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Quantifying productivity gains from foreign direct investment: The mediating role of provincial institutional quality

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  • Hiep, Tran Duc
  • Trung, Bui Hoang
  • Van Chien, Le

Abstract

This study contributes to the literature by examining for the first time the influence of foreign direct investment (FDI) and institutional quality on productivity in Vietnamese provinces. Using the generalized method of moments (GMM) method on a large panel dataset from 2010 to 2019, we discover that FDI has a considerable beneficial influence on productivity. When institutional quality is considered, however, provinces with higher-quality institutions do not experience a significant benefit from FDI on productivity. The study also shows that considering productivity as an aggregated index can make it difficult to see the true impact of FDI on productivity.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:finlet:v:49:y:2022:i:c:s1544612322003877
    DOI: 10.1016/j.frl.2022.103174
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    More about this item

    Keywords

    FP index; Institutional quality; Productivity; Decompositions;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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