also the land is considered a key factor to show the political will to non-state enterprises, we use variables for the evaluation of business risks recovered land (1 is highest, lowest 5), this variable proved higher business confidence in the political system and expect long working time, stable Variables taken from the PCI components, access to land

- Factor accumulation: the team now number over 1000 people, the average size of the labor, capital, asset values and financial investment and average turnover of

businesses in the area Two hypotheses that we ask is, some businesses previously large

scale, high value assets, revenue or good will attract more FDI, or will be less attracted

by psychological fears competition We favor the hypothesis that early because Vietnam

emerging markets, so will a lot of potential for FDI to take advantage and accumulate

The data were taken from the GSO, Department of Foreign Investment Promotion,

Department of Industry and Trade of Vietnam, Research and Development Center and

community support Because changes in administrative decentralization ( of Can Tho, Lai

Chau, Dak Lak and Ha Noi ), we only included data from 57 full provincial boundaries

throughout the country have not changed since the 2001-2010 figures obtained 1 year

later

The researchers use OLS estimation method to test the model To take a closer look

changes after 2007, we conducted split into two data sets and run independently period

2001 to 2007 and from 2008 to 2010 to see a change in investor psychology between 2

adjacent stages but despite seeing too many drastic changes Next, go deep study

analyzed the impact of two factors that are basic education and political conditions for

FDI after the period

3 Results and discussion

REGISTERED CAPITAL OF FDI INTO THE SOUTH EAST REGION OF VIET

NAM IN PERIOD 2009-2013 (unit: Million Dollars)

Year Ho Chi Minh Vung Tau Dong Nai Binh Duong Binh Phuoc Tay Ninh