DETERMINANTS OF FDI INTO DEVELOPING COUNTRIES IN THE CIRCUMSTANCE OF FINANCIAL CRISIS, GLOBAL ECONOMIC RECESSION AND POLICY IMPLICATIONS FOR VIETNAM

1 A INTRODUCTION The necessity of thesis Foreign investment, especially FDI plays a role more and more important for economic growth and international intergration However, the flux of FDI in the world is influenced by many determinants such as the population, GDP, the education level, the law on intellectual property right… Analyzing these determinants of FDI could contribute to find out the trend of global FDI and the solutions for developing countries to attract more FDI for economic growth Though FDI has a decisive role for economic development and economic growth in recipient countries, and FDI is one of the key for the global economic intergration of developing countries, we all know that not all FDI could be beneficial for investors and not all recipient countries could be succesfull in attracting FDI for economic growth Meanwile, the flux of FDI, which is determined by long term factors, is considered more important than portfolio investment To discover in detail these determinants in the circumstance of global financial crisis and economic recession is very meaningful for recipient developing countries, especially when these countries plays more and more important role in the global economic map Therefore, Post-granduate has chosen the subject «DETERMINANTS OF FDI INTO DEVELOPING COUNTRIES IN THE CIRCUMSTANCE OF FINANCIAL CRISIS, GLOBAL ECONOMIC RECESSION AND POLICY IMPLICATIONS FOR VIETNAM” for my PhD thesis Objective of this thesis - To discover and synthetize main theory on determinants of FDI - To analyze the actual situation of these determinant of FDI into developing countries - To show the trend, the actual situation of FDI into developing countries before and during financial crisis - To evaluate and measure the impact of these determinants in the flux of FDI in the circumstance of global economic recession - To find out some policy implications and specific solutions for Vietnam in order to attract efficiently FDI in the next future Object to study and the sphere to study 3.1 Object to study This thesis give high attention to all the determinants of FDI flux into developing countries in the circumstance of global financial crisis and economic recession 3.2 Sphere to study • About the contenu: This thesis will discover the determinants of FDI which include the common determinants, the determinants that have impact on the decision of investors and the determinants that are important for recipient developing countries • About the space: all the data and object to study is discovered in developing countries in the world (especially those in Africa, in Asia, in Latin America…) • About the time: To evaluate the impact of current global financial crisis to FDI, I uses the data collected during the period 1999-2010 All the policy implications and specific solutions are for an average term 2013- 2030 Methods to study - The method of analyze and synthetize - The mathematical mehod - The quantitative methods The three main data sources used in this thesis are: World Invesment Reports (UNCTAD), the World Bank database and the database of Foreign Invesment Agency (Ministry of Planing and Invesment of Vietnam) New contributions of the thesis - Contributtion to the theories about determinants of FDI in Vietnamese - Evaluation of the impact of global financial crisis and recession economic to the flux of FDI into developing countries - The econometric model with newest data colleted and new method to study for thesis in Vietnamese - Some main policy implications and specific solutions for Vietnam in order to attract more efficiently FDI Lay out of the thesis Beside the introduction, the conclusion, and the list of references documents, the thesis has chapter: Chapter 1: General Theories about determinants of FDI into developing countries Chapter 2: Impact of the determinants of FDI in the circumstance of financial crisis and economic recession Chapter 3: Policy implications for Vietnam in order to improve the attraction of FDI in the next future B GENERALITY OF RESEARCHS RELATING THE OBJECT TO STUDY OF THE THESIS IN ABROAD 1.1 The theoretical researchs The theoretical researchs mainly discoved all the factors that could give incentives to foreign investors These works researched the reasons why foreign direct investment is made by a TNC Although the huge number of theoretical researchs, we could classify these works by main groups: theories concerning the capital, theories concerning international trade, theories concerning the cost and firms, theories concerning the cycle of product… 1.2 The empirical researchs Generality about empirical researchs in the world that concerns the object of study of the thesis, especially by the macroeconomic approach, will be discovered in this part These studies talks about determinants of FDI such as the market size, the purchasing power, the quality and price of labor, the economic openness…, and analyzes the impact of these determinants in econometric models I synthetizes main results of theses studies concerning FDI into developing countries, FDI into Vietnam… 2.IN VIETNAM There is not much studies in Vietnam talking about determinants of FDI There is any vietnammese study talking about determinants of FDI into developing countries There are some studies that have the close direction than the thesis such as some graduation thesis of student, some PhD thesis talking about improving the investment environment (Trieu Hong Cam’s Thesis, Nguyen Thi Ai Lien’s Thesis) 3 C CONTENU OF STUDY CHAPTER 1: DETERMINANTS OF FDI IN THE SITUATION OF FINANCIAL CRISIS AND ECONOMIC RECESSION 1.1.GENERALITY OF FDI 1.1.1 Some main notions - Foreign Investment and foreign direct investment - Determinants of FDI - Porfolio investment - Developing countries - Corruption 1.1.2 Economic roles of FDI for recipient countries Economic roles of FDI for recipient countries can be seen through the contributions of FDI for these countries such as creation of job, contribution to state budget, economic growht and economic development… Beside the positive contributions for the recipients economies, there are some negative effects of FDI for recipient countries, for exemple the pollution of environment, the poverty and inequality… 1.2.FINANCIAL CRISIS AND THE RELATIOSHIP WITH FDI Financial crisis is a situation in which the supply of money is outpaced by the demand for money This means that liquidity is quickly evaporated because available money is withdrawn from banks, forcing banks either to sell other investments to make up for the shortfall or to collapse Cause and characterisitics of financial crisis : Global imbalance of lending money and the relaxation of discipline for financial system managemment Financial crisis 2008 has some characteristics such as the center of crisis is in developepd countries, financial systems at developing countries are suffered indirectly from the crisis and one of the main consequences of fiancial crisis 2008 is the current economic recession Fiancial crisis 2008 and economic recession had a lot of negative impact on economic development of the world, the movement of global financial flux and the flux of FDI into developing countries 1.3 GENERALITY OF DETERMINANTS OF FDI There are common determinants, determinants viewed from investors and determiants viewed from recipient countries - The common determinants which could affect the flux of FDI includes the global macroeconomic situation, the international intergration, the international politic situation and some natural disaster with international impact … - Determinants viewed from the investors : these determinants which represents all elements affecting the decision of foreign investors, could be differents according to the types of FDI The investor of market seeking FDI makes attention to the market size of the recipient countries, the purchasing power, the posibility of market access, geographical position, government policies… while the investors of ressource seeking FDI refer to the quality and price of labor, the stock of natural ressouces, government policies… Table 5: Determinants of FDI viewed from the investors Market seeking FDI Ressource seeking FDI Market size in the recipient countries Purchasing power in recipient countries High quality labor (%) in recipient countries Natural ressouce in recipient countries Efficiency seeking FDI Cheap labor cost in recipient countries Possibility of technological application, economic of scale in recipient countires Possiblitity of Market access: geographical position, relative policies in home and host countries… Other determinants: corruption, political stability, ipr law in host countries - Factors related to FDI attraction of host countries can be divided into three categories: economic factors and non-economic factors and other factors (UNCTAD, 1998) The economic factors include: domestic market size of the host country, natural resources, macroeconomic situation, abundant labor resources, low cost labor; situation of international integration and regional infrastructure status of FDI recipient countries The non-economic factors including the legal framework of investment in the host country; geographical location, political stability, corruption situation Also there are some other factors that affect the flux of FDI such as the protection of intellectual property rights in the recipient country, the instability of the exchange rate, foreign debt, fiscal deficits, privatization, the promotion strategy investment CHAPTER 2: IMPACT OF DETERMINANTS OF FDI INTO DEVELOPING COUNTRIES 2.1 THE CURRENT SITUATION OF FDI INTO DEVELOPING COUNTRIES IN FINANCIAL CRISIS AND ECONOMIC RECESSION The flux of FDI into developing countries in the world is analyzed according to main geographical areas : Developing countries in Africa, in Asia, in Latin America and in Europe In general, developing countries in the world attracts more and more FDI since the XXI century The share of FDI into developing world has acceded more than 50% of the total global FDI Nevertheless, the financial crisis 2008 has heavy negative impact on this flux of capital Indeed, FDI into african developing countries has been most strongly affected by the crisis, FDI into other develping areas has been also decreased but which has returned to the pre-crisis level The crisis has less negative effects for FDI into developing asean countries when the value of this flux was decreased a little in 2009 but it has returned and reached a new record in 2011 All the available data which are showed by graphs and tables in the thesis Table 12: Flux of FDI into developing countries before and during the crisis by geographical areas (unit: million USD) Year 2006 2007 2008 2009 2010 World 1.463.351,2 1.975.537,1 1.790.705,7 1.197.823,7 1.309.001,3 Total developing countries 427.163,4 574.311,5 650.016,8 519.225 616.660,7 Transition economies 54.318,4 90.800,1 121.040,9 72.386,4 73.754,5 African developing countries 36.782,9 51.478,9 57.841,5 52.644,9 43.122,1 American developing countries 98.175,4 172,281 209.517 149.402,4 187.400,7 Asian developing countries 290.907 349.412,2 380.360,4 315.237,6 384.063 Developing contries in Oceania 1.298,2 1.139,5 2.297,8 1.940,1 2.074,9 Developing countries except China 354.448,4 490.790,5 541.704,8 424.225 501.926,7 Developing countries except LDCs 415.424,7 559.074,1 631.520 500.882,6 599.761,5 Landlocked developing countries 11.943 15.637,3 25.010,5 28.016,6 28.190,8 Small Islands developing countries (UNCTAD) 5.566,3 6.477,5 8.640,2 4.431,5 4.230,9 High income developing countires 228.898,8 314.931,3 318.728,4 259.057,3 317.197,9 Medium Income developing countries 148.312,8 190.326,7 230.795,5 178.247,5 222.544,6 Low Income developing countries 49.951,8 69.053,5 100.492,9 81.920,3 76.918,2 Souce: WIR 2011 and World Bank Database 2011 1.524.422,2 684.399,3 92.162,9 42.651,9 216.988,3 423.157 1.602,1 560.414,3 669.388,4 34.836,9 4.142,3 332.983,1 257.223,5 94.192,8 2.2.CURRENT SITUATION OF DETERMINANTS OF FDI INTO DEVELOPING COUNTRIES 2.2.1.The common determinants In the 1st chapter, we have analyzed how FDI inflows and outflows are both affected by common factors such as economic integration position, macroeconomics situation In a nutshell, these global factors have an impact on both host countries and home countries 2.2.1.1 Economic Integration Economic Integration has a critical impact on the value of FDI flows globally According to UNCTAD’s annual statement on international investment, in 1991, the figure was approximately $158.9 billion, which increased to $331.2 billion in 1995 and $900 billion in 2005, before reaching its peak at nearly $1500 billion in 2007, preceding the devastating effect by the global economic recession The increasing trend of FDI flows advances along with the globalizing trend, signifying the sound decision of countries to blend in with this international tendency In developing countries, in particular, the boosting power of their WTO adhesion is likely to be most apparent, which also brings in economic growth through FDI attraction The global economic integration, specifically the free trade and liberalization of international investment, impacts significantly on the movement of FDI flows In time of global economic downfall, the intensity of liberalization of trade and investment will reduce country risk as a consequence of global crisis For example, the EU is currently the trading partner of Russia, while Russia herself, both politically and economically, is enhancing its relationship with Asian countries, especially in time of the European debt crisis The global economic integration is referred to each country’s commitment preceding its WTO adhesion, without which, FDI flows might not meet the targeted expectation Overall, with its 157 country-and-economic-region members and 27 observers, WTO has signified the importance of international economic integration In a nutshell, the global factors impacting on FDI flows might be summarized into globalization and both the invested developing countries and their investing host countries might hold some certain great advantages to attract FDI through liberalization of trade and investment 2.1.1.2 The Global Macroeconomics Situation In the first place, the global economy in the recent decades has observed the rises of China, in specific, the preceding three decades witnessed a rapid growth of the country, marked by the year of 2010 when its economy replaced Japan’s to be the second largest economy in the world China in the new century also successfully launched a manned-mission space-craft into space, making it the only country to break the dominance of the US and Russia in the field of manned-mission space exploration Secondly, while the largest economies in the world are suffering, new industrial countries, particularly in Asia, soared to develop and support the recovery of the global economy, namely, India, Australia – countries having quick recoveries and many others which climbed to the pre-recession economic growth These Asian countries have the economic growth expected to be highest in the preceding decades Finally, the macro economy globally is brooded by the elongation of financial crisis, resulting in challenges for developing countries, government debt crisis, inflation and unemployment problems The recent economic recession of the period from 2008-2009 has been historically recognized as the most deteriorating downfall of global economy since the Great Depression in 1929-1933 2.2.1.3 Other factors Apart from international economic integration and macroeconomic situation, global flows of FDI are also impacted by several significant factors such as the global political situation, natural disasters of great global impacts…etc 2.2.2.Current status of some determinants of FDI into developing countries 2.2.2.1 Economic factors - Domestic market: - The market size The domestic market with some basic characteristics such as size and affordability is the most important factors affecting foreign direct investment in general and developing countries in particular Domestic market size of each country may go along with its huge advantage in attracting market-seeking FDI Some countries have significantly developed domestic market size are China with population of over 1.3 billion people, India with over 1.2 billion people, Indonesia with over 240 million people, etc This is the important source of demand for products which are produced by firms in countries that receive FDI investments In general, world’s most populous countries locate in Asia, where there are up to of the 10 most densely populated countries of all developing countries Theoretically, the total value of registered FDI in these countries is also proportional to the size of the market, ie the size of the population in these countries This will be verified through econometrics regression The most populous country will have some major advantages in attracting FDI Table 16 gives us an overview of the theoretical relationship between population size and FDI in 10 developing countries with the largest population in the world Out of 10 most populous developing countries, of them are in the top 11 developing countries to attract the greatest amount FDI in the world in 2011 Of all developing countries, Vietnam ranked 14th in the ranking list of registered FDI in 2011 and ranks 11th in population The remaining populous countries were also among countries that attract most FDI in recent years or in another way, the remaining countries are among the top countries attracting FDI Developing countries are also countries with large population sizes Table 16: Relationship between population size and FDI Developing countries with the largest population size No Countries Population 2011 (people) China 1.344.130.000 India 1.241.491.960 Indonesia 242.325.638 Brazil 196.655.014 Pakistan 176.745.364 Nigeria 162.470.737 Bangladesh 150.493.658 Russia 141.930.000 Mexico 114.793.341 Developing countries with the largest amount of registered FDI in 2011 No Countries FDI (million USD) China 123.985 Brazil 66.660,14 India 65.788,48 Mexico 64.003,24 Indonesia 18.906 Chile 17.299,02 Turkey 16.400 Columbia 13.234,16 Kazakhstan 12.910,48 10 11 Philippines Vietnam 94.852.030 87.840.000 10 11 Malaysia Vietnam 11.966,01 7.430 Source: Post-graduante synthesizes from World Bank and UNTAD statistics - Workforce: skills and labor cost Workforce investment in the host country affects FDI in two directions A market with cheap labor attracts efficiency-seeking FDI through low cost But cheap labor also means low quality workers This is also considered an advantage for developing countries in the traditional competition of attracting FDI The second direction is more modern: FDI that is seeking for a source of high-quality labor Accordingly, the countries having high quality workforce will attract more foreign direct investment And this is the new trend of the current FDI: FDI will focus more on industry with high level of technique and technology instead of mining industry Foreign direct investment affected by the level of the labor force is not a common phenomenon as we see in the developing countries, industries that process raw material or the industries that is labor intensive still accounted for an absolute advantage in attracting the attention of foreign direct investment The table below compares the rates of high school graduation per total population in 10 developing countries attracting most FDI in 2011 Vietnam ranks 14th in the top FDI recipient countries in 2011 Among the top FDI recipient developing countries, Latin America and Eastern Europe have relatively higher level education, but this does not entirely mean that the level of education can be a leading factors impacting developing countries’ FDI inflow In fact, FDI still prefers cheap labor which is synonymous with low quality and low skill levels However, in the future, labor skills will be a key factor in helping increase the competitiveness of FDI recipient developing countries (see table 17) Table 17: High school graduation rates per total population in top 10 FDI recipients in 2011 No Countries High school graduation rates 2008 2009 2010 China 22,42 24,35 25,95 Brazil No statistic India 15,15 16,23 17,87 Mexico 26,55 27,04 28,03 Indonesia 20,20 22,35 23,12 Chile 55,01 59,18 Turkey 39,62 45,82 Colombia 35,50 37,09 39,13 Kazakhstan 45,89 40,02 38,48 10 Malaysia 37,46 40,24 14 Vietnam 18,59 19,75 22,29 Source: Post-graduante synthesizes from World Bank statistics - Income per capita: Theoretically, a country with relatively high per capita income has more advantages in attracting market-seeking FDI This type of FDI prefers markets with large population size, affordability and high per capita income is a good variable reflecting the purchasing power of the recipients’ markets Research on the per capita income in developing countries shows that although there are similarities in income per capita, there are still differences in the standard of living or per capital GDP Table 18 shows that the theoretical correlation of per capita income and FDI for the top 10 FDI recipients in 2011, which includes Vietnam, is not clear This may indicate that the main reason of the FDI inflows into developing countries is affected by sources of cheap labor rather than markets with higher affordability Many companies with foreign direct investment focus on the industries which process raw material or produce goods for exporting instead of consuming on the domestic market in the host country This is the fact of many companies with foreign direct investment in Vietnam (see Table 18) Table 18: Per capita income in top 10 FDI recipients in 2011 (unit: million USD) No Countries Registered FDI in 2011 Per capital income in 2011 China 123.985 5.429,60 Brazil 66.660,14 12.593,89 India 65.788,48 1.488,52 Mexico 64.003,24 10.064,31 Indonesia 18.906 3.494,60 Chile 17.299,02 14.394,45 Turkey 16.400 10.498,31 Colombia 13.234,16 7.067,44 Kazakhstan 12.910,48 11.244,91 10 Malaysia 11.966,01 9.656,25 14 Vietnam 7.430 1.411,21 Source: Post-graduate synthesizes from World Bank statistics - Natural resources: One of the important reasons behind foreign direct investment in the world in general and in developing countries in private is geared towards natural resources, especially mineral ones – the top concern of mining industry Developing countries own diverse resources: including mineral, forest, land and water, seafood… There is a variety of minerals in Asia which are very rich and abundant but not fully exploited The minerals which have significant reserves are oil, charcoal, iron, ferrous metals like copper, lead, tin and bauxite The ancient base is home to much iron, manganese, bauxite, gold and some precious metals For example: large iron mines in India, Northeast China, Korean Peninsula, central Siberia and Russian base Apart from iron, there is high level of manganese with world leading reserves as well as gold and diamond; There is a huge amount of tungsten, diamond, gold and bauxite at high level of concentration in China and central Siberia Tin in Southeast Asia is focused in one extended length from Yunnan Plateau through China-India peninsula to Bangka and Billiton belonging to Indonesia Tin here accounts for 70% of world reserves Currently, output of tin mining in China, Indonesia and Malaysia is standing second, third and fourth respectively, after Brazil The charcoal mines with huge reserves are called coal basins, which exists much in China, India, Mongolia and Central Siberia-Russia Oil and gas mines are at high level of concentration at West Siberian Delta, Central Asia, Sakhalin island and Japan In China, oil concentrates in basins such as Tarim, Saidam, Dungari, Sichuan and Gobi Plateau The China’s resources value mainly belongs to coal, mineral and rare earth These two resources account for more than 90% of total value of natural resources of China Second-largest economy of the world also has many big coal mines, accounting for more than 13% of total world coal reserves Recently, China has discovered many large shale mines (An Huy, 2012) The continental shelves 10 of South “East Sea”, Indonesia, Myanma, Indo-Ganges Delta, Mesopotamian Plain and along the Persian Gulf are the areas with leading reserves in Asia African countries have very large oil reserves and are the attracting investment points of large oil corporations in the world (see table 19) Among 12 current members of OPEC, there are up to members being African developing countries: Algeria, Angola, Libya, Nigeria Africa is also famous for essential and diverse resources: accounting for 8% oil, 7% fuel reserves (BP statistical review, 2012) In addition, Africa manufactures 46% chromium, 48% diamond, 48% platinum of the world (Jenne Manion, 2006) Table 19: Oil reserves of developing countries of continents in the world 2011 (unit: billion tanks) America Argentina Stock 2.5 Share 0.2% Africa Algeria Stock 12.2 Share 0.7% Asia Brunei Stock 1.1 14 5.7 Share 0.1% Brazil 15.1 0.9% Angola 13.5 0.8% China Colombia 2.0 0.1% 0.1% India 6.2 0.4% 1.9 0.1% Mexico 11.4 0.7% 4.3 Peru 1.2 0.1% Chad Rep of Congo Egypt Equator Guinea 1.5 Ecuador Indonesia 4.0 0.2% 0.3% Malaysia 5.9 0.4% 1.7 0.1% Thailand 0.4 Trinidad & Tobago Venezuela Others 0.8 0.1% 296.5 1.1 Total 336.8 17.9% 0.1% 20.4 % Gabon 3.7 0.2% Vietnam 4.4 0.3% Libya Nigeria 47.1 37.2 2.9% 2.3% Others 1.1 0.1% Sudan 6.7 0.4% Tunisia Others Total 0.4 2.2 132.4 0.1% 8.0% 0.9% 0.3% (Source: BP Statistical Review of World Energy 2012) Latin America is still famous for oil in Venezuela and Argentina; forest and iron in Brazil Thanks to huge reserves of gold and platinum, Brazil was shortlisted the countries with most resources in the world This country holds 17% iron reserves of the world, taking second position in terms of this resource The most valuable resource of Brazil is forest, with 485,6 million hectares which are worth nearly 17,5 thousand billion USD This rank has not been considered pre-salt oil reserves, which is up to 44 billion tanks discovered recently Venezuela belongs to the group of 10 countries with largest iron reserves, natural gas and petrol Natural gas reserves of Venezuela stand in 8th position of the world, despite accounting for 2.7% of global supply Petrol reserves of 99 thousand billion tanks of Venezuela stands in 6th position in the world, not mentioning about positive reserves of heavy sour oil which is up to 97 billion tanks Although Vietnam is not a large country, we have rich and diverse mineral resources, with nearly 40 types from power minerals (petrol, coal, uranium, geothermal), Non-metallic mineral, building materials to metal minerals However, most of minerals in Vietnam has not much reserves Vietnam is rich in triassic coal (6.6 billion tons), titanium ore (O34.5 billion tons), bauxite (more than billion tons), scare earth (more than 22 million tons) Apatite was discovered in Lao Cai with reserves 11 being 1700 million tons Limestone Cement, concentrating from Quang Binh to Northern Vietnam, has area of nearly 30,000 square kilometers, with 96 building stone mines which includes manganese rocks (granite, xienite, diorite, gabro, andezits, bazan, riolit), sedimentary rocks (limestone, dolomite) and metamorphic like shale, quaczit (According to General Geological Society, Vietnam Minerals Congress) In addition, Vietnam is also rich in forest and sea resources This is the big advantage for our country to foster the economy Details of natural resources of all the developing countries, including Vietnam, are summarized in Annex of the thesis -The economic openness of recipient countries Among the factors affecting the FDI attractiveness of each country, the opening of the economy must be included Economic openness can be understood as the ability of a country's integration into the world market which is expressed in a number of criteria such as the participation in the international organizations or bilateral and multilateral agreements to protect investment Each developing country can be the member of many organizations, forums or international associations For example, Vietnam is a member of ASEAN, APEC, ASEM, WTO; the developing countries in Africa region may be a member of WAEMU ( West African Monetary Union), CAEMC ( Central African Economic and Monetary Union), ECOWAS ( West African Monetary Zone)… The largest organization, which most of the developing countries in the world are the official members, is the World Trade Organization WTO Nowadays, about two thirds of the World Trade Organization-WTO members are developing countries That the developing countries try to integrate deeply into the world economy represents the dynamics of each country when participating in the large playground in the world Because most developing countries have been participating into the WTO, it would not be easy to determine the degree of integration into the world economy of each country to find out that how the elements impact on attracting FDI Some researchers consider and comment on the opening of the economy through export turnover targets or total imports, exports turnover compared to GDP However, this measurement cannot considered as an accurate method because GDP and exports (or exports, imports) turnover are two different criteria on the scope and the calculation so that these index should not be compared together Furthermore, the heterogeneous structure of export in each country is different, even if there are some cases of overlap when calculating (egg raw materials imported for production then export is calculated in the import and export turnover) -The infrastructure condition of recipient countries The essence of FDI is the private investment with the aim to seek profit The FDI enterprises would save a lot of costs in the investment environment having favorable infrastructure, especially in the traffic system (table 21) FDI towards the market prioritizes the good infrastructure market, especially in the inland transportation system, whereas the export-oriented FDI prioritizes the locations near ports, airports, with the favorable national and international transportation system In general, all foreign investors prefer the investment locations near the market, the major economic center and the market access is easy via the high quality infrastructure system Besides the transportation system, the infrastructure situation also reflects in a number of other 12 criteria such as power, water, telecom and internet supply situation in the recipient countries The comprehensive data on the developing countries related to the criteria of infrastructure is included in the appendix of the thesis It can be said that these criteria have not demonstrated the superiority of this country compared with other countries concerning the infrastructure in attracting FDI For example, India and China are the two most populous countries in the world; therefore the travel need of the people is much higher than in many other countries Moreover, the area of the two countries is also ranked as the world’s largest so the numbers of kilometers of roads, railways, waterways also are relatively larger in comparison with many other countries The kilometer per capita can help to eliminate the factors such as population size criterion or the number of kilometers of roads over the total land area can remove the national scale element However,a simple comparison between two recipient countries related to one or only a few criteria of infrastructure is not sufficient for an investor to make decision in selecting that country over the other countries Therefore, the fine infrastructure system is a big advantage for developing recipient countries but the investors still base on many different factors to make their decision Table 21: Some criterias of infrastructure in top10 developing recipient countries in 20111 No Countries Railway Road Waterway No of airports and places for air landing China 86.000 (2008) 3.860.800 (2007) 110.000 (2011) 497 (2012) Brazil 28.538 (2008) 1.751.887 (2004) 50.000 (2012) 4.105 (2012) India 63.974 (2009) 3.320.410 (2009) 14.500 (2012) 352 (2012) Mexico 17.166 (2008) 366.095 (2008) 2.900 (2012) 1.724 (2012) Indonesia 5.042 (2008) 437.759 (2008) 21.579 (2011) 676 (2012) Chile 7.082 (2008) 80.505 (2004) NA 58 (2012) Turkey 8.699 (2008) 352.046 (2008) 1.200 (2010) 98 (2012) 141.374 km (2010) 24.725 (2012) 862 (2012) Colombia 874 (2008) Kazakhstan 15.079 (2008) 93.612 (2008) 4.000 (2010) 97 (2012) 10 Malaysia 1.849 (2008) 98.721 (2004) 7.200 (2011) 117 (2012) 14 Viet Nam 2.157 (2008) 180.549 (2008) 17.702 (2011) 44 (2012) Source: The fellow summarizes from the data of the Central Intelligence Agency of the US ( CIA) 2.2.2.2 Non economics factors - Geographical position Favorable geographical position implies many meanings First, recipient country is located geographically close countries investors or large economic center, near the In the parentheses is the investigating year https://www.cia.gov/library/publications/the-world-factbook/ 13 crowded market to facilitate the sale of products Second, favorable geographic location can also be interpreted as recipient country is located near the sea port, international airport, convenient transportation for international trade and third, good geographical location also known as a sea water ownership, the country is not surrounded by continent (landlocked country- see annex 2A) The value of FDI into the developing countries without sea reached negligible values (see Appendix 2B) - Political stablility Political stability in the developing countries in terms of the theory as mentioned in Chapter is one of the factors that influence the decisions of foreign direct investment Now, armed conflicts, civil wars, border disputes occurring in many parts of the world The conflict, in particular the large-scale conflict could bring more serious consequences for the country where the conflict on the economy in general and in particular in attracting FDI In many developing countries around the world appear armed groups, insurgents against the government, the seeds of political instability Africa, where political turmoil is pretty serious These include the unrest in the countries of the Magreb region, Africa, the early 21st century, is related to many countries such as Algeria, Chad, Mali, Mauritania, Morocco, Niger, and Tunisia; well services up of the Shia in Yemen in 2004, in Saudi Arabia, 2009-2010; armed conflict in the Niger River Basin Nigeria 2004 conflict in Libya in recent years with the event's highlights changes a new administration The Middle East has always been a political hotspot in recent times with many outstanding events such as the Iraq war in 2003, the conflict in Palestine constant related to the armed groups Fatah and Hamas and recent is the "Arab Spring" with the conflict, ongoing uprising in Arab countries such as Bahrain, Egypt, Syria, Yemen, Lebanon, Saudi Arabia, Oman and Iraq In Asia, can also mention some typical conflicts insurgency against government forces in southern Thailand in 2004, disputed border temple area between Cambodian and Thai Stock Finland from 2008 to present; North Capcas conflict in Russia in 2009 - Corruption Corruption is a common problem of all countries in the world But because of the characteristics associated with the level of economic development, income, legal systems can be found in the developing countries, corruption is more common and more severe According to Transparency International index of corruption perceptions in 2010 measures the level of corruption of public areas in 178 countries around the world The area is the most serious corruption often focus on developing countries and least developed in Asia, Africa and the Americas According to the organization Transparency International, Cameroon, Liberia, Sierra Leone and Uganda, more than 50% of the respondents answered that they were paying a premium tea in the country That ratio is about 23 to 49% in the group of countries such as Bolivia, Cambodia, Mongolia, Venezuela and Russia Corruption has a negative impact on all aspects of economic life, including attracting FDI 2.3 EVALUATION OF THE IMPACTS OF SOME DETERMINANTS ON FDI INTO DEVELOPING COUNTRIES BY ECONOMETRIC MODEL 2.3.1 The economics of model 2.3.2 Regression equation and variables of the model 14 The model reflects the relationship between variables which impact on FDI inflow into developing countries LnFDIi,t = α0 + α1 LnPop + α2 LnEduc + α3 LnGDPpercap + α4 LnPolistab + α5 LnCorrup + α6 Di + εi In which: i is the index reflecting developing countries and t reflects time (normaly adjusted in year) The index αi is coeficient which needs to be estimated (j = 0-6) and εi is random noise Dependent variable: LnFDI Independent variables: LnPop, LnEduc, LnGDPpercap, LnPolistab, LnCorrup and the D variable LnPop reflects market scope in the developing recipient countries LnPolistab reflects political stability level in the developing recipient countries LnEduc reflects skill level of human capital in the developing recipient countries LnGDPpercap reflects income per capita in the developing recipient countries LnCorrup reflects the state of corruption controlling in the developing recipient countries The D variable reflects financial crisis and economic recession 2.3.3 Introduction to model database The database which related to variables of model is collected from one source of database: the world bank database Out of world development index system related to variables on annualy registered FDI, population, income per capita, education standard in developing countries, the thesis also takes into account the World Governance Indicators index 2.3.4 The proposed hypothesis to the model LnFDIi,t = α0 + α1 LnPop + α2 LnEduc + α3 LnGDPpercap + α4 LnPolistab + α5 LnCorrup + α6 Di + εi To estimate the FDI inflow into the developing country i at time t, it is necessary to work out these factors at time t-1 The model has been examined along with assumptions: •To estimate the FDI inflow into the developing country i at time t, it is necessary to work out these factors at time t-1 Corruption impact negatively on developing countries therefore controlling corruption would possitively affect the FDI inflow •Factors such as market size, labor skills, political stability, have the same effects on FDI inflow making the FDI inflow better off Author carries out to verify those assumptions and estimates the signification of the results According to datatbase of World Bank, the value of variables Polistab and Corrupt fluctuate from -2.5 to 2.5 Therefore, LnPolistab and LnCorrupt fall between 0.01 and 5.01 2.3.5 The regression results 15 2.3.5.1 World general form of the developing countries In the panel model: Model POLS (Pool Ordinary Least Square) is used if the missing variable has no impact on the general result On the other hand, if the missing variable affect the general result and there is no relationship between missing variable and other variables, model Random Effect (RE) would be used Incase of tangible relationship between left variable and others, Model Fixed Effect would be taken In the proposed model of this thesis There must be some factors, which affect the FDI inflow, have not been mentioned and have relationship with independent variables For example, the colonial history, language, culture between investor and host country, geographical position, efficiency level of investment promotion program Besides, the examined results show that model FE should be used in all three proposed circumstances The results are shown in table 28 Model 1: LnFDIi,t = α0 + α1LnPopi,t-1+ α2lnEduci,t-1+ α3LnGDPpercapi,t-1+ α4Crisis+ εi Model 2: LnFDIi,t = α0 + α1LnPopi,t-1+ α2lnEduci,t-1+ α3LnGDPpercapi,t-1+ α4Polistabi,t-1+ α5Crisis+ εi Model 3: LnFDIi,t = α0 + α1LnPopi,t-1+ α2lnEduci,t-1+ α3LnGDPpercapi,t-1+ α4Polistabi,t-1+ α5Corrupi,t-1+ α6Crisis+ ε Model which simply investigates effects of market scope, payment ability and labor skill level on FDI inflow into the developing The political stability and corruption controlling factors are in turn soplemented in model and model Since the assumption in each model is different from other model, factors affect FDI inflow differently It can be seen that the more variables taken, the more reliable the result is On the other hand, we can consider variables in model as basis factors affecting the FDI inflow and others variables in model and model complete other factor effects in the FDI inflow According to the results in table 28, model 1: FDI inflow into the developing is explained by GDP per capita, education standard and crisis circumstance (2009, 2010) or no crisis circumtance (remaining years) LnFDIi,t^ = 6.84 + 1.04LnGDPpercapi,t-1 + 0.22LnPopi,t-1 + 0.87LnEduci,t-1 0.39Crisis Following the regression result, these factors explain for 38% FDI inflow into the developing (R2 = 0.38) Financial crisis and FDI inflow have the negative relationship.Financial crisis can make FDI inflow fall to 39% GDP per capita and education standard impact possitively on FDI inflow When GDP per capta increases (decreases) 1%, FDI increases (decreases) 0.87% These results reach reliable level of 95% Model 2: GDP per capita, population, education level, context and political stability 16 LnFDIi,t^ = 7.23 + 1.01LnGDPpercapi,t-1 + 0.20LnPopi,t-1 + 0.90LnEduci,t-1 + 0.13LnPolistai,t-1 - 0.38Crisis FDI inflow into the developing next year will go up (go down) 1.01% if GDP per capita go up (go down) 1%, increases (decreases) 0.2% if the population increases (decreases) 1%, increases (decreases) 0.9% if the education standard increases (decreases) 1% and FDI increases (decreases) 0.13% if the political stability increases (decreases) 1% Financial crisis and FDI inflow have the negative relationship The coefficient of variable Crisis in thí model takes a negative value (-0.38), crisis can make the FDI inflow fall down to 38% Factors in the model explained 40% fluctuation level of FDI inflow and it can be reliable about 90% Model 3: LnFDIi,t^ = 7.52 + 0.99LnGDPpercapi,t-1 + 0.17LnPopi,t-1 + 0.92LnEduci,t-1 + 0.13LnPolistabi,t-1 + 0.38LnCorrupi,t-1 – 0.38Crisis According to model 3, 42% og FDI inflow is explained by GDP per capita, population, education standard, political stability level, corruption and economic crisis circumtance The results are particularly shown in the table 28 below: Dependent Model Model Model variable:ln(FDI) i,t Independent variable Const 6.84 7.23 7.52 (0.027)** (0.020)** (0.017)** Ln(GDPpercap) i,t-1 1.04 1.01 0.99 (0.000)*** (0.000)*** (0.000)*** Ln(Pop) i,t-1 0.22 0.20 0.17 (0.009)** (0.06)* (0.038)** Ln(Educ) i,t-1 0.87 0.90 0.92 (0.000)*** (0.000)*** (0.000)*** Crisis -0.39 -0.38 -0.38 (0.003)** (0.003)** (0.004)** Ln(Polistab) i,t-1 0.13 0.13 (0.039)** (0.040)** Ln(Corrup) i,t-1 0.38 (0.004)** R2 0.38 0.40 0.42 Number of Observations 510 Note: The numbers in parentheses are p-value, *,**,*** are regression coeffients significant at 10%; 5%;1% For the financial crisis variable, LnFDIi,t without crisis is larger than LnFDIi,t with crisis by 0.38 or crisis can pull down the FDI percapita by 38% This means FDI inflow into the developing and the crisis have the negative relationship It can be seen that the most reasonable model is model which reflects completely effects of factors onFDI inflow into the developing countries The studied results and the previous reseachs on the general model of developing countries are shown in table 29 below Table 29: Impact of determinants of FDI into developing countries (comparing with previous studies) Determinants Variables Impact Authors 17 A Economic factors Concerning the Market Total Population + Alan A Bevan and Saul Estrin (2000); Holland (2000); Tsai (1994); Campos and Kinoshita (2003); Garibaldi (2001); Asiedu (2002); Aseidu (2004); Meyer and Nguyễn (2005); Ngọc Anh (2007); Lê Việt Anh, (2004); Hoang Thi Thu (2008) Nunnenkamp and Spatz (2002) Both ways GDP per capita Concerning Good the labor human ressource (education level) + + The Thesis Root and Ahmed (1979); Nunnenkamp and Spatz, 2002; Erdal Demirhan and Mahmut Masca (2008); Hoang Thi Thu (2008) The Thesis Marcelo Braga Nonnemberg and Mario Jorge Cardoso de Mendonça, Nunnenkamp and Spatz, 2002; Aseidu (2004); Meyer and Nguyễn (2005); Ngọc Anh (2007); Hoang Thi Thu (2008) + + + B Non Economic factors The distance Geographical between Distance capitals Political stability Corruption The Thesis - Alan A Bevan and Saul Estrin, 2000 The Thesis studies by geographical areas Political stability index + Corruption + + Schneider and Frey (1985); Aseidu (2004); (Beirhanu and Kibre, 2003) The thesis Thesis uses the variable of control of corruption - Both ways No significance Financial Crisis Crisis 2008 - Aseidu (2004); (Mauro 1995); (Tanzi and Davoodi 1997); (Gupta, Davoodi, and Alonso-Terme 1998; Li, Xu, and Zou 2000); Abed and Davoodi (2000) Houston; Swaleheen and Stansel (2007); Akçay (2001) Thesis Previous studies has not told about crisis 18 2.3.5.2 In terms of sample comparing developing countries across continents In this section, the writer will employ a completely new approach compared to previous studies That is studying the impact of some factors on FDI into developing countries allocated over various regions The full model will be run on four samples of different continents, where there are common things among certain recipient countries In order to have a general view on the magnitude of effect of such factors, the writer shall use data of Eastern Europe, mainly from the Community of Independent Countries According to World Bank, these countries have a relatively higher development level than the average of all developing countries The econometrics models obtained are shown in tables as follows, with Asian developing economies coming first: LnFDIi,t^ = 12.04 + 1.02lnGDPpercapi,t-1 + 0.11lnPOPi,t-1 + 0.11lnEDUCi,t-10.21Polista i,t-1 -1.43Corrupi,t-1+ 0.17Crisis In Africa: LnFDIi,t^= - 42.2 + 1.16lnGDPpercapi,t-1 + 3.29lnPOPi,t-1 + 0.91lnEDUCi,t-1 0.04Polista i,t-1 -1.30Corrupi,t-1 - 0.53Crisis In Latin America LnFDIi,t^= -138.9 + 1.43lnGDPpercapi,t-1 + 9.21lnPOPi,t-1 - 0.18lnEDUCi,t-1 0.25Polista i,t-1 -0.45Corrupi,t-1 - 0.46Crisis In Eastern Europe LnFDIi,t^= 9.54 + 0.71lnGDPpercapi,t-1 + 0.40lnPOPi,t-1 - 0.79lnEDUCi,t-1 + 1.19Polista i,t-1 + 1.53Corrupi,t-1 - 0.33Crisis Table 30: Regression results by geographical areas Dependant variable:ln(FDI) i,t Independant variables Const Asia Africa Latin America Eastern Europe 12.04 (0.011)** -42.22 (0.364) -138.91 (0.001)** 9.54 (0.023)* Ln(GDPpercap) i,t-1 1.02 (0.000)*** 0.11 (0.076)* 0.11 (0.051)* 1.16 (0.038)** 3.29 (0.083)* 0.91 (0.050)** 1.43 (0.000)*** 9.21 (0.001)** -0.18 (0.530) 0.71 (0.017)** 0.40 (0.007)** -0.79 (0.040)** -0.21 (0.057)* -1.43 (0.038)** -0.04 (0.026)** -1.30 (0.078)* -0.25 (0.022)** -0.45 (0.062)* 1.19 (0.015)** 1.53 (0.024)** 0.17 (0.011)** 0.41 119 -0.53 (0.082)* 0.20 213 -0.46 (0.096)* 0.36 101 -0.33 (0.008)** 0.63 76 Ln(Pop) i,t-1 Ln(Educ) i,t-1 Ln(Polistab) i,t-1 Ln(Corrup) i,t-1 Crisis R2 No of observations 19 Note Figures in bracket are p-values *, ** and *** are 10%, 5% and 1% level of significance respectively In term of the variable representing financial crisis and world economic downturnCrisis: In Asia, FDI flows on average are higher during crisis than that in normal conditions, shown by a positive coefficient of 0.17 In other words, crisis has raised the FDI into Asia by 17% on average However, the situation is different in other continents: Crisis has reduced FDI inflows to Eastern Europe by 33% on average, 53% in Africa and 46% in Latin America, which are statistically significant at 90% level of confidence This outcome is contradicting with the theory but perfectly matching the reality Of all developing economies in the world, during the period of crisis and economic slowdown, Asian countries still witnessed an increasing trend in FDI inflows, while that of other regions follows an inverted direction Among continents, a comparison is not easy to be made to compare the impact magnitude of each variable on their FDI inflows Nevertheless, this task is much easier in comparing countries of the same region 2.3.6 Some comments from the econometrics model Firstly, it can be said that Quantitative Research Method in the dissertation is not new in the world but still considered to be quite unfamiliar in Vietnam The construction of the models, selecting variables as well as database require a lot of time to be spent and effort to be made Samples are to be large enough in order for the results to have the high confidence interval But the outcome resulted from different regression of samples and models is just relatively true The reasons could be the construction of variables in the models has not been completely correct or multicollinearity occurs among variables, or simply in some developing countries samples, we miss out some variables (for instance, inflation or average wages) Moreover, factors affecting FDI are, theoretically, completely rational but in reality, measuring the specific impacts of each factor on FDI flows into these countries is not simple Secondly, in all samples, one general statement is that population and income per capita factors have considerable impacts on FDI flows into developing countries, which is suitable with theories about the impacts of market size and ability to expense on decisions of foreign direct investors Furthermore, in some researched data, education factor have positive effect, reflecting the trend of searching FDI flows on high quality resource Resulting from statements mentioned above, policy orientation can be designed to enhance the positive impacts of factors which strongly affect FDI including labor, market, political stability, transparency, etc and limit the negative impacts of factor discouraging capital flows like corruption and political and macroeconomic instability 20 Thirdly, when studying geographical regions independently, we can omit their impacts on attracting the capital flow because all nations in the researched sample belong to the same region One of significant results are in relatively more developed countries, such as Eastern Europe, political stability and corruption control variable have positive impacts on attracting FDI, which perfectly suits the assumption as well as the reality However, political stability and corruption have adverse effect or not clear on FDI capital flow in developing countries in other areas where economic development standard is relatively lower, legal framework is comparatively weaker, which is totally suitable for the reality of some nations That foreign investors in general and multinational and transnational co-operations in particular are willing to spend money is not significant in comparison with the profit returned when gaining profitable contracts or special priorities from the local officials is not alien Many researchers as well as enterprises call such amount “lubricant fee” and accept legalization (though illegalized) the expenses in business or daily life Thus should developing countries in the world legalize such expense in their own legal system? Fourthly, in the above econometrics models, Vietnam is only a country in the random sample Hence, the model results could not be a strong basis for us to draw a certain conclusion about the impact of FDI inflows on Vietnamese economy However, basing on such outcome, the writer will make some recommendation and proposals to developing countries by means of influencing the FDI’s determinants in the way that it could improve this capital inflow The next chapter of this work will finish such task as well as express the writer’s idea about policy orientation and specific solutions for particular cases applied to Vietnam Table 31: Determinants of FDI into developing countries by geographical areas Determinants Variable Asia Latin Africa Eastern of FDI America Europe Population + + + + GDP per cap + + + + Education level + - No significance + Political Stability - + - - 5.Control of corruption - + - - Financial crisis + - - - In summary, research methods for econometric models to determine the impact of factors affecting FDI flow into developing countries is a new research method is applied in the current economic research However, there are some disadvantages when applied in the research methods of the models in the thesis First, the absence of a number of other factors that affect FDI inflows in the model, such as the effectiveness of investment promotion programs, geographic location near major ports or port states and legislation on intellectual property rights can make the results misleading Second, data on the variables are not statistically adequate in many developing countries, this reduces the size of the observation, reducing the reliability of the results Third, a number of data variables, especially data related to FDI into the developing countries were updated by the World Bank in different times could vary The data are published 21 later is more accurate and reliable than the previous year high But when doing research model, graduate students can not be updated to the latest data and more accurate data was updated in 2012 Therefore, the accuracy of the results derived from the model will only relative CHAPTER 3: IMPLICATIONS FOR VIETNAM TO IMPROVE TO IMPROVE THE ATTRACTION OF FDI IN THE NEXT FUTURE 3.1 FORECAST ABOUT PROSPECTS AND CHALLENGES FOR FDI INTO DEVELOPING COUNTRIES 3.1.1 Some characteristics relating the FDI inflow into developing countries in the next future 3.1.1.1 FDI inflows are and will continue to be negatively affected by the financial crisis and global economic downturn 3.1.1.2 The developing world is increasingly more important role as both the host country and home country investment investment 3.1.1.3 The state-owned corporations play an increasingly important role in international investment in the context of the financial crisis and global economic downturn 3.1.1.4 FDI trends into processing industries 3.1.2 Prospects and challenges for FDI flows into developing countries 3.1.2.1 The prospects 3.1.2.2 Regarding challenges - For investors into the developing countries - For recipient developing countries 3.2 CURRENT SITUATION OF THE FDI INFLOW INTO VIETNAM 3.2.1 Overview of the FDI inflow in Vietnam 3.2.2 Some advantages and challenges for Vietnam in attracting FDI 3.2.2.1 The advantages - On credibility - The advantage of the implementation of international commitments in the WTO - The other advantage 3.2.2.2 Some specific challenges for Vietnam Firstly, the macroeconomic environment still existing many subjective and objective uncertainties Secondly, despite efforts from management agencies, policy makers, but the administrative procedures in Vietnam are still cumbersome and complicated Thirdly, the system of policies, especially the laws relating to FDI are missing, and not effective Fourthly, the infrastructure is not yet complete, the quality did not meet the requirements of investors The upgrading of the physical infrastructure of Vietnam still lacking and there are critical infrastructures, such as inter-provincial roads, bridges, culverts 22 Finally, the quality of human resources is not meeting the demand of economic integration In summary, with respect to attracting foreign direct investment, there are two key issues posed for developing countries, including Vietnam: (1) how to drive more foreign direct investment, especially into countries with the lowest income levels, and (2) how to ensure that these investments will be translated into sustainable development outcomes 3.3 SOME SPECIFIC RECOMMENDATIONS FOR VIETNAM FOR IMPROVING THE ATTRACTION OF FDI 3.3.1 The point of views about the orientation of attraction of FDI into Vietnam until 2030 Firstly, FDI policy should actively seek funding sources, especially FDI to serve the goals of industrialization and modernization of the country Secondly, the implementation of strategies to selectively attract FDI Thirdly, FDI policies need to be improved through strengthening investment promotion Finally, FDI policy should be consistent with international law and the new economic context 3.3.2 Some specific recommendations for Vietnam to improve the attraction of FDI in the next future 3.3.2.1.Lien factors relating to the international macroeconomic environment a Continue to strengthen economic integration into the world b Continuation of measures to deal with the financial crisis and global economic downturn 3.3.2.2.Recommendations relating to the impact of country specific factors in Vietnam a The immediate recommendations Firstly, continue to tighten the registration of FDI Secondly, focus on macro-economic instability, with particular emphasis on stability, control inflation and stabilize the exchange rate Thirdly, in the context of crisis and economic recession, Vietnam needs to find additional sources of foreign direct investment in new technology should consider leveraging the expansion of foreign direct investment from countries other developing countries or economies in transition b.Long-term recommendations Medium and long term strategy of the Party and the State is in 2020, basically our country becomes industrialized, modernized To serve this purpose, the role of FDI is very important Foreign direct investment inflows are meaningful and long-term investment which is not as flexible as indirect factors, and has long-term impact, will play more significant role The recommendations concerning the factors affecting FDI to enhance the efficiency in attracting FDI for industrialization, modernization and sustainable development, including: - Factors related to human resources Firstly, Vietnam needs to improve the quality of human resources through training, skills development, improve the quality of the population, improving income 23 Secondly, the need to enlist the help and cooperation from the country investors and multinational companies through the development of effective policy framework or technology transfer and human resource development at the same time the policy should enabl employees to improve education, continue to promote the preferential policies for tuition for pupils and students Responsibilities associated with investment in training are neccessary Investors should continue to train human resources with funding from the state budget or from major investors and employees Thirdly, navigation training thinking that the market should not train its means, ie to switch to training needs of businesses, especially FDI State relationship - business, the State should develop policies to support workforce training for businesses, such as cutting tax for the firms having self-trained technical resources, tax exemption with the goods, business equipment that serves the purpose of importing trained technical manpower of high quality, enhanced information for businesses, promoting and improving the relationship between foreign investors outside and the training facilities, schools - Factor related to the investment environment, infrastructure and political stability Firstly, the need to continue to improve the investment environment, improve economic institutions Secondly, the Government of Vietnam should have policies to provide better public services through improved infrastructure system Thirdly, improve the environment of investment by enhancing political factors Finally, the implementation of policies to remove administrative barriers to FDI -Concerning the natural resources Firstly, make the most of non-renewable resources, avoiding waste Many natural resources are non-renewable or mostly nonrenewable such as minerals, oil should be exploited carefully, avoiding waste Secondly, to enhance policies of mining use, recovery resources are renewable resources such as forests, water resources and marine products, forestry products Thirdly, look to deploy orientation of direct investment is not intended to into exploitation of natural resources, especially non-renewable resources This is one of the undertakings, the general policy of the State of Vietnam did and are doing Specifically, enhanced FDI into industry from normal processing industries to processing industries using high technology such as electronics, telecommunications, manufacturing machinery In addition, Vietnam should also focus on improving local content in products made by FDI enterprises, avoid exporting raw and semi-processed products Building materials, material inspection center, participate in exchanges of international materials, actively participate in international cooperation on environmental protection Finally, the need to strengthen measures to protect the environment, mounting responsibilities of investors with national standards relating to the environment and in line with international practices - Factors Related to Corruption Firstly, the salary and incentive payments account for transactions related to FDI public Secondly, public property officers and employees related to FDI 24 Thirdly, strengthen the monitoring mechanism, monitoring behavior, lifestyle of the administrative staff of the state related to FDI Fourthly, the need to raise the salaries of staff in general, staff in customs enforcement officials say the private investment license Fifthly, to legalize lubrication in charge of economic activities, especially FDI activities Finally, it called for the support of all the people in the fight against corruption 3.3.2.3 Group recommendations concerning a number of other factors that affect FDI Firstly, promote the improvement of the institutional and economic goals for the country's economic development Secondly, to take advantage of favorable geographical position, to built new ports Finally, other factors such as the enforcement of intellectual property rights, the privatization process, the level of democracy in the economy also affects the inflow of foreign direct investment into developing countries Specifically, Vietnam needs to strengthen legal systems relating to intellectual property rights, in particular intellectual property rights related to FDI and enhance market liberalization, accelerate the process of privatization, sustain democracy in the economy in order to create a favorable investment environment to attract more efficiently FDI 25 D CONCLUSION Effective attraction of FDI is one of important objectives of all countries in the context of the current international integration However, in order to attract FDI for economic development, recipient developing countries need to identify the factors that affect capital flows so that by changing the factors that attracted efficiency FDI results, especially in the context of crisis and world economic downturn On the basis of a baseline study of factors affecting FDI of factors including the overall impact, the impact factor approach from the perspective of the investor and the factors affecting recipient countries, Post graduant build economic regression model with the variables having the actual value collected in panel data and by the method of regression models to verify impacts of some factors affecting this capital flows These conclusions agree with previous studies concerning major factors affecting foreign direct investment such as population size, education levels, purchasing power have positive impact on FDI into developing countries Basically, FDI into developing countries still preferred market size, cheap labor, but tend to change: the investment which prefers workforce qualification plays more and more important role In addition, the political stability also influence investors' decisions As for corrupt elements, this is a social and economic phenomenon complex and psychological factor So government should promote transparency of the transaction, especially publicly, legalize the expenses that has long not been clarified Post graduante has also mentioned some recommendations for strengthening the attraction of FDI through improving the effective impact of factors affecting capital flows, such as capacity building of the workforce, strengthening internal unity and international solidarity to political stability and legalization fee lubrication Currently, the databes are small, so the effect of research on the determinants of FDI in the country over time is not feasible (too few sample observations), some important variables are missing In the future, when the database will be more complete, post graduante will conduct new research with the samples of individual countries In addition, post graduante will add additional variables to the model, reflecting the impact of other factors such as salary rates, geographic location, historical factors (already colonized or not investment in the host country), the language factor (labor skills, English is native languegue or not), the privatization, especially the effectiveness of programs to promote investment in the investment [...]... FDI flows into developing countries 3.1.2.1 The prospects 3.1.2.2 Regarding challenges - For investors into the developing countries - For recipient developing countries 3.2 CURRENT SITUATION OF THE FDI INFLOW INTO VIETNAM 3.2.1 Overview of the FDI inflow in Vietnam 3.2.2 Some advantages and challenges for Vietnam in attracting FDI 3.2.2.1 The advantages - On credibility - The advantage of the implementation... from the model will only relative CHAPTER 3: IMPLICATIONS FOR VIETNAM TO IMPROVE TO IMPROVE THE ATTRACTION OF FDI IN THE NEXT FUTURE 3.1 FORECAST ABOUT PROSPECTS AND CHALLENGES FOR FDI INTO DEVELOPING COUNTRIES 3.1.1 Some characteristics relating the FDI inflow into developing countries in the next future 3.1.1.1 FDI inflows are and will continue to be negatively affected by the financial crisis and global. .. related to the criteria of infrastructure is included in the appendix of the thesis It can be said that these criteria have not demonstrated the superiority of this country compared with other countries concerning the infrastructure in attracting FDI For example, India and China are the two most populous countries in the world; therefore the travel need of the people is much higher than in many other countries. .. effects of factors onFDI inflow into the developing countries The studied results and the previous reseachs on the general model of developing countries are shown in table 29 below Table 29: Impact of determinants of FDI into developing countries (comparing with previous studies) Determinants Variables Impact Authors 17 A Economic factors 1 Concerning the Market Total Population + Alan A Bevan and Saul... members are developing countries That the developing countries try to integrate deeply into the world economy represents the dynamics of each country when participating in the large playground in the world Because most developing countries have been participating into the WTO, it would not be easy to determine the degree of integration into the world economy of each country to find out that how the elements... Congress) In addition, Vietnam is also rich in forest and sea resources This is the big advantage for our country to foster the economy Details of natural resources of all the developing countries, including Vietnam, are summarized in Annex 3 of the thesis -The economic openness of recipient countries Among the factors affecting the FDI attractiveness of each country, the opening of the economy must be included... level in the developing recipient countries LnEduc reflects skill level of human capital in the developing recipient countries LnGDPpercap reflects income per capita in the developing recipient countries LnCorrup reflects the state of corruption controlling in the developing recipient countries The D variable reflects financial crisis and economic recession 2.3.3 Introduction to model database The database... global economic downturn 3.1.1.2 The developing world is increasingly more important role as both the host country and home country investment investment 3.1.1.3 The state-owned corporations play an increasingly important role in international investment in the context of the financial crisis and global economic downturn 3.1.1.4 FDI trends into processing industries 3.1.2 Prospects and challenges for FDI. .. negative impact on all aspects of economic life, including attracting FDI 2.3 EVALUATION OF THE IMPACTS OF SOME DETERMINANTS ON FDI INTO DEVELOPING COUNTRIES BY ECONOMETRIC MODEL 2.3.1 The economics of model 2.3.2 Regression equation and variables of the model 14 The model reflects the relationship between variables which impact on FDI inflow into developing countries LnFDIi,t = α0 + α1 LnPop + α2 LnEduc... in the developing countries in terms of the theory as mentioned in Chapter 1 is one of the factors that influence the decisions of foreign direct investment Now, armed conflicts, civil wars, border disputes occurring in many parts of the world The conflict, in particular the large-scale conflict could bring more serious consequences for the country where the conflict on the economy in general and in