FDI and inequality in Vietnam: An approach with census data

Abstract

We investigate the effects of inward FDI on income distribution and absolute living standards in Vietnam using census data from 1989-2009. We compute the number of employees of foreign establishments in each of Vietnam's provinces for each year, and use that as a measure of local FDI. We estimate the effects of FDI on local households' living standards as reported in the data, broken down by educational background to allow us to analyze effects on inequality. Estimates based on the repeated cross section indicate that rising FDI in a province is associated with a slight decline in living standards for households there if they do not have a member employed by the foreign enterprises, with only modest gains for households who do have a member employed by the foreign enterprises. These estimates may reflect composition effects, however, since we find large movements of people toward the provinces receiving the FDI. The findings show that measuring the effect of FDI on household welfare is more difficult than measuring the effect of trade policy, and may pose a difficulty for the view of FDI as a general anti-poverty strategy.

Is foreign direct investment helpful to reduce income inequality in Indonesia?

“…Recent studies also prove that FDI has a positive influence on income inequality. McLaren and Yoo (2017), using census data from Vietnam (1989Vietnam ( -2009, proved that increasing FDI slightly decreases living standards. Adams and Klobodu (2017), using the data from 21 Sub-Saharan African countries over the period of 1984-2013, found that FDI has a positive and moderate impact on income inequality both in the short and long term.…”

Macro-Econometric Model for Medium-Term Socio-Economic Development Planning in Vietnam. Part 1: Structure of the Model

“…For a low wage economy, FDI is indeed an important tool for economic development. It has also become an increasingly important tool to reduce social inequalities and to improve the productivity of domestic fi rms [25][26].…”

“…This block consists of 33 equations including 24 behavioural equations and 9 homogeneous equations. Theoretical equation to forecast total exports at constant prices is defi ned by: log(EX)  F(EXG, ER, PEX/PCEX, T) (25) here ER is the exchange rate between VND and USD, PEX is the Export Price Index of Vietnamese merchandises and services; PCEX the Export Price Index of Chinese merchandises and services (collected from NIGEM) and the ratio of PEX/PCEX refl ects the competitiveness about the export prices of merchandises and services of Vietnam and World, EXG is growth rate of export markets for Vietnam's merchandises and services. EXG is determined by the formula:…”

Essays on Foreign Direct Investment, International Trade, and Inequality

“…In this chapter, we analyze the impact of labour demand shocks from multinational firms on average local wage level and wage inequality using the Vietnam Household Labour Force Survey data from 2010-2015, right after the country became an official member of the World Trade Organization and went through a major revision of its Investment Law. Our arguments are developed based on two main theoretical models regarding FDI firms' offshoring activities (Feenstra and Hanson, 1996;Zhu and Trefler, 2005) and skill mix (McLaren and Yoo, 2017). Our identification strategy relies on the variation of foreign hiring over time in 63…”

“…Our study differs from previous studies on the impact of FDI inflow and trade on inequality in Vietnam in three ways. First of all, wage data from the Household Labour Force Survey allows us to use a direct and accurate measure of individual welfare instead of the indirect, household-level proxy such as access to water or electricity as inMcLaren and Yoo (2017). Secondly, with rich demographics and job-related dataset from the Survey, we can examine how labour demand shocks from foreign firms affect wage inequality through simple interaction variables.…”