Luận văn thạc sĩ UEH FDI and income inequality, evidence from panel data of vietnams provinces

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

FDI and Income Inequality:

Evidence from panel data of Vietnam’s provinces

BY

LAM VAN ROI

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, December 2014

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UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

FDI and Income Inequality:

Evidence from panel data of Vietnam’s provinces

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

LAM VAN ROI

Academic Supervisor:

PHAM KHANH NAM

HO CHI MINH CITY, December 2014

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ABSTRACT

DOES FDI AFFECT ON INCOME INEQUALITY?

This paper attempts to estimate GINI indices for all provinces of Vietnam and

contributes to explore the relationship between FDI and income inequality. The thesis

uses a balance panel data for 56 provinces in 5 years which includes GDP, FDI and

income distribution. The thesis found that there is no evidence impact of FDI to

income inequality.

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Contents

Chapter 1: INTRODUCTION.............................................................................................................3

1. Problem statements......................................................................................................................3

2. Research objectives ......................................................................................................................5

3. Research Scope and data .............................................................................................................5

4. Organization of the thesis............................................................................................................5

Chapter 2: LITERATURE REVIEWS ..............................................................................................7

1. Theoretical backgrounds .............................................................................................................7

2. Empirical studies........................................................................................................................10

Chapter 3: RESEARCH METHOLOGY ........................................................................................14

1. Data..............................................................................................................................................14

1.1 Gini Coefficient.....................................................................................................................14

1.2 Share of FDI in GDP............................................................................................................15

1.3 Data summary.......................................................................................................................15

2. Conceptual Framework:............................................................................................................18

3. Model specification.....................................................................................................................18

Chapter 4: RESULTS OF ANALYSIS ON FDI AND INCOME INEQUALITY........................23

1. Foreign Direct Investment in Vietnam – An overview............................................................23

2. Income inequality in Vietnam ...................................................................................................27

3. Descriptive statistics...................................................................................................................29

4. Regression results.......................................................................................................................32

Chapter 5: CONCLUSIONS AND POLICY RECOMENDATION .............................................37

1. Conclusions .................................................................................................................................37

2. Policy Recommendations...........................................................................................................38

3. Limitation of the thesis and suggestion of further research ...................................................41

REFERENCES ...................................................................................................................................42

APPENDIX .........................................................................................................................................46

A – DATA ON FDI AND GINI.....................................................................................................46

Table 1: Information detail for provinces.....................................................................................46

Table 2: Vietnam’s 10 leading FDI investors in 11 months of 2014............................................47

Table 3: Top 10 provinces in FDI attraction in 11 month of 2014...............................................48

Table 4: 10 sectors attracting FDI head of VN in 9M-2014.........................................................48

Table 5: Some facts about income distribution and inequality in Vietnam..................................49

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B - DESRRIPTION OF THE DATASET ....................................................................................49

Table 0: List of provinces and variables detail.............................................................................49

Table 6: Summary statistic of variables .......................................................................................60

Table 7.1: Results of Pool OLS....................................................................................................61

Table 7.2: Result run Random Effect Model................................................................................61

Table 7.3: Result of Fixed Effect Model ......................................................................................62

Table 8: Result of Hausman Test .................................................................................................62

Table 9: Summary of two new regression for Fixed and Random Effect ....................................63

C- Figure of endogeneity test and solution:..................................................................................64

Figure 1: IV estimator 2SLS.........................................................................................................64

Figure 2: First-stage regression and instruments are weak test ....................................................65

Figure 3: Endogeneity Test ..........................................................................................................65

Figure 4: Regression for FDI stock in GDP by lagged of FDI stock in GDP ..............................65

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Chapter 1: INTRODUCTION

This chapter of the thesis will introduce the problem statement and research object

under the perspective of the social sciences . It stated why this thesis was formed for

the purpose of explaining the relationship between FDI and income inequality . This

chapter also presents the essential content and will be explained in detail in the next

chapter . In addition , the structure of the thesis is also stated in this chapter.

1. Problem statements

In recent years, Vietnam has made significant achievements in improving the

economy and society. The growth of economy is about 7% per year, GDP per capita

has increased and poverty ratio has reduced year by year (Mahajan et al., 2014). This

achievement is a positive signal for the transitional economy, and Vietnam also

changes many policies to follow up with the globalization trend. In 2009, Vietnam

was a member of Lower-middle income countries and became a success story.

Vietnam’s economic growth made poverty situation decreasing and improving

income inequality. Sustainable economic growth is an advantage to attract more FDI

from developed countries.

Opening economy in Vietnam, after Doi Moi Policy, is also like other developing

countries in improving environmental investment in order to attract more FDI from

the world. According to ASEAN Business Outlook Survey in 2012/2013, there were

over 50% of foreign investors wanted to expand their businesses in Vietnam, because

Vietnam has the political stability and a safety destination. That is the reason why FDI

has been increasing year by year.

The impact of FDI to Vietnam’s economy is very important because FDI entices the

growth rate, alleviate poverty and technology transition. However, FDI is often

unevenly distributed among provinces of Vietnam, so the impact of FDI to each

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