THE EFFECTS OF FDI ON THE LABOR MARKET OF ASEAN COUNTRIES

1 MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS THE EFFECTS OF FDI ON THE LABOR MARKET OF ASEAN COUNTRIES Specialization: International TradePolicy and Law HO THI HONG NGAN Hanoi - 2019 MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS THE EFFECTS OF FDI ON THE LABOR MARKET OF ASEAN COUNTRIES Specialization: International Trade Policy and Law Full name: Ho Thi Hong Ngan Supervisor: Dr Nguyen Thi Viet Hoa Hanoi - 2019 DECLARATION I hereby declare that this master thesis is the scientific research of my own which made on the basis of theoretical studies, field surveys and under the direction and supervision ofDr Nguyen Thi Viet Hoa The research contents and results of this thesis are completely honest These data and documents for the analysis, review and evaluation were collected from various sources which are fully listed in the reference list I am fully responsible for the content of this master thesis as well as this declaration Hanoi, 21 February 2019 Author Ho Thi Hong Ngan ACKNOWLEDGEMENT During the completion of this master thesis, I received the guidance and valuable help from the lecturers, siblings and friends With great respect and deep gratitude, I would like to express sincere thanks to: Dr Nguyen Thi Viet Hoa who wholeheartedly helped, supported and encouraged me from the initial to the final level of this dissertation She provided me with comprehensive guide from choosing the topic, outlining the thesis and editing this research Professors and lecturers from FTU as well as World Trade Institute in the Master of International Trade Policy and Law Intake Four, who not only spread profound knowledge and information in the fields of economy and law but generated strong motivation for me while I was taking this course as well Last but not least, I would like to express my sincere thanks to my family, my colleagues and my friends, who have always by my side encouraging, supporting, contributing valuable ideas and giving me favorable conditions for me to complete this scientific research TABLE OF CONTENTS DECLARATION ii ACKNOWLEDGEMENT iiii LIST OF ABBREVIATIONS vivi LIST OF FIGURES viiiviii SUMMARY OF THESIS RESEARCH RESULTS ixix In some certain aspects, the author has answered all the questions which have been raised when considering about the topic.The characteristics of foreign direct investment and labor market have been listed and analyzed carefully The effects of foreign direct investment (FDI) on the labor market of ASEAN countries are quite mixed and need to be further analyzed by in-depth models In general, FDI has brought positive impacts on the labor market of ASEAN countries, but these effects are not well adapted due to both subjective and objective reasons The labor force of ASEAN still faces a lot of difficulties in taking advantage of huge FDI capital from outside Therefore, some solutions have been proposed to help ASEAN labor force in general and Vietnamese labor in particular get access to this type of investment and gradually raise their capabilities to work abroad .ixix CHAPTER 1: INTRODUCTION .11 1.1 Research Rationale 11 1.2 Literature Review 44 1.3 Research objectives 77 1.4 Research questions 77 1.5 Scope of research .88 1.6 Research methodology 88 1.7 Thesis outline .88 CHAPTER 2: THE THEORETICAL FRAMEWORK OF THE EFFECTS OF FDI ON THE LABOR MARKET 1010 2.1 Fundamentals of FDI 1010 2.1.1 The concept of FDI 1010 2.1.2 Characteristics of FDI .1212 2.1.3 Classification of FDI .1313 2.2 Fundamentals of labor market .1515 2.2.1 The concept of labor market 1515 2.2.2 Composition of labor market 1817 2.2.2.1 Labor supply 1817 2.2.2.2 Labor demand .2020 2.2.2.3 Labor cost .2120 2.2.3 Functions of labor market .2221 2.2.4 Characteristics of labor market .2222 2.2.5 Classifications of labor market 2626 2.3 Theoretical framework of the effects of FDI on the labor market .2827 CHAPTER 3: EFFECTS OF FDI ON THE LABOR MARKET OF ASEAN COUNTRIES 3030 3.1 Current situation of FDI into ASEAN countries 3030 3.1.1 ASEAN is one of the most attractive destinations for foreign investment of the world 3030 3.1.2 Major Powers in the world invest more in ASEANdue to the strong internal force .3131 3.2 Current situation of the labor market of ASEAN countries .3535 3.2.1 Abundant and young labor force .3535 3.2.2 Lack of skilled workers 3737 3.2.3 Facing a lot of difficulties 3838 3.3 Effects of FDI on the labor market of ASEAN countries 3939 3.3.1 Effects of FDI on labor cost 4040 3.3.2 Effects of FDI on labor demand……………………………………….44 3.3.3 Other effects of FDI 4445 3.3.3.1 Effects on productivity 4445 3.3.3.2 Effects on inequality 5252 3.3.3.3 Effects on working environment 5858 CHAPTER 4: RECOMMENDATIONS FOR VIET NAM ‘S LABOR MARKET 6263 4.1 Perspectives of attracting FDI into Viet Nam 6263 4.1.1 Top investment destination in ASEAN 6263 4.1.2 Focus on the quality of FDI projects 6364 4.2 Some experiences from ASEAN countries 6565 4.3 Recommendations for attracting FDI to strengthen the positive effects of FDI on the labor market of Vietnam 6869 4.3.1 Promote the investment environment of Vietnam to attract FDI inflow 6970 4.3.2 Hold annual meetings/seminars to exchange and learn between Vietnamese and foreign businesses and vice versa to increase joint ventures 7171 4.3.3 Encourage the use of Vietnamese labor at all levels of management in the FDI enterprises 7273 4.3.4 Introduce foreign universities / vocational schools to invest in Vietnam to improve the quality of education in Vietnam 7374 4.3.5 Promulgate legitimate policies to protect the right of labor force 7475 4.3.6 Raising awareness of the workers about MRAsand exploring the possibility of extending MRAS to more sectors 7576 4.3.7 Reducing protection for domestic labor in AEC .7777 CHAPTER 5: CONCLUSION .7879 REFERENCES 8283 DECLARATION i ACKNOWLEDGEMENT ii LIST OF ABBREVIATIONS vi LIST OF FIGURES viii SUMMARY OF THESIS RESEARCH RESULTS ix CHAPTER 1: INTRODUCTION 1.1 Research Rationale 1.2 Literature Review 1.3 Research objectives 1.4 Research questions 1.5 Scope of research 1.6 Research methodology 1.7 Thesis outline CHAPTER 2: THE THEORETICAL FRAMEWORK OF THE EFFECTS OF FDI ON THE LABOR MARKET 10 2.1 Fundamentals of FDI 10 2.1.1 The concept of FDI .10 2.1.2 Characteristics of FDI 12 2.1.3 Classification of FDI .13 2.2 Fundamentals of labor market 15 2.2.1 The concept of labor market 15 2.2.2 Composition of labor market 17 2.2.2.1 Labor supply 17 2.2.2.2 Labor demand 20 2.2.2.3 Labor cost 20 2.2.3 Functions of labor market .21 2.2.4 Characteristics of labor market .22 2.2.5 Classifications of labor market 26 2.3 Theoretical framework of the effects of FDI on the labor market 27 CHAPTER 3: EFFECTS OF FDI ON THE LABOR MARKET OF ASEAN COUNTRIES 30 3.1 Current situation of FDI into ASEAN countries 30 3.1.1 ASEAN is one of the most attractive destinations for foreign investment of the world .30 3.1.2 Major Powers in the world invest more in ASEAN due to the strong internal force 31 3.2 Current situation of the labor market of ASEAN countries 35 3.2.1 Abundant and young labor force 35 3.2.2 Lack of skilled workers 37 3.2.3 Facing a lot of difficulties .38 3.3 Effects of FDI on the labor market of ASEAN countries 39 3.3.1 Effects of FDI on labor costwages 40 3.3.2 Effects of FDI on productivity 43 3.3.2.1 The case of Viet Nam .44 3.3.2.2 The case of Thailand 48 3.3.2.3 The case of Indonesia .49 3.3.3 Effects of FDI on inequality 51 3.3.4 Effects of FDI on working environment .57 CHAPTER 4: RECOMMENDATIONS FOR VIET NAM ‘S LABOR MARKET 61 4.1 Perspectives of attracting FDI into Viet Nam 61 4.1.12 Top investment destination in ASEAN 61 4.1.2.3 Focus on the quality of FDI projects 62 4.2 Some experiences from ASEAN countries 63 4.3 Recommendations for attracting FDI to strengthen the positive effects of FDI on the labor market of Vietnam 67 4.3.1 Promote the investment environment of Vietnam to attract FDI inflow 68 4.3.2 Hold annual meetings/seminars to exchange and learn between Vietnamese and foreign businesses and vice versa to increase joint ventures 69 4.3.3 Encourage the use of Vietnamese labor at all levels of management in the FDI enterprises .71 4.3.4 Introduce foreign universities / vocational schools to invest in Vietnam to improve the quality of education in Vietnam 72 4.3.5 Promulgate legitimate policies to protect the right of labor force 73 4.3.6 Raising awareness of the workers about MRAs and exploring the possibility of extending MRAS to more sectors .74 4.3.7 Reducing protection for domestic labor in AEC 75 CHAPTER 5: CONCLUSION 77 REFERENCES 81 73 CHAPTER 5: CONCLUSION FDI is extremely pivotal to the developing economies, “with the enormous potential to create jobs, raise productivity, enhance exports and transfer technology, FDI is a vital factor in the long-term economic development of the developing countries” (UN, 2000) FDI provides employment open doors and job opportunities for host nation citizens Workers are paid higher wages and this empowers them to have an enhanced way of life New companies arise prompting the expanded improvement in production and manufacturing FDI enhances and improves trading assets and resources of the host nation Examination has demonstrated that, nations that get FDI from worldwide associations have lower financing costs, consequently their traded items are 74 much less expensive and this improves exports Increased capital inflow is generated by taxation in host nations is principally due to FDI as well In order to limit the challenges and grasp high quality labor mobility opportunities in ASEAN, the burden of finding a solution to this conundrum lies within the domain of the government and private sector Each member country's government should have solutions to liberalize the flow of skilled labor in the bloc According to Vineles, since both depend on a skilled labor force, cooperation by both sides is necessary in ensuring the workforce is industry-ready and competitive The solutions may be taken into account are as follows: For the government, it is necessary to promote the information and communication on AEC, especially on highly skilled labor and specific standards announced and applied by other ASEAN countries Each member country's government must vigorously undertake the planning and implementation of cross-border skilled labor liberalization Each country should voluntarily and seriously implement the agreements on mutual recognition Arranging and developing training institutions and vocational training centers to adapt to the conditions of establishment of the AEC, in which attention should be paid to language training in ASEAN countries Certificates of ASEAN-recognized agencies should be published for enterprises and people to access For enterprises, it is necessary to actively study the ASEAN market, including the labor market, in order to better understand the professional standards in order to build the plan of adaptation In addition, it is necessary to establish a system of highly skilled labor training companies of all kinds of trades announced by ASEAN and combine with training institutions and certification bodies to provide the best possible environment for workers entering the labor market in the AEC 75 Coordination between the public and private sectors is necessary in order to help private enterprises meet skill demands The government should play facilitator and also provide incentives to private companies that provide training to their employees Cooperation across the board – by the government and industry players – would be useful when determining emerging skills that are required by particular industries Vineles points to skills required by small and medium enterprises (SME) which provides between 60 and 97% of employment in the region “Strengthening the skills of the SME workforce should partly be by encouraging multinational companies and corporations to provide training schemes for them, especially that some of these enterprises supply components to the international manufacturers,” he added Besides that, governments should also emphasise the importance of technical and vocational education and training (TVET) It would help youths develop necessary skillsets so that they would be industry-ready upon entry into the workforce Governments in ASEAN should also be encouraged to recognise and enforce internationally accepted labor standards Indeed, to lift standards, local regulations and norms count as much as the activity of the FDI enterprise itself Furthermore, ASEAN should focus on investment in science and technology development, natural science ASEAN countries place importance on the necessity of science and technology in human resource development This is expressed through "ASEAN - Vision 2020" which sets long-term goals for development science and technology In order to overcome the shortage of scientific and technological staff, countries have adopted policies to promote the development of this field Some policies could be taken into consideration are as follows: 76 Firstly, each country should increase the number of teachers in the fields of science and technology to meet the requirements through various measures, such as granting scholarships to science and technology teachers as well as many social benefits for teachers Secondly, each member should increase the percentage of graduates in science and technology every year, while emphasizing the role of private sector in training scientific and technological officials and promote cooperation with foreign educational institutions Thirdly, each country could develop scientific and technological human resources through bringing students abroad to train on the basis of the government scholarship The goal of the project is to create leading science and technology experts in the highest priority areas of materials and energy technology, computers and electronics, basic science and technology Scholars will return to country to work in research and training institutions Gains in productivity are needed to ensure that ASEAN continues to remain competitive in the global economy Many workers in ASEAN have low levels of educational attainment and work in informal micro and small enterprises (MSEs) that are characterized by low levels of labor productivity and unregulated working conditions Moreover, the government's capacity for improving and expanding training facilitates is limited Knowledge of workplace strategies for improving productivity, such as work-time management, ergonomics, and health and safety measures, is also limited Policy interventions and the dissemination of best practices are urgently needed, including quality education and skills investment, as well as investment in improved organizational and managerial capacities, in order to promote productivity improvements Building a culture of workplace training 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ASEAN’s FDI to Viet Nam’, Tapchicongthuong Available at: http://tapchicongthuong.vn/thuc-trangthu-hut-von-dau-tu-truc-tiep-asean-vao-viet-nam20180620031043535p0c488.htm(Accessed: 22 August 2018) Khanh T, ‘Freedom of labor movement in ASEAN: What opportunities and challenges for Vietnamese businesses and Start-ups?’ Available at:http://cafef.vn/tu-do-di-chuyen-lao-dong-trong-asean-co-hoi-va-thachthuc-nao-cho-doanh-nghiep-va-start-up-viet-20160902142422208.chn, (Accessed: 8October 2018)‘’Available at: (A:) 87 Loan N.T.N, ‘The growth rate of labor productivity in Vietnam and the impact on FDI attraction’ Tap chi tai chinh Available at: http://tapchitaichinh.vn/nghien-cuu-trao-doi/toc-do-tang-nang-suat-laodong-cua-viet-nam-va-nhung-tac-dong-toi-thu-hut-von-fdi146903.html(Accessed: September 2018) Nguyen H, ‘Develop new strategies in FDI attraction’, nhandan Available at: http://www.nhandan.com.vn/baothoinay/baothoinaykinhte/item/36773402-xay-dung-chien-luoc-moi-trong-thu-hut-fdi.html, (Accessed: September 2018)Truong, ‘’ Available at: (A:)‘’FIA Available at: (A:)‘’FIA Available at: (A: ).‘’, FWW Available at: (Ac:)‘’ Available at:(A: )‘’VLR Available at: (A: )‘’Academia Available at: (A:)Loan N.T.N‘’ Tap chi tai chinh Available at: (A: )‘’nhandan Available at: (A: )Hung T.V‘’Tapchicongthuong (A:)‘’Vneconomy Available at: (A: )‘’Vlr Available at: (A:) Available at: ... framework of the effects of FDI on the labor market .2827 CHAPTER 3: EFFECTS OF FDI ON THE LABOR MARKET OF ASEAN COUNTRIES 3030 3.1 Current situation of FDI into ASEAN countries ... 3.3 Effects of FDI on the labor market of ASEAN countries 3939 3.3.1 Effects of FDI on labor cost 4040 3.3.2 Effects of FDI on labor demand……………………………………….44 3.3.3 Other effects of FDI. .. professional solution method 1.7 Thesis outline Chapter 1: Introduction Chapter 2: The theoretical framework of the effects of FDI on the labor market Chapter 3: Effects of FDI on the labor market