(Luận văn) an analysis of foreign direct investment impact on labor productivity at firm level in vietnam

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE ng VIETNAM THE NETHERLANDS ep hi =====oOo===== VIETNAM- NETHERLANDS w n PROJECT FOR M.A IN DEVELOPMENT ECONOMICS ad lo y th yi ju AN ANALYSIS OF FOREIGN DIRECT INVESTMENT pl IMPACT ON LABOR PRODUCTIVITY AT FIRM LEVEL n ua al IN VIETNAM n va ll fu a nh oi m IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ART IN DEVELOPMENT ECONOMICS tz z THUVIEN • k jm PHAM KHAC DUY ht vb BY BO GIAO DUC DAO TAO TRU'ONG D.l;\1 HQC KINH TE'TP.HCM gm ~g m co l ACADEMIC SUPERVISOR: DR LE THI THANH LOAN an Lu n va y te re Ho Chi Minh City, November 2009 CERTIFICATION ng I hereby certify that the substance of this thesis has not been submitted for any degrees ep hi and is not being currently submitted for any other degrees I also certify that, to the best of my knowledge, and any help received in preparing the w n thesis and all sources used have been acknowledged in the thesis ad lo y th ju Signature yi pl n ua al va amKhacDuy n ll fu Date: November, 2009 tz a nh oi m z k jm ht vb gm m co l an Lu n va y te re ACKNOWLEDGEMENT ng This research is impossibly completed without the valuable guidance, encouragement and ep hi advice from numerous individuals including Vietnam-Netherlands program lecturers, friends and my family members I am really indebted and grateful to what they have done w for my thesis completion n lo ad First of all, I would like to send my deepest gratitude to my supervisor, Dr Le Thi Thanh y th Loan who always gives valuable instructions, advice and comments during my ju completion ofthe thesis yi pl al I am grateful for Professor, Peter Calkins for his precious advice and comments from the n ua initial ideas ofthe theme for my thesis va n I also send my special thanks to Professor, Nguyen Trong Hoai for his lectures in ll fu econometrics and Mr Truong Thanh Vu, the lecturer of Vietnam-Netherlands project, for a nh oi m his kind help and instructions in data analysis by Stata software Many especially respectful thanks are sent to my parents and my dear wife for tz encouraging and providing me with an opportunity to pursue my desires in higher z ht vb learning and for their love, affection and sympathy that have helped me to gain more strength and motive to complete this thesis jm k And fmally, I would like to express my special thanks to my friends in MDE class 14 for gm m co continuous support during my research completion l their supportive friendship from the beginning day I joined in this course and their who support me a lot in this thesis completion if I forget to mention their names an Lu Above all, please sympathize for me and know that I would be so grateful for those n va y te re ii ABSTRACT This research examines and analyses the impact ofFDI on labor productivity at firm level ng in Vietnam through applying cross-sectional data from VES-2008 which concentrate on ep hi 4,654 firms including FDI and domestically owned enterprises in sub-industrial sectors; food processing, hotels - restaurants, electronics - mechanics and textile - garment - w n footwear The regression model is estimated based on the Cobb-Douglas production ad lo function and the labor productivity is modeled as dependent on the variables, namely y th capital intensity, material input cost per labor, proportion of skilled labor and dummy ju variables including types of ownership and regions that FDI enterprises locate OLS yi (Ordinary Least Square) and various econometric estimation techniques are employed in pl order to obtain reliable and appropriate results that show the findings based on the al n ua scientific analysis As results, finding results in analysis of FDI impact on labour va productivity in the case of this study consequently suggest in general that FDI in sub- n industrial sectors plays an important and positive role in enhancing labor productivity at fu ll firm level in Vietnam Moreover, the results seem to be appropriate to answer research's m a nh oi questions as well as confirm expectation for hypotheses of different impacts of FDI across regions and types of ownership, except for skilled labor that does not appear to tz affect on labor productivity in this research z j ht vb m k om l.c gm n a Lu n va y te re t iii TABLE OF CONTENTS CHAPTER 1: INTRODUCTION ng Problem statement I 1.2 Objectives of the research ep hi 1.1 w lo Research hypotheses n 1.4 Research questions Organization of the research ad y th CHAPTER II: LITERATURE REVIEW Introduction 2.2 Concepts and definitions 2.2.1 Foreign direct investment (FDI) 2.2.2 Productivity and labor productivity 2.3 Economic theories , 2.3.1 Production theories 2.3.1.1 Cobb-Douglas production function yi ju 2.1 pl n ua al n va ll fu m 2.3.2 a nh oi 2.3.1.2 Pindyck and Rubinfeld production theory Theoretical background ofFDI impacts tz 2.3 2.1 Channel effects of foreign direct investment 10 z 2.3.2.2 Theoretical framework ofFDI impacts on labor productivity 11 ht vb 2.3.2.3 Suggested research model 13 jm Empirical studies 14 2.4.1 FDI impacts enhance labor productivity in host countries 14 2.4.2 The opposite results ofFDI impacts on labor productivity 16 k 2.4 gm l m co CHAPTER III: AN OVERVIEW OF FDI IN VIETNAM SINCE 1988 18 Introduction 18 3.2 Overview of FDI inflows and periods of development from 1988 to 2008 18 3.2.1 FDI inflows in period 1988- 2008 18 3.2 Some characteristics ofFDI in Vietnam 20 3.3 The role ofFDI in national economy 25 3.4 The summary ofFDI sector's socio-economic affect on national economy 27 an Lu n va y te re iv (Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam (Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam CHAPTER IV: RESEARCH METHODOLOGY 29 4.2 Model specification 29 4.3 Description ofvariables 30 4.3.1 Dependent variable labor productivity (Labproductivity) 30 Explanatory variables 30 ep hi Introduction 29 ng 4.1 4.3.2 w n 4.3.2.1 Capital intensity (Cap_intensity) 30 lo ad 4.3.2.2 Scale ofmaterial input cost (MI_scale) 31 y th 3 Labor quality (Skill) 31 yi ju 4.3.2.4 Firm's location (Dlocation) 31 4.3.2.5 Types of ownership (Fshare) 32 pl n ua al 4.3.2.6 Firm's sub-industrial sectors (Dindustry) 32 Data collection 33 4.5 Estimation strategy 34 4.6 Summary 36 n va 4.4 ll fu m CHAPTER V: RESULT ANNALYSIS 37 Introduction 37 5.2 Descriptive statistic analysis of regression sample and variables 37 5.2.1 Descriptive statistics of sample 37 5.2.2 Descriptive statistics ofvariables 38 5.2.3 Correlation matrix 41 5.3 Model estimation and finding results 42 5.3.1 Multiple regression results and diagnostic tests 43 5.3.2 Interpretation ofthe fmding results 45 5.3.3 Analysis and discussion about the finding results 47 5.4 Conclusion 49 tz a nh oi 5.1 z j ht vb m k om l.c gm Recommendations 50 6.3 Limitations of the research 52 y te 6.2 re Conclusion 50 n va 6.1 n a Lu CHAPTER VI: CONCLUSIONS AND RECOMMENDATION 50 t v (Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam (Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam REFFERENCES 53 APPENDICES: 56 ng APPENDIX 1: , , 56 ep hi APPENDIX 2: 61 APPENDIX 3: 62 w n LIST OF BOXES ad lo BOX 5.1: Ramsey RESET test using powers of the independent variables .43 y th yi ju BOX 5.1: Breusch-Pagan I Cook-We is berg test for heteroskedasticity 44 pl n ua al LIST OF FIGURES FIGURE 3.1: Foreign direct investment projects licensed in period 1988- 2008 19 va n FIGURE 3.2: Foreign direct investment projects licensed in period 1988 - 2008 by ll fu region 23 a nh oi m FIGURE 3.3: Structure of investment at current prices by types of ownership from 1995 - 2008 24 FIGURE 3.4: Structure of investment at current prices by types of ownership in 2008 24 tz z FIGURE 3.5: Structure of gross domestic product at current prices by ownership period vb 1995- 2008 26 j ht FIGURE 5.1: Correlation between proportion of skilled labor and labor productivity .42 m k FIGURE 5.2: Distribution of labor productivity (Labproductivity) before transforming gm into logarithm form 56 om l.c FIGURE 5.3: Distribution oflabor productivity in logarithm form 57 FIGURE 5.4: Distribution of Capital intensity in logarithm form 59 FIGURE 5.6: Distribution of proportion or skilled labor in logarithm form 60 n a Lu FIGURE 5.5: Distribution of material input cost per labor in logarithm form 59 n va y te re t vi (Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam (Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam Miguel D Ramirez( ) Does Foreign Direct Investment Enhance Labor Productivity Growth In Chile?: A Co-integration Analysis Trinity College N goc, T P Duong (2008) Impact of R&D on the productivity growth of manufacturing ng firms in Vietnam, MAin Economics of Development thesis, p.3 ep hi OECD (1996) Benchmark Definition of Foreign Direct Investment, 3rd edition, Retrieved May 25th, 2009, from http://www.oecd.org/dataoecd/10/16/2090148.pdf w n OECD (2001) Measurement ofAggregate and Industry-Level Productivity Growth, ad lo Retrieved May 25th, 2009, from http://www.oecd.org/dataoecd/59/29/2352458.pdf y th Pindyck, R S and Rubinfeld, D L (1997) Microeconomics, Third edition, Mainland ju China: Prentice-Hall, Inc Retrieved October 4th, 2009, from yi http://www.mediafrre.com/?zfldjzmlt5o pl Taylor, L (1993) A Three-Gap Analysis ofForeign Resource Flows and Developing al n ua Country Growth, in Lance Taylor (ed.), The Rocky Road to Reform: Adjustment, n Cambridge va Income Distribution, and Growth in the Developing World, MIT Press: fu ll Tong, Y Sarah, and Hu, Y Angela (2003) Does domestic firms benefitfrom Foreign m a nh oi Direct Investment? Initial evidence from Chinese manufacturing, working paper, Faculty ofBusiness and Economics, The University of Hong Kong tz Vahter, Priit (2004) The Effect of Foreign Direct Investment on Labor Productivity: z Evidence from Estonia and Slovenia Tartu: Tartu University Press vb j ht Vani Archana, Ph.D (2000) Impact of FDI in India: State-Wise Analysis in a Panel Data m Framework Indian Council for Research on International Economic Relations k gm (!CRIER) Indian Institute of Technology India om l.c Wooldridge, J.M (2005) Introductory Econometrics- A Mordern Approach, South Western College Pub Yingqi, Wei., et al (2004) The Impact of R&D, Export and FDI on Productivity in n a Lu Chinese Manufacturing Firms, Lancaster University Management School, n va Working Paper: No 003 y te re t 55 (Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam (Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam APPENDICES APPENDIX! ng Figure 5.2: Distribution of labor productivity (Labprf?ductivity) before transforming ep hi into logarithm form It) w ~ n ad lo 'V ~ y th II yi ju I (") ~ ll fu m 2000 4000 a nh oi n t va n ua ~ al pl II C\1 ~ 8000 6000 Labor Productivity tz z Table 5.9: Distribution of labor productivity (Labproductivity) before transforming ran'ge kurtosis skewness k p50 m mean j ht variable vb into logarithm form 67.00986 27.33155 7635.275 18.42877 541.6892 om l.c Labproductivityl gm + n a Lu n va y te re t 56 (Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam (Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam(Luận.văn).an.analysis.of.foreign.direct.investment.impact.on.labor.productivity.at.firm.level.in.vietnam Figure 5.3: Distribution of labor productivity in logarithm form (Lnlabproductivity) ' 0