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Relative costs and FDI: Why did Vietnam forge so far ahead?

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  • Le, Thai-Ha
  • Tran-Nam, Binh

Abstract

Foreign direct investment (FDI) into Southeast Asia has grown at impressive rates in recent years, with Vietnam exhibiting the fastest growth rate in the region. There are a growing number of studies that have explained FDI inflows into Vietnam both at the macro and the provincial levels. This study builds on this line of research by investigating the role of relative wages and relative productivity of Vietnam vis à vis other countries in the region, which hold similar locational advantages like Vietnam. The underlying premise is that a multinational corporation (MNC) has a choice between investing in two similar countries and chooses one country (Vietnam) rather than the other based on relative costs and benefits. Using a panel dataset spanning from 2000 to 2015, the study finds that during the recent years of transition, high level of FDI inflows into Vietnam could be explained mainly by the relatively skilled workforce, combined with low wages as compared to her neighboring countries in the region.

Suggested Citation

  • Le, Thai-Ha & Tran-Nam, Binh, 2018. "Relative costs and FDI: Why did Vietnam forge so far ahead?," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 1-13.
    • Handle: RePEc:eee:ecanpo:v:59:y:2018:i:c:p:1-13
    DOI: 10.1016/j.eap.2018.02.004
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    2. Nguyen, Trung Thanh & Nguyen, Thanh-Tung & Hoang, Viet-Ngu & Wilson, Clevo & Managi, Shunsuke, 2019. "Energy transition, poverty and inequality in Vietnam," Energy Policy, Elsevier, vol. 132(C), pages 536-548.
    3. Hoang Viet Nguyen & Thanh Tu Phan & Antonio Lobo, 2019. "Debunking the Myth of Foreign Direct Investment toward Long-Term Sustainability of a Developing Country: A Transaction Cost Analysis Approach," Sustainability, MDPI, vol. 11(17), pages 1-26, August.
    4. Hiep, Tran Duc & Trung, Bui Hoang & Van Chien, Le, 2022. "Quantifying productivity gains from foreign direct investment: The mediating role of provincial institutional quality," Finance Research Letters, Elsevier, vol. 49(C).
    5. Nguyen, Trung Thanh & Nguyen, Thanh-Tung & Hoang, Viet-Ngu & Wilson, Clevo, 2019. "Energy transition, poverty and inequality: panel evidence from Vietnam," MPRA Paper 107182, University Library of Munich, Germany, revised 10 May 2019.
    6. Ismaila Adeleye Okunoye & Emeka O. Akpa & Bamidele Boluwatife & Maxwell Jimmy, 2023. "Does Global Economic Uncertainty Affect Foreign Direct Investment? Evidence From Asian Emerging Markets," Asian Economics Letters, Asia-Pacific Applied Economics Association, vol. 4(2), pages 1-4.
    7. Nguyen, Trung Thanh & Do, Manh Hung, 2021. "Impact of economic sanctions and counter-sanctions on the Russian Federation’s trade," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 267-278.
    8. Ming Zhong & Jingjing Yu & Syed Anees Haider Zaidi, 2024. "Investigating the Impact of Financial Inclusion on Energy Consumption: Does Corruption Matter?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 8797-8814, June.
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    More about this item

    Keywords

    Foreign direct investment; Relative labor costs; Labor productivity; Vietnam;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F2 - International Economics - - International Factor Movements and International Business
    • J39 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Other

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