Luận văn thạc sĩ UEH direct, indirect and total effect in spatial analysis of provincial FDI in

UNIVERSITY OF ECONOMICS ERAMUS UNIVERSITY ROTTEDAM

HO CHI MINH CITY INSTITUTE OF SCOCIAL STUDIES

VIETNAM THE NETHERLANDS

VIETNAM – THE NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

DIRECT, INDIRECT AND TOTAL EFFECT IN

SPATIAL ANALYSIS OF PROVINCIAL FDI IN

VIETNAM

BY

LE VAN THANG

HO CHI MINH CITY, November 2016

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UNIVERSITY OF ECONOMICS ERAMUS UNIVERSITY ROTTEDAM

HO CHI MINH CITY INSTITUTE OF SCOCIAL STUDIES

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

DIRECT, INDIRECT AND TOTAL EFFECT IN

SPATIAL ANALYSIS OF PROVINCIAL FDI IN

VIETNAM

BY

LE VAN THANG

ACADEMIC SUPERVISOR

DR. NGUYEN LUU BAO DOAN

HO CHI MINH CITY, November 2016

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i

DECLARATION

“This is to certify that this thesis entitled “Direct, Indirect and Total effect In Spatial Analysis of

Provincial FDI in Vietnam”, which is submitted by me in fulfillment of the requirements for the

degree of Master of Art in Development Economics to the Vietnam – The Netherlands Programme

(VNP).

The thesis constitutes only my original work and due supervision and acknowledgement have been

made in the text to all materials used.”

Le Van Thang

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ii

ACKNOWLEDGEMENT

This thesis could not be accomplished without the supporting and the motivation that I have

received from many people. It is a pleasure to convey my gratitude to them all in my humble

acknowledgment.

Foremost, I would like to express my sincere appreciation to Dr. Nguyen Luu Bao Doan, my

supervisor. He gave me the greatest supporting, energetic assistance and valuable guidance as well

as an infinite patient to encourage me to complete my very first research. Without Dr. Nguyen Luu

Bao Doan, this study would never finish.

Besides, I also would like to give my gratitude to the Vietnam- Netherland Programme, especially

to all lecturers who provided me valuable knowledge, VNP staffs for their restless assistant for the

time I have been studying in VNP as well as School of Economics.

I would love to express my gratefulness to Prof. Nguyen Trong Hoai and Dr. Pham Khanh Nam

for the first suggestion to encourage me to deal with a novelty field of my knowledge - spatial

analysis. Moreover, I would like to give my sincere thankfullness to Dr. Pham Khanh Nam who

has provided a valuable data source for me to complete this thesis.

Besides that, I would like to thank all my friends, my fellows at the University of Economics, Ho

Chi Minh City, my groups and all the classmates in K20-VNP. All of them are always be my side

encourage and support me to complete the thesis.

Finally, I would like to send my gratefulness to my father, my mother, my two little brother, sister￾Van Nam and Thuy Linh for their love, sacrifice, tremendous support for me not only to complete

this thesis but also for my whole life.

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iii

ABBREVIATION

AIC: Akaike Information Criteria

ESDA: Exploratory Spatial Data Analysis

EU: European Union

FDI: Foreign Direct Investment

GDP: Gross Domestic Product

GSO: General Statistical Official

GRP: Gross Regional Product

PCI: Provincial Competitiveness Index

LM test: Lagrange Multiplier test

MPI: Minister of Planning and Investment

MNE: Multinational Enterprises

SAR: Spatial Autoregressive Model

SDM: Spatial Durbin Model

SEM: Spatial Error Model

USAID: The United States Agency for International Development

VCCI: Chamber of commerce and industry

VIF: Variance Inflation Factor

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iv

ABSTRACT

This paper investigates the spatial pattern of Foreign Direct Investment (FDI) for all 63

provinces in Vietnam from 2011 to 2014. Empirical studies on locational determinants of FDI

typically neglected the spatial interaction among observations which lead to inefficient and biased

estimations. Indeed, Moran’s I suggested by Moran, which is used to detect the spatial

autocorrelation in data pattern of both dependent and independent variables, give hints of the

necessity of spatial econometrics in analyzing the FDI determinants.

Through General To Specific approach, the Spatial Durbin Model (SDM) has been chosen

as the most appropriate model, compared with other models like Non-spatial model, Spatial￾Autoregressive Model (SAR) and Spatial Error Model (SEM). This study finds that the FDI flow

into one province negatively spatially affects FDI inflow in remaining provinces. Moreover, by

applying SDM, this paper econometrically estimates the impact of host province’s determinants

and its neighbor determinants on its FDI inflow.

Keywords: Foreign Direct Investment, Moran’s I, Spatial analysis

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v

CONTENTS

DECLARATION ............................................................................................................................. i

ACKNOWLEDGEMENT...............................................................................................................ii

ABBREVIATION...........................................................................................................................iii

ABSTRACT....................................................................................................................................iv

LIST OF FIGURE..........................................................................................................................vii

LIST OF TALBE..........................................................................................................................viii

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

1.1 Problem statement................................................................................................................. 1

1.2. Research objective................................................................................................................ 3

1.3. Research questions............................................................................................................... 3

1.4 Scope of the study ................................................................................................................. 3

1.5. Thesis structure .................................................................................................................... 4

CHAPTER 2: OVERVIEW OF FDI IN VIETNAM...................................................................... 6

2.1 Stages of foreign direct investment in Vietnam.................................................................... 6

2.2 Distribution of foreign direct investment among provinces.................................................. 8

2.3 Country of origin................................................................................................................. 10

2.4 Sectors of foreign direct investment.................................................................................... 11

CHAPTER 3: LITERATURE REVIEW...................................................................................... 14

3.1 Theories about location choices of foreign direct investment............................................. 14

3.1.1 The eclectic paradigm OLI........................................................................................... 14

3.1.2 Agglomeration and foreign direct investment.............................................................. 16

3.2 The inter-dependence of FDI between locations................................................................. 17

3.2.1 MNE choice theory....................................................................................................... 17

3.2.2 Agglomeration effect.................................................................................................... 20

3.3 Empirical studies................................................................................................................. 21

3.3.1 Empirical studies of FDI determinants in spatial analysis. .......................................... 21

3.3.2 Empirical studies of FDI determinants in Vietnam...................................................... 23

3.3.3 Fundamental FDI determinants.................................................................................... 26

CHAPTER 4: DATA AND METHODOLOGY .......................................................................... 31

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vi

4.1 Data sources ........................................................................................................................ 32

4.1.1 Dependent variable ....................................................................................................... 32

4.1.2 Explanatory variables................................................................................................... 33

4.1.3 Descriptive statistics..................................................................................................... 36

4.2 Spatial econometric model.................................................................................................. 37

4.2.1 Spatial Autoregressive Model ...................................................................................... 38

4.2.2 Spatial Error Model ...................................................................................................... 38

4.2.3 Spatial Durbin Model ................................................................................................... 38

4.2.4 Marginal effect in Spatial Durbin Model ..................................................................... 39

4.2.5 Model selection............................................................................................................. 40

4.3 Pre-test for spatial existent with Moran’s I......................................................................... 43

4.4 Spatial weight matrix .......................................................................................................... 44

4.5 Comparisons of models....................................................................................................... 46

CHAPTER 5: EMPIRICAL RESULT.......................................................................................... 47

5.1 Direct effect......................................................................................................................... 51

5.2 Indirect effect ...................................................................................................................... 54

5.3 Total effect .......................................................................................................................... 55

CHAPTER 6: CONCLUSION ..................................................................................................... 56

6.1 Main finding........................................................................................................................ 56

6.2 Policy implication ............................................................................................................... 57

6.3 Limitation and future research ............................................................................................ 57

REFERENCES ............................................................................................................................. 59

APPENDICES .............................................................................................................................. 64

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