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The impact of free trade agreements on FDI inflows: the case of Vietnam

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  • My Duong
  • Mark J. Holmes
  • Anna Strutt

Abstract

We examine the relationship between FTAs and inward FDI in Vietnam using panel data for Vietnam’s 17 main foreign investors over the period 1997–2016, and 23 partners for the sub-period 2005–2016. In contrast to past studies that focus on either multiple FTAs for a group of countries or case studies for a well-known FTA, we evaluate whether the overall involvement in FTAs of a developing country such as Vietnam increases FDI inflows. Results from gravity models strongly indicate that FTAs, overall, are associated with increased FDI inflows, with a much greater impact in the sub-period. We also find evidence of the prevalence of vertical FDI in Vietnam. Further examination of the later sub-period shows that FTAs also have a significant effect on inward FDI through interactions with the real exchange rate, human capital, and factor endowments. Interestingly, all of the three FDI determinants have more important roles following the FTAs.

Suggested Citation

  • My Duong & Mark J. Holmes & Anna Strutt, 2021. "The impact of free trade agreements on FDI inflows: the case of Vietnam," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 26(3), pages 483-505, July.
    • Handle: RePEc:taf:rjapxx:v:26:y:2021:i:3:p:483-505
    DOI: 10.1080/13547860.2020.1765717
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    Cited by:

    1. Chengwei Xu & Guanie Lim, 2024. "Global Britain, Belt and Road Initiative, and New Southbound Policy: Which One Matters to Southeast Asia?," GRIPS Discussion Papers 24-05, National Graduate Institute for Policy Studies.
    2. Ashraf Mishrif & Asharul Khan, 2024. "Do Free Trade Agreements Facilitate FDI Spillover Effects on Domestic Firms? Empirical Evidence from Oman," Economies, MDPI, vol. 12(6), pages 1-23, June.
    3. Shan Jayasinghe & Lester W. Johnson & Nilan Udayanga & Lakshitha Kumarapperuma & Sanath Ranjitha, 2023. "Drivers Enabling Developing Countries to Enter High-Tech Production Networks through Global Production Sharing: Evidence from Malaysia, Taiwan, and Vietnam," Sustainability, MDPI, vol. 15(3), pages 1-16, January.
    4. Mohd Shahidan Shaari & Muhamad Huzaifah Asbullah & Noorazeela Zainol Abidin & Zulkefly Abdul Karim & Benjamin Nangle, 2023. "Determinants of Foreign Direct Investment in ASEAN+3 Countries: The Role of Environmental Degradation," IJERPH, MDPI, vol. 20(3), pages 1-14, January.

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