(Luận văn thạc sĩ) factors affecting foreign direct investment (fdi) inflows in hanoi

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUỐC TẾ ***************** Trần Đỗ Bảo Châu FACTORS AFFECTING FOREIGN DIRECT INVESTMENT (FDI) INFLOWS IN HANOI CÁC NHÂN TỐ ẢNH HƯỞNG TỚI NGUỒN ĐẦU TƯ TRỰC TIẾP NƯỚC NGOÀI TẠI HÀ NỘI LUẬN VĂN THẠC SĨ Hà Nội - 2020 ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUỐC TẾ ***************** Trần Đỗ Bảo Châu FACTORS AFFECTING FOREIGN DIRECT INVESTMENT (FDI) INFLOWS IN HANOI CÁC NHÂN TỐ ẢNH HƯỞNG TỚI NGUỒN ĐẦU TƯ TRỰC TIẾP NƯỚC NGOÀI TẠI HÀ NỘI Chuyên ngành: QUẢN TRỊ TÀI CHÍNH Mã số: 8340202.01QTD LUẬN VĂN THẠC SĨ Người hướng dẫn khoa học: PGS TS Nguyễn Văn Định Hà Nội - 2020 ABSTRACT Thesis Title: Factors affecting foreign direct investment (FDI) inflows in Hanoi Pages: 76 University: Vietnam National University Graduate School: International School Date: June, 2020 Degree: Master Graduate Student: Tran Do Bao Chau Supervisor: Assoc Prof Dr Nguyen Van Dinh Keywords: foreign direct investment, FDI, PCI This research aims at analyzing factors affecting Foreign Direct Investment (FDI) inflows in Hanoi over the last years from 2014 to 2018, providing real evidence about foreign investors‟ evaluation to current investment environment in Vietnam, especially in Hanoi Through the adoption of mix – method research (Pooled OLS model, Fixed Effect model and Random Effect model), the writer expects to identify and determine the featured model of factors affecting attracting FDI inflows in Hanoi, the results of which might indicate investors‟ decisions are not only influenced by present information but also past information attached to these factors Based on the above, three main recommendations to improve investment environment as well as enforcement of FDI inflows in Hanoi shall be adequately proposed ACKNOWLEDGEMENT I would like first to express my most sincere appreciation to my supervisor, Assoc Prof Dr Nguyen Van Dinh of International School – Vietnam National University, Hanoi (VNU), who convincingly guided and encouraged me to be professional, gave me the wholehearted support and allowed this paper to be on my own, but steered me in the right direction Without his persistent help, the goal of this project would not have been realized I would also like to express my special thanks to all lecturers of VNU – International School who inspired and shared with me not only knowledge but also practical experience through the whole course Besides, I would like to send my deep thank to all my MFM1 classmates who always gave me active support over the period of studying and doing the master dissertation Finally, I am gratefully indebted to my parents and my spouse for providing me with unfailing support and continuous encouragement throughout my years of studying and through the process of researching and writing this dissertation This accomplishment would not have been possible without them Thank you! Author Tran Do Bao Chau TABLE OF CONTENTS ABSTRACT ACKNOWLEDGEMENT LIST OF TABLES LIST OF ABBREVIATIONS CHAPTER I: INTRODUCTION 1.1 RATIONALE 1.2 RESEARCH OBJECTIVES 1.3 RESEARCH SUBJECT .10 1.4 RESEARCH SCOPE 10 1.5 RESEARCH METHODOLOGY 10 1.6 NEW CONTRIBUTION OF THE THESIS .11 1.7 THESIS STRUCTURE 11 CHAPTER 2: THEORETICAL BACKGROUND AND LITERATURE REVIEWS 12 2.1 THEORETICAL FRAMEWORK 12 2.1.1 Definition and classification of foreign investment 12 2.1.2 Foreign Direct Investment (FDI) .14 2.2 LITERATURE REVIEW 31 CHAPTER 3: METHODOLOGY 37 3.1 METHODOLOGY AND MODEL SPECIFICATION 37 3.1.1 Data analysis method 37 3.1.2 Research model 41 3.2 DATA AND VARIABLE DESCRIPTION 42 3.2.1 PCI data .42 3.2.2 Variables description 44 CHAPTER 4: DATA ANALYSIS AND FINDINGS .49 4.1 OVERVIEW OF FDI IN VIETNAM 49 4.2 MODEL TESTING 54 4.3 EVALUATION OF PCI INDEX OF 63 PROVINCES 56 4.3.1 Pooled OLS model 57 4.3.2 Fixed effect model 60 4.3.3 Random Effect model 61 4.4 COMPARISON BETWEEN HANOI AND VIETNAM .64 CHAPTER 5: IMPLICATIONS 67 5.1 BOOSTING TRADE OPENNESS BY CONDUCTING PROMOTION SCHEME 67 5.2 IMPROVEMENT OF LAW SYSTEM 68 5.3 IMPROVEMENT OF HUMAN RESOURCES 71 CONCLUSION 73 BIBLIOGRAPHY 74 LIST OF TABLES Table Page Table FDI and FPI characteristics 14 Table Factors of FDI divided into groups 39 Table Variables of FDI and abbreviation 47-48 Table Sample of data 48 Table Variables summary based on Vietnam‟s PCI report from 2014 to 2018 54 Table Results of Multi-collinearity test for independent variables 55 Table Expected value signs of variables 56 Table Results of Pooled OLS model 57 Table Results of Fix effect model 61 Table 10 Results of Random effect model 61-62 Table 11 Average (mean) FDI and PCI values of Hanoi 64-65 Table 12 Comparison between the values in the PCI of Vietnam and Hanoi 65 LIST OF ABBREVIATIONS No Abbreviation Description FDI Foreign Direct Investment WTO World Trade Organization FTA Free Trade Agreements GDP Gross Domestic Product GSO General Statistics Office MNCs Multinational Corporations IMF International Monetary Fund OECD Organization for Economic Co-operation and Development UNCTAD United Nations Conference on Trade and Development CHAPTER I: INTRODUCTION 1.1 Rationale A foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets in a foreign company However, FDIs are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies Attracting FDI in the economic region will create favorable conditions for the provinces to participate in the assignment of specialization, thereby gaining greater overall benefits for people in the economic zone and for the nation, increasing their position in negotiation and agreement of the provincial government with foreign investors, limiting unfavorable competition between provinces Policies to attract foreign direct investment capital according to economic regions create conditions for centralizing the resources to connect the system, assigning responsibilities of each province in the region in order to create an organized and competitive environment It has a large market, thereby promoting the advantages of the economic region, attracting foreign investors However, attracting foreign direct investment capital by economic region may have a negative impact on the economic development of the region in general and of each locality in particular General economic zone policies can reduce the attractiveness of each province, making foreign investors unwilling to invest in the region The lack of coordination in the economic region provinces also reduces the activeness of foreign investors in the region Foreign investors are often "concerned" about the sustainability of the cooperation, which is not guaranteed, so they will not trust the phone according to the economic zone's general policies Socio-economic development in the region requires capital Lack of capital, all socio-economic activities will be stopped Areas of high priority for localities are not fully met Investment capital to date is still one of the important input resources Investment capital includes domestic and foreign investment capital Developing countries have low accumulation capacity, domestic capital markets are weak and have difficulty accessing external capital markets Therefore, foreign direct investment capital is important for socio-economic development Attracting FDI will help increase investment capital for development, supplement the shortage of capital without being constrained by the political conditions set by investing countries and avoid debt situation On the other hand, when risks occur, FDI capital has little effect on finance because most of the losses when risks occur are incurred by foreign investors Currently, there are many developed countries holding a huge capital that wants to invest abroad to seek profits, this is an opportunity for countries that are short of capital to take advantage of attracting foreign direct investment In fact, developing countries, including Vietnam, have attracted a large amount of FDI and have partly solved capital constraints in the process of socio-economic development Successful FDI attraction will help improve production and business efficiency of localities in the region The top goal of foreign investors is profit, investors invest in production and business facilities to bring the highest efficiency to bring the highest efficiency, the production activities Business should be focused on optimization Thus, besides maximizing benefits for investors, FDI capital also creates favorable conditions for enterprises of the host countries to absorb, learn from experience and suffer from gay competition Therefore, it is expected that domestic enterprises wishing to survive and develop must change, learn and improve their