FDI in Vietnam: An Empirical Study of an Economy in Transition

Vietnam has emerged as an alternative smaller emerging economy market for FDI in the last five years, attracting both domestic market seeking and export oriented FDI. Vietnam continues to attract significant East Asian and OECD investors. This paper analyses the economic determinants of FDI for a smaller Non-BRIC emerging country, undergoing a rapid transition to a market driven economy in a region of great competitiveness among host countries and growing attractiveness to major source countries. The regression models presented in this paper show that while macro-economic variables such as GDP and to a lesser extent labor costs were predictably significant as determinants of FDI in Vietnam, (as they are in developed economies), the loss of value of the Dong, both against the dollar and against SDR, was a significant and negative factor in the regression models. It appears the relationship of the value of the host currency to FDI in newly emerging countries may be different from that of the more developed countries. Tax rates, openness to trade and growth rate were not shown to be significant in this empirical analysis. Perhaps the traditional literature on FDI needs to be re-examined for the unique challenges facing the newly emerging economies such as CIVETS countries