The role of foreign direct investment in socio-economic development : a case study of Vietnam during the transition period : a thesis submitted in fulfillment of the requirements for the degree of Doctor of Philosophy at Massey University, Turitea Campus, Palmerston North, New Zealand

Abstract

The role of Foreign Direct Investment (FDI) in the socio-economic development of developing countries, especially countries in transition toward a market-oriented economy, has been the topic of debate between several schools of thought, notably the mainstream and radical views. The mainstream view argues that FDI flows cover the savings-investment, foreign exchange, technological and fiscal gaps in developing countries, and hence promote economic growth. In contrast, the radical view argues that FDI flows are detrimental to socio-economic development, they have not supplemented but substituted for domestic savings, and thus they have deteriorated the balance of payments and failed to address poverty problems in developing countries. In reality, FDI flows have provided positive impacts on socio-economic development in some developing countries, especially Asian newly industrialising countries (NICs), but generated many detrimental effects in other developing countries. In Asian NICs, FDI flows tend to be useful and have fewer detrimental effects because the governments of those countries have intervened appropriately and created favourable environments for FDI through implementing export-oriented industrialisation strategies. In the case of Vietnam, about $35.3 billion of FDI was committed, of which $14.2 billion was implemented, over the 1988-1998 period. Such large amounts of FDI flows have created significant impacts on the socio-economic development of Vietnam. Over the 1988-1998 period, FDI flows have accounted for around one-third of Vietnam's investment, over 20 percent of Vietnam' exports in 1998 and overall, between 1 percent to 1.5 percent of annual GDP growth. However, the unequal allocation of FDI flows between regions and provinces in Vietnam may promote socio-economic development in some regions and provinces but also widen the gap between rich and poor regions. The overall success of attracting and utilising FDI flows in Vietnam has been attributed to the role of government policies that maximise the positive impacts and minimise the detrimental effects of FDI flows. Government's tax preference policies and domestic protection policies have been found to play an important role in the performance of foreign-invested enterprises.