Determinants of Foreign Direct Investment attraction in 7 countries of Association of South East Asian Nations, 2022

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NGÂN HÀNG NHÀ NƯỚC VIỆT NAM BỘ GIÁO DỤC VÀ ĐÀO TẠO

TRƯỜNG ĐẠI HỌC NGÂN HÀNG TP. HỒ CHÍ MINH

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NGUYỄN KHÁNH DUY

DETERMINANTS OF FOREIGN DIRECT INVESTMENT

ATTRACTION IN 7 COUNTRIES OF ASSOCIATION OF SOUTHEAST

ASIA NATIONS

GRADUATE THESIS

MAJOR: FINANCE – BANKING

CODE: 7340201

LECTURER: Ph.D NGUYEN DUY LINH

Ho Chi Minh City, the year of 2022

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NGÂN HÀNG NHÀ NƯỚC VIỆT NAM BỘ GIÁO DỤC VÀ ĐÀO TẠO

TRƯỜNG ĐẠI HỌC NGÂN HÀNG TP. HỒ CHÍ MINH

--------------------------------------

NGUYỂN KHÁNH DUY

050606180064

DETERMINANTS OF FOREIGN DIRECT INVESTMENT

ATTRACTION IN 7 COUNTRIES OF ASSOCIATION OF SOUTHEAST

ASIA NATIONS

GRADUATE THESIS

MAJOR: FINANCE – BANKING

CODE: 7340201

LECTURER: Ph.D NGUYEN DUY LINH

Ho Chi Minh City, the year of 2022

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EXECUTIVE SUMMARY

Straightforwardly, foreign direct investment in developing countries has

continuously risen and it now plays a critical role in the prosperity of host countries.

As a result, research into the determinants that influence foreign direct investment

seems to be more urgent than ever. The objective of this thesis is to investigate the

determinants of FDI inwards attraction in seven countries of the Association of

Southeast Asia Nations by using a panel data approach. This thesis examines a sample

of 7 specific countries of ASEAN in the period from 2005 and 2021, estimating 7

variables which are market size, foreign exchange rate, labor salaries, infrastructural

development, economic openness, inflation rate, and financial development

(explained in more detail below) by using Fixed Effects Model approach.

Empirical results indicate that the variables of market size, foreign exchange

rate, labor salaries, and economic openness have an impact on FDI inflows. Besides,

this thesis has not yet found the influence of infrastructural development, inflation

rate, and financial development on abroad capital flows. Also, the author has not

studied the backward effect of FDI inwards on the aforementioned factors which is a

drawback of this thesis and needs to shed light on other research in the future.

Keywords: foreign direct investment, exchange rate, market size, trade openness

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GUARANTEE

This thesis is my own research work which I did under the supervision of Dr.

Nguyen Duy Linh. In addition, the data and research conclusions presented in this

thesis are completely truthful. To the best of my knowledge, the thesis contains no

material previously published or written by other people except where the reference

is made in the thesis itself.

Nguyen Khanh Duy

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ACKNOWLEDGEMENT

The graduate thesis is a synthesis of the knowledge gained during the four￾year study course at the Banking University of Ho Chi Minh City. In this process, I

have established a valuable knowledge foundation as a result of experiencing

teaching at the university. With that being said, I was conscientiously equipped to

conduct this thesis.

Although I possess the required knowledge to carry out the thesis, I still have

deficiencies that need to be pointed out and adjusted. Were there no assistance coming

from teachers and friends, I would never be able to undertake this thesis promptly.

Hence, this part is dedicated to expressing my gratitude towards every individual

involved in helping me to conduct the thesis.

First and foremost, I would like to wholeheartedly appreciate Dr. Nguyen Duy

Linh for helping me to formulate a categorical timetable to complete the thesis step

by step. Additionally, I was also accompanied by his expertise in adjusting the layout

of the thesis objectively and comprehensively. Therefore, I would like to express my

appreciation to him for providing sincere feedback to steer me in the right direction

in accomplishing my thesis adequately. I wish his blissful health to continue to mentor

and achieve the desired objectives in the near future.

I would also like to express my genuine thanks to the teachers who are

lecturing at Banking University of Ho Chi Minh City. During the learning process,

with sophisticated and state-of-the-art teaching methods, the teachers were able to

convey essential knowledge to me, as well as other students. Thanks to this, my

knowledge base has been further consolidated to create a solid academic foundation

to bolster this crucial thesis to bear fruit.

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TABLE OF CONTENTS

EXECUTIVE SUMMARY....................................................................................... i

GUARANTEE .......................................................................................................... ii

ACKNOWLEDGEMENT...................................................................................... iii

TABLE OF CONTENTS........................................................................................ iv

LIST OF TABLES ................................................................................................. vii

LIST OF FIGURES ............................................................................................... vii

LIST OF ABBREVIATIONS............................................................................... viii

CHAPTER 1.INTRODUCTION.............................................................................1

1.1. Reason for writing ...........................................................................................1

1.2. Thesis novelty...................................................................................................2

1.3. Objective of the thesis .....................................................................................3

1.3.1. General objective........................................................................................3

1.3.2. Specific objective .......................................................................................3

1.3.3. Research question.......................................................................................3

1.4. Subject and scope of the thesis........................................................................3

1.4.1. Thesis subject .............................................................................................3

1.4.2. Thesis scope................................................................................................4

1.5. Regression methodology .................................................................................4

1.6. Thesis structure ...............................................................................................5

CHAPTER 2.LITERATURE REVIEW AND EMPIRICAL RESEARCH .......7

2.1. Literature review of foreign direct investment.............................................7

2.1.1. Foreign direct investment definition ..........................................................7

2.1.2. Classification of foreign direct investment.................................................8

2.1.2.1. Horizontal FDI ................................................................................8