Tác động của đầu tư trực tiếp nước ngoài đến chuyển dịch cơ cấu hàng xuất khẩu ở vùng duyên hải bắc bộ, việt nam

Luận văn

SOUTHERN LUZON STATE UNIVERSITY, REPUBLIC OF PHILIPPINES

IN COLLABORATION WITH THAI NGUYEN UNIVERSITY, SOCIALIST REPUBLIC OF VIETNAM

_

IMPACTS OF FOREIGN DIRECT INVESTMENT ON RESTRUCTURE

OF EXPORTS IN THE NORTHERN COASTAL REGION OF VIETNAM

DOCTOR

OF BUSINESS ADMINISTRATION

BY

DBA Candidate : NGUYEN THIEN SU (SUNT)

Scientific Adviser : Dr TRAN DAI NGHIA

July, 2013

ACKNOWLEDGEMENT

One of the joys of completion is to look over the journey past and remember all the friends and family who have helped and supported me along this long but fulfilling road

I would like to express my heartfelt gratitude to leaders of Thai Nguyen University in VietNam and Southern Luzon State University in the Philippines who created best conditions for me to complete the course generally and fulfill the disertation particularly

My sincere gratitude also goes to professors in the Council of Examiners for Framework of the DBA namely Professor Cecilia N Gascon, Professor Walberto A Macaraan, Professor Melchor Melo O Placino, Professor Nordelina B.Ilano, Professor

Do Anh Tai, Dr Hoang Thi Thu who provided encouraging and constructive feedbacks

It is no easy task, reviewing a thesis, and I am grateful for their thoughtful and detailed comments

I would like to send my special thanks to Professor Tran Dai Nghia who guided the direction of the work with his careful and instructive comments during the process of writing the DBA I could not have asked for better role models, each inspirational, supportive, and patient I could not be prouder of my academic roots and hope that I can

in turn pass on the research values and the dreams that he has given to me

My gratitude goes towards Professors directly gave me useful and memorable lectures in DBA namely Dr.Professor Cecilia N Gascon, Dr.Professor Walberto A Macaraan, Dr.Professor Melchor Melo O Placino, Dr.Professor Alice T Valerio, Dr Professor Do Anh Tai, and Dr Professor Tran Dai Nghia They provided me a rich and

fertile environment to study and explore new ideas They made my DBA life is ever fluid, and, in the course of it all, a warm and inviting place to work

I am grateful to lecturers who managed the International Cooperation Program between Vietnam and the Philippines namely Professor Nguyen Tuan Anh, Professor Dang Xuan Binh and Mr Nguyen Thanh Hai Without their cooperation, I could not have chance to join and fulfill the course

My thanks also send to the Hanoi College of Industrial Economics, functional ministries- Ministry of Industry and Trade, and my colleagues for their generous support

I have been surrounded by wonderful colleagues; thank you for welcoming me as a friend and helping to develop the ideas in this thesis

I would not have contemplated this road if not for my parents, my wife, my children, and all of my dear friends who instilled within me a love of creative pursuits, science and language, all of which finds a place in this thesis

Nguyen Thien Su

July, 2013

2.2.6 Methodology of some studies using models of assessing the impact of FDI

2.3.3 Factors determining the export structure and shifting exports structure 43

2.3.4.2 The impact of FDI on Shifting Exports structure 55

CHAPTER III: RESEARCH METHODOLOGY 57

3.2.2.1 Variables to measure exports structure of the region 61

3.2.2.2 A Measurement of shifting exports structure in the Northern Coastal

Region of Vietnam

63 3.2.2.3 A measurement of the impact of FDI on shifting exports structure 63

3.3 Data sources used to analizing and testing models 64

3.4 The models used in the study "The impact of FDI on shifting exports

structure in the Northern Coastal Region of Vietnam"

65

3.4.1 Formula of the impact of FDI on shifting exports structure (SE) in the

Northern Coastal Region

65

3.4.2 Two models used in the study "The impact of FDI on shifting exports

structure in the Northern Coastal Region of Vietnam"

4.3 Impacts of FDI on restructuring exports in the Northern Coastal Region

in the period 2005 - 2012

79

4.3.1.2 Shifting exports structure in the Northern Coastal Region 83 4.3.2 FDI with shifting exports structure of the Northern Coastal Region 90

4.3.2.2 The impacts of FDI on economic development 92 4.3.2.3 Impacts of FDI on shifting exports structure 95

4.4 Applying two theoretical models to test the impact of FDI on shifting exports structure in the Northern Coastal Region

98

4.4.1 The analytical model 1 can be written as follows 99

4.4.3 Assessments on the impacts of FDI on shifting exports structure of the

Northern Coastal Region

5.3.1 The solutions for attracting and effective use of FDI for Shifting Export

Structure in the Northern coastal region

ABSTRACT

This study was carried out to explore the impact of FDI on shifting process of exports structure in the Northern Coastal Region of Vietnam Specifically, this study intended to answer questions of (1) influence of FDI on elements of the economy, (2) definition of shifting exports structure, (3) impact of FDI on shifting exports structure, and (4) solutions to attract FDI for shifting exports structure in the region The main objective of the research was to take route to shift exports structure, to attract FDI, to propose oriented solutions to best promote the specific role of FDI, to cater to shift exports structure in terms of quantity, and to improve the quality of exports structure The methodology of the thesis was to review the various relevant literatures Method of system analysis, method of fieldwork, method of comparison, quantitative research methods and forecasting method were also used in the study Findings showed that there have been visible changes in term of quantity of exports structure in the Northern Coastal Region Also, a new classification of the exports structure and of the exports structuring besides the traditional classifications such as SITC, VSIC was revealed from the study Additionally, the two analytical models used the study showed the accurate results about the impacts of FDI on shifting exports structure in the Northern Coastal Region Based

on the scientific conclusions, solutions and policy implications relating for attracting and making the best uses of FDI in the region are given in the study

The study confirmed the positive impact of FDI implementation including inputs and outputs to the region's exports restructuring both in terms of quantity and quality of the exports structure Specifically, the FDImade capital has a positive impact on both the quality and quantity of the exports structure However it showes a greater impact on the quality than that on the quantity; The impact of FDI on the exports of processed or refined goods was higher than that of raw material goods The FDI increases export value of private sector significantly; while it negatively influences to that of State Owned Enterprises; The exchange rate also has an significant effect on the quantity of export than on the quality

LIST OF TABLES Table CONTENT pager

4.1 The economic indicators of the Northern Coastal Region and the whole

country, in 2010

68

4.3 Registered businesses in international trade in the period of 1995-2004 76

4.4 Contribution of economic sectors to total export turnover 77

4.5a The total export value in the Northern Coastal Region in the period 2005-2012 79

4.5b The total export value of provinces in the Northern Coastal Region

in the period 2005-2012

79

4.6 Export value of 10 main items with largest proportion of the total export in

the Northern Coastal Region in the period of 2005-2012

81

4.7 The Export structure of the Northern Coastal Region in the period of

2005-2012

82 4.8a Export situation in the Northern Coastal region in the period of 2005-2012 83

4.8b Shifting exports from raw materials to processed products in the Northern

Coastal region in the period of 2005-2012

84

4.9 PROPY indicator of primary exports of the Northern Coastal Region in the

period of 2006-2012

86

4.10 EXPY of the Northern Coastal Region in the period 2006- 2012

(For primary goods of the Northern Coastal Region)

87 4.11 Proportion of exports goods with highest PRODY index 88

4.12 Quality of some exports with high processed content in exports structure of

4.13 Foreign investment (project implemented before December 2012) 91

4.14 FDI licensed in the period 1988-2012 by regions 92

4.15 FDI and economic growth in the Northern Coastal Region 95

4.16 Average wages in the Northern Coastal region in the period of 2005-2012 96

4.17 Average wages in FDI enterprises in the period of 2005-2012 97

4.18 FDI with changes in the proportion of export in FDI sector in the period

2005-2012

97 4.19 Export value of FDI with high level processed goods 98

4.20 FDI and the Northern Coastal Region export performance 100

4.21 FDI and the Northern Coastal Region export performance by category of

exported goods

102 4.22 Dependent variable Export value by Northern Coastal Region (Log EVt) 105

LIST OF FIGURES

2.1 FDI input factors with shifting exports structure 52

2.2 Elements of FDI towards impacts on shifting exports structure 56

3.1 Map showing the survey areas, Northern Coastal Region of Vietnam, 2012 57

4.1 Export growth rate of the Northern Coastal Region in the period of

4.2 Comparing export value of 3 groups of the Northern Coastal Region in the

period of 2005-2012

85

CHAPTER I: INTRODUCTION Vietnam officially became a member of WTO five years ago Since then,

Vietnam’s economy has undergone many changes and a lot of economic development strategies have been in effects to solve a problem considered as a key point after integrating into international economic arena, which is how to make gains more than "

losses" In a simple term, the loss of revenue due to tariff cuts under WTO integration

commitments must be offset by revenues earned from exporting goods, products, and

services The economy of Vietnam has made many progresses as export has increased

relatively stable However, the economy still faces very serious problems including high

inflation rate and sharply increased in trade deficit According to the trade balance data,

the growth rate of import has always been higher than that of export since 2006; Statistics from the General Statistics Office showed that trade deficit was US $5.07 billion and US $14.2 billion in 2006 and in 2007 respectively; import-export balance continued to be negative at US $12.9 billion in 2009, US $12.4 billion, and US $12.71

billion in 2011 Particularly, in the first quarter of 2012, the trade deficit was over US

$251 million, equal to 1% of the total export value In which, the whole domestic sector was in deficit of US $2.75billion whereas foreign investment sector was in surplus of

$2.5billion According to statistics from the World Trade Organization, in 2010, Vietnam

became the largest importer in the Association of Southeast Asian countries (ASEAN),

1.5 times it equaled to imports of ASEAN countries combined Therefore, trade surplus target after joining WTO of Vietnam has not been reached

Aiming at creating economic growth in a sustainable way, solving problems mentioned above and meeting the goals set when joining the WTO in particular and global economic integration in general, Vietnam has taken many measures to reduce trade deficit and the most radical measures are to accelerate the pace and to improve the

competitiveness of export goods However, in recent years, the export value of Vietnam has been very low, one of the reasons is that the structure of Vietnam's trade has been changed slowly, the structure of exports were still very backward, and exports were increased mostly in quantity while the export quality has not been improved, and heavily tilted towards commodities of agriculture, forestry, fisheries, crude oil, coal, and other low-value added processing commodities At present, the export value of crude oil and low-value added goods makes up over 60% of total export value Industries have high percentage of outsourcing, especially apparel and footwear Heavy industrial goods account for 16% and they are mainly minerals, machinery and high technology products make up only 2% and 8.3 % respectively

According to the research carried out by economists, together with promoting export quantity, the most important thing that every country would like to have is to form

an approptiate export structure consisting of high value added goods with high technological content and a greater proportion in the exports basket [61] The reason to focus on improving export structure towards raising the quality of export structure is that

it can affect the economic growth of the country by the amount of exports [39] In other words, the increasing level of the sophistication of export products can increase economic growth [14] In addition, according to Kassicieh and Suleiman (2002), if a country has the quality of exports structure with high technological content products making up a large proportion in the basket of exported products, it will reduce risks from fluctuations in the global trade Moreover, revenues generated from exports would increase and be sustained, which is the sufficient condition and the target that the export should be directed to

The fact that the countries participating in international trade have always tried to make positive changes in the structure of their exports in order to gain advantage in

exports Besides, great problems that Vietnam's exports facing are the threshold production of traditional export products and the threat of losing comparative advantage

in exports Therefore, Vietnam will face great difficulties in the future if it does not improve significantly in its exports quality This is one of the biggest problems in the reform strategy of exports of Vietnam

1.1 Background information

The Northern Coastal Region of Vietnam includes five provinces, i.e., Quang Ninh, Hai Phong, Thai Binh, Nam Dinh, and Ninh Binh According to Decision No 865/QĐ-TTg of the Prime Minister of Vietnam dated 2008, the Northern Coastal Region was oriented to become an important economic region of the nation The goal was to take all of its potentials and advantages for the development of the Region to contribute

to and play a major role in socio-economic development of Vietnam

The Northern Coastal Region is one of nine economic regions of Vietnam contributing to the economic development of the country including export activity However, those contributions are not commensurate with potentials and advantages of the region Besides, the region's export situation is in the same for the whole country; The export structure is backward, poor in quality, and not commensurate with the potentials of the region The Northern Coastal Region of Vietnam has also been facing pressures from the international economic integration, not only for export activities, but also for economic development in general as well Hence, the issue of improving the export structure has become essential not only for the region itself, but also for the economy development Therefore, shifting export structure of the Northern Coastal Region in particular and Vietnam in general, has become an indispensable requirement, and it is also necessary to have an appropriate and really hard leverage to promote this process to obtain the desired target

In recent years, Foreign direct investment has played an increasingly vital role in

the economic development of Viet nam in general and of each region, province, town, and cities in particular, and especially export activities Recently, Foreign direct

investment has always taken "engine role" in creating value and made up more than

40% of the total export value of the country The FDI has played the essential role in promoting export for Viet Nam in general and and for the Northern Coastal Region in

particular"[12] In addition, the Foreign direct investment with advantages of technology,

capital investment, production experiences, marketing skills, etc., has a great influence in

improving the quality of exported goods Foreign direct investment will also meet

requirements of exports restructure

The study of the impacts of Foreign direct investment on restructuring export sector in the Northern Coastal Region will be expected to have significant contribution theoritically and practically The results of the study will provide scientific basic recommendation and references for policy makers in forming the best policy in restructuring export sector to maximize benefits of exports sustainably This is the reason

for carrying out the study of “Impacts of Foreign Direct Investment (FDI) on restructure of exports in the Northern Coastal Region of Vietnam”

1.2 Statement of the problem

The main issue to be addressed in this research is impacts of Foreign direct investment on shifting exports structure in the Northern Coastal Region of Vietnam Specifically, this study intends to answer the following questions:

(1) How has foreign direct investment affected the elements of the economy?

(2) What quantitative factors are changes in export structure?

(3) How foreign direct investment has been affecting the shift of export structure

in the Northern Coastal Region of Vietnam

(4) What are the solutions to attract FDI on shifting exports structure of the Northern Coastal Region of Vietnam?

1.3 Hypotheses of the study

The following hypotheses were tested in the study:

Hypothesis 1: The FDI promote shifting exports structure in the Northern

Coastal Region both quantitatively and qualitatively

Hypothesis 2: FDI will significantly influences export values of private sector

and public sector differently

Hypothesis 3: FDI made for raw commodities and processed food increases the

value of the exports in both processed products (FDIpro) and raw material expported products (FDIraw)

Hypothesis 4: Export value of FDI sector has increased the quality of export

products in the Northern Coastal region

Hypothesis 5: The value of industrial productions from FDI sector can boost the

impact on the complexity of export goods

1.4 Objectives of the study

1.4.1 General objective:

To analyze the practical impacts of FDI and how the implementation of FDI can influence restructure of exports quantitatively and qualitatively in the Northern Coastal Region of Vietnam

1.4.2 Specific objective:

To review the impacts of FDI on shifting exports structure and some related matters

To analyze quantitative indicators reflecting the quality of exports structure

To use the models to test the impacts of FDI on shifting exports structure in the Northern Coastal Region of Vietnam

To provide a set of policy recommendations and proposed solutions in order to attract and to make effective use of FDI to promote the exports restructuring towards improving the quality and quantity of the exports in the Northern Coast region

1.5 Significance of the study

The study impacts of FDI on shifting exports structure in the Northern Coastal Region has the following contributions:

The results of this study will be used as a scientific basis for assessing the role of FDI in shifting the region's exports structure in particular and Vietnam in general

Those classifications are significant for the study as well as the consideration and review of the quality of exports structure or the export quality of each group of items, each item in order to have timely evaluation of shifting process and export adjustments which are very necessary to achieve objectives

Implication of analyzing the role of the FDI to shift exports structure in Northern Coastal Region could be the basic reference for further research with relevant issues in other regions and for whole country

This research can help policy makers and provincial authorities in making economic policies at provincial and national levels with directions, policies, and specific

measures accordingly in order to use FDI effectively to serve improving exports structure of the province in particular and the whole country in general, to achieve objectives of sustainable export, as well as growth and economic development in the context of international integration

The theoretical analysis as well as the status of export activities, the attraction and use of FDI, and assessment of the impacts of FDI on shifting exports structure to accelerate the process of restructuring in terms of export quantity, and more importantly

to improve the quality of exports structure in the Northern Coastal Region of Vietnam and the whole country

The solutions proposed by the research can be a specific and practical application of the management of the exports and use of FDI offered by foreign partners

in a proactive and effective way

1.6 Scope and limitations of the study

This research aimed at studying in a spatial scale of the Northern Coastal Region

of Vietnam; including five provinces of Quang Ninh, Hai Phong, Thai Binh, Nam Dinh, and Ninh Binh Research data ranged from 1995 to 2012

The scope of this research was to analyze the structure of tangible exports Thus, the author focussed on studying elements such as the capital performance by foreign parties, export value of the FDI sector and value of industrial production of the FDI sector

1.7 Definition of terms

- Foreign direct investment (FDI): is an investment activity carried out by

economic organizations and individuals in any country which by themselves or

combined with other economic organizations or individuals of another country to

conduct fund in cash or property in that country under a certain form of investment

- Input of FDI: it can be understood in the most general way that FDI is an

amount of necessary capital to start business activities that foreign investors need to spend The amount of capital can be expressed in money or property, such as: Tangible fixed assets (machinery, equipment, technological assembly line…) or intangible fixed assets (patents, trade secret, trademark or current assets (raw materials, spare parts etc) Thus, it can be understood that the inputs of FDI is the real capital of foreign investors spent at the time of initial or added to conduct business activities in a field which is

registered and accredited by investment-receiving countries

- Output of FDI: Includes elements which were made after the process of

conducting business in investment-receiving countries such as Gross Output (GO), Gross Domestic Products (GDP FDI), or the contribution of FDI to the export sector (EVFDI)

- FDI performance: Is the impact of FDI input elements

- Export structure: Is a whole including many commodities or commodity groups

which account for a certain percentage in terms of quantity as well as a certain proportion of the total value of export structure

- Shifting exports structure: According to Nguyen Huu Khai (2007), "shifting

exports structure is the change of exports structure from this state to another state in accordance with requirements of development"[16]

- Value Added (VA): Is difference between Gross Output (GO) and Intermediate

Cost (IC)

- The value of industrial production in FDI areas: Is an independent variable of

FDI output showing gross output of industrial sectors using FDI

- The export value in FDI areas: Is an element of FDI output showing the

contribution of FDI in export sector

- Income per capital: Is a measure of mean income within an economic

aggregate, such as a country or city It is calculated by taking a measure of all sources of income in the aggregate (such as GDP or Gross National Income) and dividing it by the total population

1.8 Organization:

The dissertation is divided into five chapters; the first chapter gives an introduction on the topic, the second chapter of the dissertation provides a methodological overview in terms of theory: FDI affects exports structure both in quantity and in quality Chapter 3 presents information about theoretical models to be developed within the analytical framework of the dissertation selected Chapters 4 indicates the synthesis of data, model testing results along with the present value analysis, interpretation, and evaluation of the impacts of FDI on shifting exports structure in the Northern Coastal region The final chapter includes a summary of findings, conclusion, and proposes solutions for attracting and effective usage of FDI and recommendations for further research for shifting exports structure in the Northern Coastal region of Vietnam

CHAPTER II LITERATURE REVIEW 2.1 FDI and Effects of FDI

2.1.1 Forms of FDI

Moosa (2002) raised the FDI classification in the view of Caves (1971), including the definitions: Firstly, horizontal FDI, which aims to expand the production of similar products in host country as the product of home country Secondly, the vertical FDI has another purpose, which is aimed at the exploitation of raw materials or close to consumers through distribution channels Thirdly, FDI group is the sum of the horizontal FDI and vertical FDI [62]

Heopman (1984) thought that the multinational companies (MNCs) with the desire to maximize profits and to choose the location to minimize the cost of production, including transport costs, expenses tariff charges Therefore, they would split the production of products in various countries Especially the product phase should focus on unskilled labor, will be located in countries with lower wage costs (investment-receiving countries) Meanwhile, these countries would import intermediate goods, machinery and equipment from MNCs (corresponding to the increased export MNCs) and increase export the final product At this time, FDI was called vertical FDI

From the investment-receiving countries, FDI can be classified into substituting FDI, FDI increases exports and FDI under the Government's efforts Import-substituting FDI related to the production of products that were previously imported by the country receiving the investment When that country's imports decrease, investing countries’s exports also decline The type of investment seems to be determined by the scale of market acceptance of the host country, transportation costs and trade barriers.The second type of FDI is motivated by the desire to seek new sources of input for many products such as raw materials and intermediate goods Meanwhile, FDI –

import-recipient countries are driven by the desire to find other resources to invest in production

as raw and intermediate goods And FDI recipient countries will increase exports of raw materials, intermediate goods and investment to the investing country and to other countries which have branches of multinational companies The third type of FDI is that the governments of countries receiving investment encourage foreign investment in an effort to balance the payments deficit We can see that the approach of the investment-receiving countries has become strategic development particularly in countries with developing economies, it is import-substituting FDI and export-oriented FDI

FDI can also be classified by the way of extension to exploit the advantages of investment in the host countries, to increase sales of investment firms in their home countries and countries receiving investment Besides, FDI is also seeking labor in host countries to reduce production costs Extended FDI is affected mainly by the advantages

of firms in investing countries, such as the size of the firm, the focus for research and development (R & D) and profitability by the advantages of technology

Maitena Duce, Banco de Espana (2003)’s classification based on the direction of investment, FDI assets and liabilities under the perspectives of the host country The financial expansion of parent company to its subsidiaries in other countries, is considered

as direct investment abroad and vice versa the financial expansion of its affiliates or subsidiaries in foreign countries, is considered as the reduction in direct foreign investment in foreign countries And from the investment-receiving countries, there has the opposite direction In addition, FDI is also classified based on the investment tool that means fact source of FDI; That is capital property revenues incubation enter and re-investment from other sources such as debt and joint venture Finally, FDI is classified

by industry classification, according to which FDI flows into any sector for that sector shall be calculated without taking into account the investor's capital flow of the

industry However, the Organization for Economic Co-operation and Development (OECD) recommended that the FDI would rely on industry sectors where parent companies are active It can be seen, the categorization of FDI is raised above will be used to host countries to invest and applied to classify the foreign capital investmen

Under Vietnam's Investment Law (2005), FDI has the following forms:

- 100% of capital investment owned by foreign investors

- Joint-venture economic organizations co-owned by domestic and foreign investors

- Investment in the form of: Business Contractual Cooperation (BCC); Building Operate Transfer (BOT); Building Transfer-Operate (BTO), and Building transfer (BT)

- Investment in business development

- Purchase of shares or capital contribution to participate in the management of investment activities

- Investment performance with mergers and acquisitions

Previously, Vietnam was mainly a capital-receiving country so it should be noted the categorization of FDI under the host country's perspective Recently, Vietnam businesses have tended to invest in abroad, so the categorization based on the perspective

of investors will be effective to help statistical agencies of Vietnam have appropriate classification

2.1.2 Determinants of FDI

Dunning (1977) gave a systematic and complete explaination about the factors which were likely to affect the expansion of international models produced by Multinational Corporation (MNEs) and capital was sponsored by FDI Conditions to

select FDI is that we have to gain the Ownership-specific Advantages (O advantages) for other firms The O advantages include: access to the market dominance or cheap raw materials, the advantages of scale, brand, or the ability to manage intangible assets or toxic power In addition, the O advantages also associated with the Internalisation advantage (I advantage) and the Location advantage (L advantage) [48] [49] Meanwhile, the I advantage was the advantage gained from the internal production of the company which would allow firms to overcome external market and the transaction costs involved,

or this was one of things that the company itself could expand or sell rights to other firms Next was the advantage of location (L advantage), it was factor related to the question of whether the expansion is the ingenious design between domestic and broad Once you have the O advantage of a favorable position, FDI will occur

Imad A Moosa (2002), summarized the pattern yoke Zhejiang of Dunning explains the general conditions affecting FDI with the assumption, there was a demand for specific goods, which a specific firm step inside O advantage, then there was only two factors including L and I:

- If there is no I advantage, the firm will allow its O advantage for another company, especially when factors create favorable locations for expansion abroad

- If the firm has the I advantage and the factor of location is convenient for expanding competition in the country, the firm will expand its domestic market and export

- If the firm gains I advantage and the location is convenient to expand competition abroad, FDI will occur [82]

We can say that Zhejiang model of Duning is a typical model which fully explained in terms of FDI theory, in addition to many studies explaining the factors that influence FDI

Saul Estrin and Alan A.Bevan (2000), studied the effects of the factors such as country’s risk, unit costs of labor, market size and other factors attract FDI in the transition economies in Central and Western Europe The results of testing model was using a larger FDI which was suffered by the above factors, apostle of the host country risks including economic and political risks

Maitena Duce, Banco de Espanna (2003), also studied the factors affecting FDI

in the South East and Western Europe concluded: FDI depends on factors such as economic policy in the investment-receiving countries, the level of gravitational background country Also FDI depends on many factors, such as the scale of the economic reason, national resources of the host country, the level of popular open with international trade and international market access, quality and financial infrastructure technology

Shaukat Ali and Wei Guo (2005) studied the factors affecting FDI into China, there were two factors which this research emphasizes, that is the size of the market (it seems to be the factor which mainly effects on the FDI flows into China, especially for U.S firms) and cheap labor in China was the retention of second factor (this is the main factor attracting Asian investment firm in China) [45]

There have been also many other experimental studies on the determinants of the FDI, which the author can not list here all But it can be concluded that FDI is influenced

by the tuber of a complex set of factors Therefore, it requires countries calling for investment have to consider, study to have the appropriate policies, to promote

effectively to attract FDI for their growth and development, especially in the competitive situation of FDI as well as the trends in FDI flows today

2.1.3 Effects of FDI

FDI provides investment capital, increase revenue, improve the balance of payment For developing countries, demand for capital is always the top priority These countries always have the gap between investment and economic development need FDI

is thought to have a contribution to offset this gap [62] FDI has the advantage of more stable sources of finance and other financial flows and stable long-term commitments to investment-receiving countries, increasing the state budget

- Impacts of FDI on economic growth, production, capacity growth, export improvement and market expansion

There are many studies about the role of FDI in economic growth Andreas Johnson (2005) examined the impact of FDI on economic growth of investment-receiving countries through two basic channels of FDI, the physical capital and technology Meanwhile, technology is the major factor that affects the most to the economic growth of these countries The author used the model of data analysis and concluded that FDI was a key factor promoting economic growth in developing countries and the opposite conclusion for developed countries Laura Alfaro (2003) thought that FDI could yield big advantages for the host country by testing the effect of FDI on regional growth of crude production, manufacturing and services, during the period from 1981-1999 The results show that the impact of FDI is not clear, namely to have a positive effect on the manufacturing sector, the impact is not clear in the service sector and has no effect on crude production area In the study of Le Xuan Ba (2005) about FDI for economic growth in Vietnam came to the conclusion that FDI generally played a

positive role in economic growth There were many other studies in the role of FDI in economic growth, but each study evaluated FDI to a specific country, industry, or aspect

of the economy and had the conclusions for each study and generally affirmed the role of FDI for economic growth in general [1]

Technology is regarded as an essential element of an economy Technology is the product of research and development (R & D) that is the invention of new products or production techniques or both Anabel Marin, Martin Bell (2004) studied the transfer of technology from the parent company to affiliates, subsidiaries abroad The authors study FDI data of industrial firms in Argentina in the period 1992-1996 [60] Many other experimental studies in Australia were conducted on the relationship between FDI and technology to confirm the role of FDI in technology transfer in the host country FDI has

an important role in forcing domestic businesses to innovate technology to compete, maintain and develop It also makes chance for domestic businesses to approach advanced technology, the skill of using technology chain, soft technology from FDI businesses through cooperation activities, transferring and moving the working labor among businesses However, this will encounter the limitations, if the original technology is the technology from multinational companies, because this has the rules and conditions associated with the technology which is transferred

- FDI promotes economic restructure and use internal capital more flexiblly and effectively

The developing countries have policies to attract FDI into its economic sectors, regions, provinces and cities under development objective balancing between the branches and economic regions; at the same time, they also invest into infrastructure development, especially transport infrastructure to facilitate opportunities for disadvantaged areas to develop social and economic life FDI also promotes key

economic sectors, increases the processing industries to create products with high economic value, makes structural changes within the industry; FDI also creates spillover effects on stimulating to operate domestic capital source efficiently

- FDI promotes to improve the legislative system

The presence and development of FDI raises new problems, requiring the investment receiving countries has to complete the legal system that complies with international rules and supplement the system of FDI policies related on taxes, banking and finance, land management, resource extraction, environmental protection, labor, customs, etc to increase their competitiveness to attract FDI, serve management, and make the economy operated under market mechanism more efficeintly

Thus, for developing countries, FDI plays a huge role in creating capital for the implementation of industrial modernization and international economic integration However, FDI also causes many obstacles and challenges for the investment receiving countries, such as i) break down the overall development planning of the economy, as rapid growth, imbalance in infrastructure demand (transport infrastructure, warehouses, ports, utilities, housing, hospital, school, etc.); ii) for the purposes of profit maximization, foreign investors may only choose those industries, economic sectors, geographical areas which have comparative advantage, and provide higher return on investment (ROI)

- Due to the experience and capacity of the authorities and management staff of the FDI receiving countries are limited, it often happens that there often have violations

of the laws, unfair competition, such as tax fraud, lowering interest costs, polluting The environment, etc

- FDI enterprises have advantages of using the power of capital, technology, market information and share, etc., to take competition measures to invite a team of highly qualified workers who have knowledge and high educated to cause "brain drains '' and widen a gap between the rich and the poor in society, to affect on the cultural life and traditions, to stimulate the psychology of "Culting foreign goods"

- The FDI enterprises enjoy the favorable policies, usually have the advantage, and pressure on receiving countries to yield the investment policy changes or raise priority committed investment such as the local content of products, implementation of land wasting, abet corruption, political and economic pressure, compromise the independence of the investment receiving countries, lead to the dependence on foreign countries

For developing countries, they must recognize the right position and the role of FDI to have appropriate policies in creating an open and attractive investment environment and promote the comparative advantage in order to attract more and more powerful and effective use of FDI, contribute actively to industrialization and modernization of the country It is also an active and positive process of integrating more deeply into the regional and the world economy

2.1.4 The FDI trend in the world

Tendency towards FDI flows: According to the Economist magazine (UK), as

well as the Trade Forum and United Nations Development (Unctad), after the peak reached US$2080 billions in 2007, the world FDI flows declined 17% in 2008 (also US

$1720 billions), and further reduced by 41% (to US $1,000 billions) in 2009 But the reversal of world FDI flows has been recorded in 2010, with projected capital flow would slow as the global economic recovery, with the average 2.5% of global GDP in

the period from 2010 to 2014 Even by 2014, global FDI flows would remain lower than their peak in 2007 The emerging countries woul play a key role to promote global economic recovery in 2010 and an increase in FDI flows into these countries to contribute more positively to impulse new moves In 2008, while FDI flows to developed countries reduced one third, the FDI in emerging markets rose 11% In 2009, the first emerging countries attracts more FDI in developed countries, with the corresponding figure is around $US532 billion , compared with about US$ 488 billion However, FDI

in emerging markets was expected to decline from 4% to 3% GDP of the country's GDP

in the period from 2010-2012

The Survey Report of Deutsche Bank of Germany (2010) shows that Asia (excluding Japan) would be the area with the most outstanding performance of FDI in

2010, while China would be the best national expression in this region The new context and new trends mentioned above are set out a new policy which requires both national and international level Accordingly, the first requirement was to improve the investment environment towards more open and increase macro safety control of the state In particular, both the organizations and governments needed to have breakthroughs in reforming the financial and banking sector, to increase accountability and efficiency of financial institutions, reduce the risk of future instability and made this region more flexible, better management of capital flows had re-emerged Also, the requirements and mechanisms for the coordinate multilateral economic operators became more common and more flexible, the influence of individual economic organizations would also be expanded

Improvement of FDI inflows in Vietnam: Many financial institutions, foreign

economic experts identified in 2010 that FDI in Vietnam had a bright outlook, associated with the increased confidence and new business opportunities of FDI projects Ranked

12th in overall ranking of FDI Confidence Index, Vietnam was reported by AT Kearney ranked at number 93 on the open level of the business environment (Ease of Doing Business Ranking) Among Southeast Asian countries reached the Top 25 ranking of the FDI Confidence Index 2010, Vietnam ranked above Indonesia (No.21), Malaysia (No.20), and Singapore (position 24) Recently, financial investment group Goldman Sachs (U.S.) Vietnam ranked in the top 11 countries (N-11) has the fastest growth rate in the world in 2010, opening up opportunities for investment and better investment destination for investors in the world in the next years, during 2011-2020;

Agency of Commerce and British investment based on surveys of more than 500 senior officials of nearly 20 companies from different business sectors, also said if we did not include BRIC group (Brazil, Russia, India, China), Vietnam has been the most attractive of the two consecutive years of the 15 emerging countries, ranked in order

of including Vietnam, the Unified Arab Emirates, Mexico, South Africa, Malaysia, Indonesia, Singapore, Turkey, Philippines, Saudi Arabia, Ukraine and Poland

Horst F.Geicke (2010) said that Vietnam was still attractive to foreign investors” And the FDI sector in Vietnam thrived in the years to include medical services, manufacturing, consumer goods, financial services, energy sector, particularly clean energy, friendly environment and high-tech industries

According to Yip Hoong Mun (2010), the business environment assessment in Vietnam is higher than that in other countries If given the scale of 10, Vietnam scored 7-

8 In fact, FDI inflow in Vietnam in 2010 was the new positive action which was quite clear about the scale of registered capital / project, capital structure and the sign of forum about actual disbursement

According to the General Statistics Office, disbursement of FDI was approximately US$

900 million in April, bringing the total realized FDI in first 4 months of 2010 to $ 3.4 billion, up to 36% over the same period in 2009 From year-to-day 2010, Vietnam attracted nearly U.S $ 11.3 billion, only 78% over the same period last year and is still the target of US$ 20 billion Total FDI disbursement reached US $ 9.1 billion, up 1% over the same period last year, On the average, FDI disbursement reached US $ 851 million dollars per month; But both immediate and medium term, Vietnam should be actively synchronized with the solution and adapt effectively to overcome the shortcomings and consequences such as the imbalance in investment in other sectors, territories, pollution environment, industry plan to break, threatening the energy security, increasing speculation on estate market and the uncertainty on the capital market and the transfer and using outdated technology; abusive tax incentives and land

Weak grassroots and human resources, high input costs, lack of the investment promotion and professionalism the dropped in confidence of foreign investors togather with instability of the world economy were the reasons that the specialists cited for reducing FDI inflows into Vietnam

Facing this trend, Vietnam needs to have appropriate policies to utilize FDI as a general trend to best serve the economic development in the country However, it is noted that we will encounter the very stuff competition from other countries in the region

in further attracting capital sources

2.2 Export structure

2.2.1 Classification

Concept of export structure: There have been many studies on the export

structure in the country and abroad as well However in these works the concept of the

export structure is mentioned in the less formal way According to Nguyen Huu Khai (2007), we can understand "The export structure is the overall of commodity group, the exports in all exports with the equivalent position and proportion and the relatively stable

constituent relationship "[16]

Actually, if we consider the overall export of a country is a "basket of export goods," the basket of goods has a variety of goods different of in type, design, and product characteristics Each commodity has a certain role, contributing in terms of quantity and value of goods for export basket The study only takes into account the structure of tangible goods So, we can understand that: The export structure is a whole including many commodities or commodity group which account for a certain percentage in terms of quantity, as well as a certain proportion of the total value of the export structure

Worldwide, there are some main classifications of the export structure as follows: Firstly, goods are classified according to the goods describing list and

Harmonized Commodity Describe and Coding System, referred to as Harmonized System (HS) which was established by World Customs Organization (WCO) in 1972, amended and officially issued in June 1983 The basis of classification of export goods

of HS is based on the nature of the goods and is ranked in order of the production and processing level: raw materials, under processed products, unfinished products and finished products [42] In 1992 Vietnam Statistics Organization issued lists of imported goods under HS standard and in 1997 it was added and modified at 8-digit level

Secondly, the Standard International Trade Classification (SITC), was published

by the Secretariat of the United Nations in 1950 and revised three times in the years

1969, 1975 and 1986 This classification was intended to be used for the purpose of

economic statistical analysis of nations, economic organizations, as well as comparison

of international trade between countries The basis of classification of exported imported goods under SITC standard is based on certain conditions such as: The nature of the goods and materials used to produce goods, production processes, condition of market and use of the product, the role of commodities in international trade and technological change [42] At 1 digit SITC level, export goods are divided into 3 groups:

- Raw or processed goods (including 4 small groups SITC0 to SITC4);

- Processed or refined goods (including 4 small group SITC5 to SITC 8);

- Commodities which are not classified in two groups

In Vietnam, the statistical agency adopted the classification of foreign trade standard (SITC REV 3) to serve the purpose of research and economic analysis in the country and abroad

The SITC standard classification is consistent with the purpose of analysis and comparison of international trade, more specifically, the analysis of the export structure and the calculation of comparative advantage

Thirdly, classification of goods according to International Standard Industrial

Classification of All Economic Activities (ISIC) by the UN Statistics Office was first issued in 1984 and amended in 1958, 1968 and 1989 Taxonomy stipulates that the content and scope of each sector, each sector participation in economic activities, as a basis for determining the size and the role of each branch and economic structure of a country In trade statistics, it is used to classify exports by industry sources to produce them [42] In Vietnam, in1997 the General Statistics Office issued the list of "System of National Economic Sectors" which was based on ISIC categories and the list of export goods based on detailed data by SITC categories (referred to as VSIC)

Next, goods are classified by Broad Economic Categories (BEC) This is a

classification catalog issued by the United Nations Statistics Office, for the purpose of analysis of trade statistics for imports of which goods are classified into means of production goods, intermediate goods and consumer goods Currently, Vietnam has not carried out the classification of imported goods under this category Therefore, the analysis of imported goods especially for imported intermediate goods is a challenge

Also, basing on recent research we can apply the new classification such as classification by the complexity of export goods, classification by quality of the export structure This typology will be made clearer later in the study

2.2.2 FDI flows and export

The relationship between FDI and exports is expressed in many forms Imad A.Moosa (2002) showed that the branches or subsidiaries in foreign countries tend to import components and equipment from the Mother National Companies (MNCs) based

in the country to invest Therefore, it increased trade flows [62] However, the relationship between FDI and trade flows is alternative because they are two alternative models of input Besides, FDI is not alternative but it promotes the export for the reason that FDI flows allows firms to establish a broader distribution facilities, and their products are sold more in overseas markets Moreover, if the overseas branches are able

to produce cheaper goods and export them to their home countries, while FDI leads to increase export of investment-receiving countries and increase investing countries’ import

Markusen (1984) suggested that, when FDI firms served oversea markets by setting up factories There, supplying products similar to inner country ones (horizontal FDI) would make reduction of exports from the country to invest to the investment-

receiving country, while FDI and exports are inter-changeable FDI and exports are considered as complement, in case of multi-national companies separate their production stages in many countries in order to take advantage of lower price level of production factors (Vertical FDI) Specifically, the production period without need of skilled labor was concentrated in a low-wage rate country Then, finished products from there would

be exported to market (increasing exports from investment-receiving country) whereas it will be able to increase export of intermediate products from investing country (through MNCs) to investment-receiving country where there are branches of MNCs [60]

Eclectic Model of Dunning (1977)-OLI could be used to explain the relationship between FDI and exports through the way to approach world market with advantages of

O, L and I If these companies could not achieve the benefits of location (L) in the investment-receiving countries but have advantage of I and O, then they would proceed

to export rather than FDI Meanwhile, FDI and exports has replaceable relationship In the case of the investment-receiving country has advantages of location and I, then FDI would occur along with exports Meanwhile, FDI and exports are complementary to each other [49]

Beside the theoretical research, there are many experimental studies on the relationship between FDI and exports, within a country, region, or industry with mixed results on FDI and exports, specifically for inward and outward of FDI

Andreas Johnson (2006) studied the relationship of FDI and exports of host countries of East Asia area, by using export data and FDI from 1988 to 2003 in order to calculate and use the testing model with dependent variant of export per capita and with two independent variants of FDI’s inflow and outflow per capita The conclusion showed that FDI flows inward this region had an important and positive influence on exports, whereas the author had not found the relationship of FDI flows outward

Xiangyang Zhang, Wei Liu (2008) conducted experimental studies on the impact

of FDI on export of micro-electronic components, for two cases of China and Korea, with a simple test model; The result was that for every dollar FDI into China would accelerate to 5% of export and into Korean exports is 11% [68]

Vinaye Dey Ancharaz (2003) also conducted a research on the impact of FDI on export activity and export competition in developing country – Mauritius In conclusion, FDI was a tool for export development, but there was no strong impact to export competitiveness The study also discussed the strategic directions of FDI policies to attract this capital resource for the remarkable economic region of Mauritius as textiles

Nigel Pain and Katharine Wakelin (1998) studied the relationship between FDI and exports in 11 OECD countries since 1971.The study used both FDI inward and outward for every country with testing model the dependent variant was logarithm of export volume in the processing industry sector, the independent variants are FDI flows

in, FDI flows out, the world demand of goods i, product quality The result showed that the impact of FDI was different from each country, in which, FDI inward flows with positive impact while FDI outward vice verse

Singh, Harinder and Kwang (1999) did the research on the FDI inflow and export and he shows that FDI and exports in China have additional relationship and FDI had a positive effect in promoting the export of China [69]

In summary, the theoretical and empirical studies on relationship between FDI and exports are expressed in a most common way: FDI reverses the trade flows into the investing countries and the investment-receiving countries, thus, in a term it will have an impact on the structure of exports and export restructuring of both countries

2.2.3 Export quality

There have been a lot of researches on the export of goods and services all over the country in Vietnam These studies were mainly on analyses of the exports of specific items, partners, export markets, the protection measures, and tax Many solutions could

be taken out from these researches to boost export gates In addition, there are many articles reflecting the quality of export products of Vietnam, of a number of localities including Hanoi and Ho Chi Minh City It was mentioned from these articles that Vietnam need a shift in the structure of export products rather than continuing to export goods with less value added in export structure However, these articles had no report on the quality of exports structure and only stop at qualitative comments

Finger, Michael and Kreinin (1979) studied the quality of export structure In

"A Measure of ‘Export Similarity’ and Its Possible Uses,"authors had constructed the Export Similarity Index (ESI) to measure the quality of a structure of exports, to compare two or a group of countries exporting to each other ESI calculation formula as follows:

ESI (a, b, c) = Σmin {PEi (ac), PEi (bc)} (2.1)

Where: ES (a, b, c) is an indication of ESI

PEi (ac): the proportion of exports i of country a and country c

PEi (bc): the proportion of exports i of country b and country c

The author also studied the change of ESI over the years; since then, there are recommendations about policies for changes in economic structure of countries within the study

Michael (1984) studied the relationship between export and income The author offered a new approach to determine the quality of export goods structure with a index

called “the income level of exports of good” and is calculated using the following equation:

        (2.2) 

Where: IEi: income level of exports i th

EVij: Export value of the i th product of the country j th

EViw: Export value of the i th product of the world

Ij: Income per capita of the country jth which exports goods i th

Later, the researchers used the above indicators, as bases for calculating and assessing the quality or complexity of export goods However, the index reflects the role

of i item in the basket of goods and export goods of the world, but not to see the role of the item i for exports of an exporting country

According to Mayer and Wood (2001), the quality of the export basket of the country was determined by the proportion of exporting labor-intensive products and capital-intensive products in total exports of that country The research carried out by Mayer and Wood calculated commodities classified by foreign trade standard SITC (1 digit level) It is revealed from that study that countries with high rate of capital tend to produce products for export processing and vice versa, countries with low rate of capital favor the production of raw or processed products for export Thus, in that study, authors only stopped at determining the quality of an export structure or characteristics of exported products based on the proportion of items containing low or high volume processing Identifying and classifying these products for export create confinement to the commercial data analysis without going into details of the product, as well as evaluation of product characteristics based on the content of technology Further data on

technology research and development (R&D) are often unavailable to serve for analysis and research

This limitation was overcome in the study done by Sanjaya Lall, John Weiss and Jinkang Zhang (2005) These authors offered the new approach for the quality of export structure not only determined by the technology level as previous traditional researches, but also identified by another way such as the sophistication of export The quality of exported goods has previously been identified and classified in a more detailed way; that

is based on average income levels of countries exporting goods The sophistication of product captures much more features of the product than just relies on technology elements It involves the difference of product, product segments, available resources, and other factors This way allows us to identify a product in any detail at whatever level In addition, that study also offered a combination of technology level and the export sophistication In addition, the study provided a formula to calculate the level of complexity of export goods

It can be seen that the IEi and EC index can be used to assess and classify the quality of export products quickly and easily Export ratio EVij/EViw shows us the role

of product i in the basket of goods exported by the same set of countries exporting products i However, it does not show us the role of product i in total exports of country j

and correlations in the total export of the set of countries Hausmann, Hwang, and Rodrik (2005) continued studying the structure of export, the quality and determining the exports structure by constructing an index called the “income level of a country's export” First, the authors gave PRODY index calculating each export product and showing the relationship between income level per capita and the proportion of exports

of certain categories of goods or this index measured the complexity of a product of a

country and researched to build a export-quality indicator of the country j called EXPYj

[20] Rodrik (2006) conducted an experimental research on China to answer the question

"Why does China have the remarkable growth of export goods?" In"What's so special about China's export?’’ (2006), used the PRODY and Expy index to calculate industries

of China in comparison with South Korea, India, and Hong Kong Results from that study showed that quality indicators of China have increased over the years (from 1992

to 2003), and China had been second only to Korea The results of analysis pointed out many factors affecting the export and the quality of Chinese exports such as preferential tariffs from the government, FDI, and human capital

Shang-Jin Wei Zhi (2/2008) studied factors affecting the quality of the structure

of Chinese exports The study used quality indicators of export structure by comparing the degree of similarity between the export structure of China and the export structure of three groups of countries: U.S., Japan, and 15 members of the EU The essence of those indicators is that they still use the proportion of each type of export goods in the export structure and the unit value of exports Then the researcher looked at factors that increase the complexity or the quality of export products of China, including trade, the role of foreign investment, human capital, and other preferential policies or factors encouraging the development of high-tech areas by the government It was found that the export of foreign firms and high-tech sector increased product quality and the value of product units, and human capital factors increased the complexity of export product

Bin Xu's research (2007) continued answering the question "Which factors increase the quality (or degree of complexity) of the structure of Chinese exports?" In

"Measuring China's Export sophistication", the author used two indices to measure the quality of exports: EXPY and PRODY index of Rodrik (2006) and export similarity index (ESI) Because it was the author’s thought that both indicators are useful for assessing the quality of exports structure although they are not perfect number It can be

seen that if the proportion of exports of two pairs of countries in comparison is equal, the ESI will be 0 or there is no change if there is a corresponding increase or decrease in the proportion of goods In addition, this calculation was more complex than PRODY and EXPY index because the author had to compare several pairs of different goods; The Export Similarity index is calculated using the following equation:

ESIcd = Σmin (PEic, PEid) (2.3)

Where: ESIcd: The Export Similarity index of 2 country c and d

PEic is the proportion of export of domestic goods i th of the country c; PEid is the proportion of export of domestic goods i th

of the country d

However, when using both indices, the author obtained similar results

2.2.4 Comparative advantage existing in exports

The research done by Balassa (1965) was considered the foundation for testing the trade theory of comparative advantage of previous studies with the Reveal Comparative Advantage (RCA) at the national level as well as provincial and regional level The Reveal Comparative Advantageis calculated using the following equation:

(2.4)

Where: RCAi: the Reveal Comparative Advantages of commodity i th

EVij / ΣEVj: the proportion of the i th export goods of the country j th

in total export goods of the country j th

EViw/ΣEVw: the proportion of exports of the goods i th in the world (or group of exporters) of the total world exports

Export goods are considered to have comparative advantage if RCA> 1 and there

is no comparative advantage if RCA <1