Effects of Foreign Direct Investment and Trade on Labor Productivity Growth in Vietnam

Abstract

Among developing Asian countries that have accelerated their integration with the global economy, Vietnam has achieved remarkable economic development. Vietnam’s development strategy prioritizing the promotion of trade and foreign direct investment (FDI) resulted in the rapid transformation of its industrial structure from an agro-based one to one led by the export-oriented manufacturing sector in the past three decades. Given the importance of labor productivity growth on the structural transformation, the study examined the effects of FDI and trade on labor productivity growth in Vietnam in the long run and short run. The study employed the autoregressive distributed lag (ARDL) model of analysis using data from 1990 to 2017. The ARDL model analysis revealed that FDI, capital goods import, and export unanimously contributed to the labor productivity growth in the long run, while the impact in the short run remained ambiguous. The results confirm the theoretical framework augmenting the positive relationship that exists between FDI and trade and labor productivity growth. Vietnam’s experience is expected to provide an important lesson to other developing countries.

The Effect of Education, Health, Minimum Wage, Foreign Investment on Labor Productivity in 33 Provinces of Indonesia

“…The result of this study found that foreign investment has an insignificant positive effect on labor productivity in 33 provinces of Indonesia. The positive sign of the coefficient is in 10.12928/optimum.v12i2.5227 line with Derado and Darko (2019) and Asada (2020), who explained that foreign investment provides breakthroughs to increasing labor productivity. According to the findings of Boghean and State (2015), foreign investment has a significant positive relationship with labor productivity in 20 European countries.…”

“…Foreign investment (FDI) is also useful in providing breakthroughs in labor productivity (Derado and Darko, 2019). In line with Asada (2020), FDI contributes to increasing labor productivity through technology transfer, the introduction of production processes, and better management skills. Moreover, multinational companies usually have access to the latest and most advanced technology that is expected to enter and spread to local companies to increase the productivity of the host country.…”

An Analysis of the Effects of Public Investment on Labor Demand through the Channel of Economic Growth with a Focus on Socio-Professional Categories and Gender

“…These results agree with Casale and Posel's (2005) results from South Africa, with those of Fatima and Sultana (2009) from Pakistan, and with those of Akyuz and Dogan (2017) from Turkey. Our results are also not far from those of Asada (2020), who focused on foreign direct investments through the ARDL method and concluded that Vietnam developed its strategy to enhance the positive and constructive relationship between FDI, trade, and labor productivity. Asada (2020, p. 2) mentions that "The driving forces of the structural transformation include capital accumulation and technology transfer through FDI as well as the reallocation of labor from sectors with lower labor productivity to sectors with higher labor productivity, notably export-oriented manufacturing sector.…”

“…They are estimated at USD 1.5 billion due to mining, industry, energy, etc. Asada (2020) emphasized that FDI plays a remarkable role in the socio-economic development of countries, especially developing ones, and he pointed out that if most Asian countries have successfully integrated into the world economy, it is partly due to FDI.…”

Foreign Direct Investment and Trade—Between Complementarity and Substitution. Evidence from European Union Countries

“…The foreign direct investment is the driving force of structural transformation for host countries (Zaman and Vasile 2012;Beatrice 2013;Kottaridi and Filippaios 2015;Islam et al 2018;Asada 2020;Ioan et al 2020;Djokoto 2021). The beneficial effects of foreign capital are felt on several levels, but differently depending on the characteristics and potential of the host country (Iacovoiu and Panait 2014;Voica and Mirela 2014;Ullah et al 2015;Erkomaishvili et al 2018;Islam et al 2020;Gupta et al 2021;Kyove et al 2021).…”