Luận văn thạc sĩ UEH foreign direct investment, exports, and economic growth in malaysia, thailand

UNIVERSITY OF ECONOMICS

HO CHI MINH CITY

VIETNAM

INSTITUTE OF SOCIAL STUDIES

THE HAGUE

THE NETHERLANDS

VIETNAM- NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

FOREIGN DIRECT INVESTMENT, EXPORTS,

AND ECONOMIC GROWTH IN MALAYSIA,

THAILAND, AND VIETNAM

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

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

BUI THI KIM HOANG

Academic Supervisor:

DR. NGUYEN HOANG BAO

HO CHI MINH CITY, DECEMBER 2012

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Certification

"I certificate that the substance of the thesis has not already been submitted for any

degree and is not currently submitted for any other degree.

I certify that to the best of my knowledge and help received in preparing the thesis

and all sources used have been acknowledged in the thesis."

Signature

Bui Thi Kim Hoang

Date: ................................. .

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Acknowledgement

First of all, I would like express my deepest gratitude my academic supervisor, Dr.

Nguyen Hoang Bao, Dean of Economic Development, HCM City University of

Economics, for advice, critical, and helpful comments on the paper.

My dearest thanks to the lectures and staff of the project, who helped improve my

knowledge and fulfill the programme.

I am deeply indebted to my parents, my elder brother and my husband for their love

and support of me, keeping me in good condition for learning.

And finally, I am also grateful to my close friends for their warm encourgagement.

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Abstract

This study exammes the causality relations between foreign direct

investment, exports, and economic growth in the three countries including

Malaysia, Thailand, and Vietnam of the Southeast region for the period of 1989-

2010. The paper uses time series data for individual countries and panel data for the

panel three countries. The study estimate vector autoregression model (V AR) or

vector error correction model (VECM) of the three variables to find Granger causal

relationship for each of the three countries. And then, using two different panel unit

root tests it is found that all the panel variables are integrated in order one. The

cointegration is found for the panel variables from the Johansen Fisher panel

cointegration and Kao tests. The panel-Granger test support that there are

bidirectional long run causal relations between the variables but there is only

unidirectional from exports to foreign direct investment in the short run for the

panel of three countries.

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Contents

Certification ............................................................................................................... 1

Acknowledgement ................................................................................................... ii

Abstract . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . iii

Contents ................................................................................................................. iv

List of Tables .......................................................................................................... vi

List of Figures ......................................................................................................... vii

List of Abbreviations .............................................................................................. viii

Chapter 1: Introduction ........................................................................................... 1

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

1.2 Research objectives ......................................................................................... 3

1.3 Research questions .......................................................................................... 4

1.4 Research methodology .................................................................................... 4

1.5 Structure of the thesis ...................................................................................... 4

Chapter 2: Literature Review ................................................................................. 5

2.1 Theoretical Literature ...................................................................................... 5

2.1.1 Relationship between foreign direct investment and economic growth .... 5

2.1.2 Relationship between exports and economic growth ................................ 6

2.1.3 Relationship between FDI and exports ...................................................... 8

2.2 Empirical studies ............................................................................................ 9

2.3 Conceptual framework .................................................................................. 17

Chapter 3: Foreign Direct Investment, exports, and economic growth in

Malaysia, Thailand, and Vietnam: Descriptive and Comparative Analysis ..... 19

3 .1 Foreign direct investment, exports, and economic growth in Malaysia ....... 19

and Thailand .......................................................................................................... 19

3.2 Foreign direct investment, exports, and economic growth in Vietnam ........ 26

Chapter 4: Research Methodology ....................................................................... 40

4.1 Data sources .................................................................................................. 40

4.2 Model Specification ...................................................................................... 40

4.3 , Estimation techniques .................................................................................... 41

4.3.1 Individual economy's Granger causality test .......................................... 41

4.3 .1.1 Unit root tests for stationary time series ............................................ 41

4.3.1.2 Johansen cointegration technique ....................................................... 43

4.3.1.3 Granger causality analysis .................................................................. 45

4.3.2 Panel data Granger causality test.. ............................................................ 46

4.3 .2.1 Panel unit root tests ............................................................................ 4 7

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4.3.2.2 Panel cointegration test ...................................................................... 49

4.3.2.3 Panel causality test ............................................................................. 50

Chapter 5. Empirical Results ................................................................................ 51

5.1 Unit root tests ................................................................................................ 51

5.2 Cointegration analysis ................................................................................... 53

Chapter 6: Major Findings and Policy Implications .......................................... 58

6.1 Major findings ............................................................................................... 58

6.2 Policy implications ........................................................................................ 60

6.3 Research limitations ...................................................................................... 60

References ................................................................................................................ 62

Appendices .............................................................................................................. 69

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List of Tables

Table 2.1: Summary of empirical studies on causality between FDI, exports, and

economic growth ........................................................................................................... 16

Table 3.1: The contribution of components of total demand to economic growth in

Malaysia and Thailand, 1989-2010 (percentage) .......................................................... 20

Table 3.2: Correlation between the growth rates ofthe real GDP and its components in

Malaysia and Thailand, 1989-2010 ............................................................................... 21

Table 3.3: Structural change in Malaysia and Thailand, 1989-2010 ............................. 25

Table 3.4: The contribution of components of total demand to economic growth in

Vietnam (percentage) .................................................................................................... 27

Table 3.5: Correlation between the growth rates of the real GDP and its components in

Vietnam, 1989-2010 ...................................................................................................... 27

Table 3.6: GDP growth (g=~Y/Y), Rate of investment (I/Y), ~Y/I, ICOR in Vietnam28

Table 3.7: Structural change in Vietnam, 1989-2010 (percentage) .............................. 29

Table 3.8: Exports and Imports in Vietnam (percentage ofGDP) ................................ 30

Table 3.9: Export value index in Vietnam, 1989-2010 ................................................. 31

Table 3.10: Foreign direct investment inflows by Vietnam's region and province ...... 34

Table 3.11: Foreign Direct Investment by sector in Vietnam ....................................... 35

Table 3.12: FDI in industry for Vietnam country .......................................................... 36

Table 3.13: Exports by foreign investment sector in Vietnam ...................................... 37

Table 5.1: ADF and PP unit root tests on level series for the individuals ..................... 51

Table 5.2: ADF and PP unit root tests on the first difference series for the individuals 52

Table 5.3: Panel unit root tests ...................................................................................... 53

Table 5.4: Results of Johansen cointegration test for individual country ..................... 54

Table 5.5: Panel cointegration test ................................................................................ 54

Table 5.6: Granger causality test based on VECM for Thailand and Vietnam ............. 55

Table 5.7: Granger causality test based on VAR model for Malaysia .......................... 56

Table 5.8: Panel Granger results ................................................................................... 56

Table 5.9: The causality relations in this paper ............................................................. 57

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List of Figures

Figure 2.1: Conceptual framework in this study ...................................................... 18

Figure 3.1: GDP growth in Malaysia and Thailand, 1989-2010 (percentage) ......... 19

Figure 3.2: Real GDP, Exports and FDI in Malaysia and Thailand ($US) .............. 21

Figure 3.3: The contribution ofFDI inflows in GDP in Malaysia and Thailand,

1989-2010 (percentage) ............................................................................................ 22

Figure 3.4: Export structure in Malaysia, 1989-2010 (percentage) ......................... 23

Figure 3.5: Export structure in Thailand, 1989-2010 (percentage) .......................... 24

Figure 3.6: Export price index in Malaysia and Thailand, 1989-2010 .................... 25

Figure 3.7: Vietnam GDP growth(%) ..................................................................... 26

Figure 3.8: GDP, exports and investment in Vietnam, 1989-2010 (VND billion) .. 29

Figure 3.9: The growth of exports in Vietnam, 1990-2010 (percentage) ................ 30

Figure 3.10: Export structure in Vietnam ................................................................. 32

Figure 3.11: FDI inflows in the Southeast countries ($US million) ........................ 32

Figure 3.12: Foreign direct investment in the period in Vietnam, 1989-2010 ......... 33

Figure 3.13: Foreign direct investment, exports and real GDP growth (%) ............ 3 8

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