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Impact of Foreign Direct Investment on Economic Growth in Vietnam

Nguyen Huu Cung

Advances in Management and Applied Economics, 2020, vol. 10, issue 2, 6

Abstract: Foreign investment plays an important role in the socio-economic development of each country, in which FDI flows always give top priority in developing countries like Vietnam. The empirical method was employed on a secondary time series data set during the period 1995-2018 to determine the impact of FDI (net inflows) on economic growth in Vietnam by using a linear approach. An empirical model was built by a regression analysis between a dependent variable (GDP, current) and five independent variables (FDI, Export, Financial Freedom Index, Investment Freedom Index, Inflation). The empirical results find that the relationship between FDI (net inflows) and GDP (current) is a positive sign at 1% significance level, and the impact of FDI (net inflows) on economic growth is strongest. Export of goods and services (% of GDP) has a positive effect on GDP (current) at the 1% significance level. The financial freedom index has a positive effect on GDP (current) at the 5% significance level. Investment freedom index has a negative effect on GDP (current) at the 1% significance level. Moreover, the study also shows that the annual inflation rate has a negative effect on GDP (current) at the 10% significance level. Based on the findings, the article recommends that Vietnam continues to seek positive solutions to enhance the economic growth rate via attracting FDI inflows, increasing exports of goods and services, improving financial freedom index and investment freedom index, controlling inflation.  JEL classification numbers: E2, F3, O1, O4 Keywords: GDP, FDI, Foreign Investment, Vietnam

Date: 2020
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