Globalization tendency is expanded well in the universe. And foreign direct investing ( FDI ) is a mean that measures globalisation. There are legion of research studied about the impact of FDI on host state. One of these is effects of FDI on economic growing and poorness decrease.
Vietnam is known as one of the most attractive finish for FDI in the South East Asia in the last 15 old ages. And Vietnam besides experienced a considerable accomplishment in poorness relief in a short period with the important lessening of poorness rate from 57.1 % in 1993 to 14.8 % in 2009. One of the most of import grounds for this success that has been studied and perceived is the distribution of FDI on poorness decrease.
Most surveies on poorness decrease and FDI concentrated on the linkages between FDI, growing and poorness decrease as FDI is one of the cardinal component for the economic growing in developing states and “ growing is the individual most of import factor ” impacting poorness decrease ( The World Bank, 2001 ) . As World Bank research, authorities leads plans that improve the societal safety cyberspaces including redistribute income and assets so that they might come more to the hapless. And economic growing is needed to fund these plans. Furthermore, many foreign investors play of import function in the bringing of the societal services to the hapless from warrant undertakings such as H2O and energy.
A utile research titled “ Trade, Growth, and Poverty ” was conducted by David Dollar and Aart Kraay from Development Research Group of World Bank in 2001. Based on analysing the experiences of single instances of post-1980 liberalizers and cross-country arrested developments they aimed to reply for the inquiry “ What can we anticipate to go on when developing states liberalize trade and take part more in planetary trading system? ” . And they concluded that: “ we can anticipate that greater openness would better the stuff lives of the hapless ” and “ trade openness leads to worsening inequality between states and worsening poorness within states ” . In this research, Vietnam besides mentioned that: “ As Vietnam has opened up it has had a big addition in per capita GDP and no important alteration in inequality. Thus, income of the hapless has risen dramatically, and the degree of absolute poorness has dropped sharply- poorness was cut in half in 10 twelvemonth from 1988 to 1998 ” . However, research workers besides indicated some jobs with their research attack including measurement mistake, omitted variables and endogeneity.
There are legion of research on impact of FDI on poorness decrease in developing states and in Asia in peculiar.
A survey conducted by Liesbeth Colen, Miet Maertens and Jo Swinnen on rubric “ FDI as an engine for human development and economic growing ” besides examined the impact of FDI on poorness decrease. And the survey concluded that FDI might administer significantly to poverty decrease if the policy shapers could put up a right conditions, particularly FDI in agricultural factors.
Another survey was conducted in Latin America about the linkage between FDI and poorness by Cesar Calvo and Marco A.Hernandez. The first aim of this survey was to “ supply a critical study of the contested theories on the effects of FDI on local houses ” . And the 2nd aim was “ to prove the direct impact of FDI on poorness decrease in Latin America ” . The findings of the research indicated that FDI is “ possible subscriber to poverty decrease ” .
A survey conducted in instance of Indonesia with the similar subject entitled “ The impact of foreign direct investing on poorness decrease ” . The purpose of this research was to determine whether “ FDI has been played a function as an of import engine for economic growing and hence poorness decrease in Indonesia ” . His method was to measure “ the impact of FDI on economic development as measured by growing in GDP per capita and on decrease in absolute poorness ” in Indonesia.
In the instance of Vietnam, there was a survey conducted by David Dollar from World Bank entitled “ Reform, Growth, and Poverty in Vietnam ” . The object of the survey is to analyse the relationship between trade, growing and poorness decrease in Vietnam the reforming old ages. They indicated that “ the snap of poorness decrease to growing ” in Vietnam was amongst highest in the universe. And they concluded that trade integrating cut downing poorness.
A similar research in instance of Vietnam in the 1990s was conducted by Nguyen Thi Phuong Hoa. The purpose of this research was to analyze the FDI ‘s impact on poorness decrease in Vietnam through direct impact and indirect impact. The direct impact was employment creative activity and the indirect impact of FDI was through economic growing. The research worker based on endogenous theoretical account to prove the impact of FDI on economic growing and used individual theoretical account to analyze the linkage between growing and poorness decrease. The decision resulted from pooled arrested development theoretical account utilizing panel informations from 61 Vietnamese states in the 1990-2000 periods showed that “ FDI in Vietnam contributes significantly to economic growing and economic growing is an influential factor on poorness decrease of the state ” . Therefore, this research indicated the important indirect impact of FDI on poorness decrease in Vietnam.
Another research besides conducted by Tran Trong Hung. His purpose was to measure the impact of FDI on poorness decrease in Vietnam by utilizing econometric theoretical accounts, arrested development analysis and empirical panel informations across states and metropoliss in Vietnam.
Research Focus
Overall Research Aim and Individual Research Objectives
Chapter 2:
LITERATURE REVIEW
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* critically evaluate the article by replying following inquiries:
1. What is the writer ‘s chief statement? What inclusions are drawn?
2. What grounds does the writer put frontward to back up the statement and decision?
3. What is your position of this grounds? Can you descry any failings in the methodological analysis, the findings and the manner that the decisions are drawn?
4. Have the writer made any inexplicit premises about shared beliefs which you might oppugn?
2.1. Abstract
As indicated in the research titled “ Trade, Development and Poverty Reduction: The instance of Vietnam ” ( Nguyen Thi Minh Huong and Doan Hong Giang, 2008 ) : “ Trade reform has been one of the most of import constituents of the ongoing economic reform plan since 1986 ” and “ there are several potency of trade reform on economic growing and poorness of a state. The decrease of barriers to international trade could ensue in an addition in the effectivity of resource allotment and therefore lead to an betterment of the public presentation of the economic system. Import if modern capital and equipments evidently has positive impact on productiveness and concern public presentation. The induced growing consequence of trade reform would convey about alterations in poorness through increased resources available for poorness decrease programmes ” . This chapter is intended to make a reappraisal on the yesteryear, recent and current state of affairs of FDI, poorness in Vietnam. This chapter besides explores the linkage between growing and poorness.
2.1. Introduction
Vietnam is known as one of the most successful states in economic growing every bit good as in poorness decrease recent old ages. Vietnam besides experienced a considerable rise in pulling FDI. And FDI is one of the most of import factor In this chapter, the author besides seek to make a reappraisal on the poorness state of affairs in Vietnam and the distribution of FDI on economic growing and poorness decrease.
2.2. Poverty in Vietnam
2.2.1. Definition of poorness
Harmonizing to the World Bank “ poorness is the inability to achieve minimal criterion of life ” . In Vietnam there are two attacks in mensurating the poorness.
It comes from General Statistics Office ( GSO ) and Ministry of Labor Invalids and Social Affairs ( MOLISA ) . In this research, the author uses the GSO and World Bank definition and measuring. GSO calculates two poorness lines: nutrient poorness line and general poorness line. The nutrient poorness line is the sum of money required to buy a typical Vietnamese nutrient basket that generates 2100 Calories per twenty-four hours. And the general poorness line is derived by adding non-food points to the nutrient poorness line.
2002
2004
2006
General poorness line
1917
2077
2560
Food poorness line
1382
1500
1915
( Beginning: World Bank )
The definition of poorness decrease defined by World Bank is
2.2.2. General Poverty state of affairs in Vietnam
General poorness rate by abode and by part ( * )
A
%
A
A
1998
2002
2004
2006
A
A
A
Whole State
General poorness rate
37,4
28,9
19,5
16,0
By abode
Urban
9,0
6,6
3,6
3,9
Rural
44,9
35,6
25,0
20,4
By part
Red River Delta
30,7
21,5
11,8
8,9
Northern Midlands and mountain countries
64,5
47,9
38,3
32,3
North Central country and Central coastal country
42,5
35,7
25,9
22,3
Cardinal Highlands
52,4
51,8
33,1
28,6
South East
7,6
8,2
3,6
3,8
Mekong River Delta
36,9
23,4
15,9
10,3
A
A
A
A
A
A
A
A
( * ) General poorness rates have been estimated by monthly mean outgo per capita harmonizing to the poorness lines by GSO and WB with different standars as follows: 1998: 149 thous. dongs ; 2002: 160 thous. dongs ; 2004: 173 thous. dongs ; 2006: 213 thous. dongs.
Beginning: GSO, 2010
2.3. Contribution of FDI on poorness decrease
Many research workers agreed that FDI is one of the cardinal constituents of the successful economic growing in developing states. And growing is the of import factor in cut downing poorness. Therefore, there is a linkage between FDI, growing and poorness decrease.
2.3.1. FDI and its part to economic growing in Vietnam
Features of Foreign Direct Investment in Vietnam
Vietnam has been attained a well successful period in pulling FDI since the implementing the economic reform “ Doi moi ” or “ redevelopment ” in 1986. And in 1987, Vietnam issued “ Law on Foreign Investment ” as the debut of “ Open door ” policy. This opened a new period for Vietnamese economic system.
( Beginning: GSO,2010 )
The figure shows that FDI inflows into Vietnam increased during the long period despite the lessening in the 1997-1998 due to the Asiatic crisis. There were merely 37 accredited undertakings worth a entire 341.7 1000000s dollar and this was increased to 987 undertakings with about 12 billion dollar in 2006. The period 2006-2008 marked a singular success in pulling FDI capital flow of Vietnam with 1557 undertakings and the entire registered capital deserving 71.726 billion dollars which was about six times higher compared to 2006. In 2009 due to the planetary fiscal crisis, the FDI influx into Vietnam has a considerable lessening compared to 2008 with 1208 undertakings value more than 23 billion dollars.
FDI in assorted industrial sectors are different and altering over periods. Industrial sector attracts the biggest FDI proportion.
Geographic location of FDI
FDI are located non every bit across parts in Vietnam. FDI is concentrated to some major industrial countries in northern and southern Vietnam such as Hanoi metropolis, Hai phong and Hai Duong in the North, Ho Chi Minh metropolis, Dong Nai, Binh Duong and Ba Ria Vung Tau in the South.
Foreign Direct Investment and Economic Growth
There are many surveies on the linkages between FDI and economic growing both literature and empirical grounds. There are both positive and negative positions on the part of FDI on national economic growing.
First, allow reexamining the positive positions about the FDI impact on economic growing. FDI influxs can take to increase in economic growing rate ( Blonigen, 2005 ) .
Many empirical surveies tested the linkages between FDI and economic growing in developing states. And most of these indicated a positive impact of FDI on the economic growing. Borensztein et Al. ( 1998 ) used a cross-country arrested development model and informations on FDI influx from OECD to 69 developing states. His consequence was that FDI had a positive consequence on per capita income growing but the impact was dependent on the states ‘ human capital threshold. Surveies from Dollar and Kraay ( 2001 ) , Rama ( 2001 ) . Kolstad and Tondel ( 2001 ) besides indicated that FDI plays an of import function for the economic growing. Umit Guner and Mustafa Yilmaz ( 2007 ) conducted a survey on the consequence of FDI on economic growing utilizing panel informations grounds for 25 developing states from 1993 to 2004. And their decision was that FDI enhanced national production and besides economic growing in those states. Albert Wijeweera, Renato Villano and Brian Dollery ( 2010 ) made an attempt to lend to the empirical literature on the linkage between FDI and the economic growing rate by utilizing a stochastic frontier analysis and panel informations from 45 states over the period 1997 to 2004 in their research. Their analysis drew out four chief illations. Three of them are as follow. First, there is a positive consequence of FDI on economic growing in the presence of skilled labour force. Second, a state can non better its efficiency if it chiefly increases FDI influxs. Third, trade openness rises economic growing through efficiency additions. Therefore, two of their policy citations for hapless states can increase economic growing are better the degree of instruction and promote FDI.
Michael Klein et Al. ( 2001 ) in their research showed that “ FDI was a cardinal ingredient of successful economic growing and development in developing states ” as FDI is the “ cardinal mechanism to reassign best pattern across boundary lines ” .
In instance of Vietnam, there are some researches conducted to analyze the linkages between FDI and economic growing. Nguyen Thi Van Anh ( 2009 ) did her research on rubric “ Distribution of foreign direct investing on economic growing in Vietnam ” . Her aim was to demo the distribution of FDI on Vietnamese economic system ‘s growing through empirical analysis, desk reappraisal, and literature reappraisal. Her empirical analysis indicated that FDI inflows accounting for an increasing portion in GDP and “ FDI is one of the most of import levers holding immense effects on capital deficit rhythm that gives Vietnamese economic system an effectual and optimum drive to acquire her aims more rapidly ” . And she besides concluded that FDI- invested sector created more occupations and tonss of chances for Vietnamese labour such that they could make new modern engineerings, cognize how and professional working environment. Although her research did non include econometric theoretical account to prove the linkage between FDI and economic growing in Vietnam, her empirical analysis besides brought a TRUC QUAN position on this issue.
Foreign Direct Investment, Growth and Poverty
There are still different statements about the nexus between economic growing and poorness decrease. While some suppose that FDI is one of the most of import tools against, others say that the function of FDI in poorness decrease is ( … … … … … … ) In this subdivision we will hold a expression through some of these statements.
To analyze about the linkage between income poorness decrease and economic growing attracts concern many researches from IMF, ADB and World Bank as poorness decrease is one of the Millennium Development Goals. And whether or non the economic growing forced by FDI benefits poorness decrease is still an empirical inquiry as there are non many empirical surveies have examined the linkage between FDI, economic growing and poorness decrease.
Since 1999 IMF has established the “ Poverty decrease and Growth Facility ” -supported plan to replace the last plan in order to do its loaning operations more focal point to poorest states and this plan is embedded in the overall scheme for growing and poorness decrease. And Vietnam is eligible for this plan together with 77 other states ( as of August 2008 ) . One of the alterations of this plan differed from the yesteryear is the more pro-poor and more pro-growth characteristic. This means that IMF has given more attending to the economic facets of the administration than the past supported- plans.
Liesbeth Colen et Al ( 2008 ) in their research on the part of FDI to the economic growing and homo development showed that “ to the extent that FDI is heightening economic growing and increasing national income, it thereby offers a possible to profit to the hapless ” . David Dollar and Aart Kraay ( 2001 ) showed that “ increased trade by and large goes hand-in-hand with more rapid growing and no systematic alteration in family income distribution, means that increased trade by and large goes hand-in-hand with betterments in wellbeing of the hapless ” . By utilizing the quantitative estimations they proved that “ most of the benefits for hapless families come from growing consequence due to the globalising “
Ravallion and Chen ( 1997 ) based on the micro-econometric analysis and family study informations from more than 40 states showed that hapless people benefit from the addition of mean income.
Model? ? ?
OLS- Ordinary Least Squares
3 SLS Three -stage least Squares
Chapter 3: RESEARCH METHODOLOGY
