Luận văn thạc sĩ UEH impact of bilateral investment treaties on foreign direct investment inflows to

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Impact of Bilateral Investment Treaties on Foreign Direct Investment

Inflows To Vietnam

Quynh Hoa Le

Thu Dau Mot University, Vietnam

Abstract

The effect of Bilateral Investment Treaties (BITs) on FDI inflows to Vietnam remains unexplored despite

the proliferation of treaties that the government efforts to sign to attract foreign investment at the end of last

century. This paper asks whether BITs stimulate FDI flows to Vietnam by using different explanation variables

and various estimation technique to test the robustness. I find a very weak positive relationship between BITs

and FDI, though effects of FTAs and WTO are estimated to promote FDI flows into Vietnam. My results show

the importance of accounting for guiding investment policies to narrow down the gap between law regulations

and provision of BITs.

Keywords: BITs, FTAs, FDI, Vietnam,

JEL codes: F15, F21, F36, F37

1. Introduction

The last century has proven that international economic integration is an indispensable trend. The evidence

is that barriers of trade and investment among countries decrease through Free Trade Agreements (FTAs) and

Bilateral Investment Treaties (BITs). In recent decades, many countries, especially developing countries, try to

sign a number of BITs in order to attract more foreign direct investment (FDI) that boost economic growth,

enhance nation’s capital and skilled labor force.

Not apart from that trend, in recent years, Vietnam has participated in a total of 65 BITs and has started to

implement the policy of attracting FDI since 1987. So far, after over 30 years, this source of capital has become

one of the important driving forces for promoting economic development. In the period of 3 decades, Vietnam

has witnessed the presence of foreign investors, typically multinational corporations such as Samsung, Honda,

Intel, Yamaha, Panasonic, Microsoft, LG ... The "billion" projects of these multi-national corporations show

that Vietnam has been an attractive investment destination for foreign investors. According to UNCTAD

statistics (2017), FDI inflows into Vietnam increased dramatically with total stock about 370 billion USD in

2017, the number is ten times more than that of the year 1997.

However, the impact of BITs to FDIs of developing countries remains a controversy subject among

scientists. As suggested by Egger and Pfaffermayr (2004), Neumayer and Spess (2005), Desbordes and Vicard

(2007), Lejour and Salfi (2015), Nguyen and Cao (2017), signing a treaty has a positive effect on FDI. On the

other hand, Hallward-Driemaier (2003), Tobin and Rose-Ackerman (2003) and Yackee (2007) have tended to

find that BITs fail to boost inward FDI into the developing countries that sign them.

Therefore, the previous empirical studies of the impact of BITs on FDI have had mixed results and the

question is whether or not signing BIT does help Vietnam to attract more FDI and more favorable BITs lead to

further FDI inflows to Vietnam.

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