Does Foreign Direct Investment Really Support Private Investment in an Emerging Economy? An Empirical Evidence in Vietnam

Le Thanh Tung

Montenegrin Journal of Economics, 2019, vol. 15, issue 1, 7-20

Abstract: Vietnam is an emerging economy which also is one of the most successful countries in attracting foreign direct investment over decades. Some studies have shown that foreign direct investment playing an important role in supporting economic growth in Vietnam. However, there have not got clear evidence about the effect of the foreign direct investment on private investment in this economy. Our paper tries to investigate the impact of foreign direct investment on private investment in Vietnam by the Error correction model. The quarterly dataset is collected in the period of 2003-2017. The estimated results show that foreign direct investment, as well as the GDP per capita, have positive impacts on private investment in both the short and long run. So the crowds-in hypothesis is confirmed in the case of the Vietnamese economy. On the other hand, we see that inflation can harm private investment and its impact level in long run is smaller than the short run. Finally, the export balance has a negative effect on private investment, however, the coefficients are not enough statistical significance implying that international trade maybe did not help to support the private investment because of the trade deficit prolong during the period.

Date: 2019
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