A Study on the Impact of Factors on Attracting FDI after Joining WTO of Vietnam: A Gravity Model Using Panel Data

The main objective of this research is to evaluate the determinant factors that impact on attracting FDI in Vietnam using the extended Gravity Model. Panel data was used to estimate and evaluate the empirical results based on the data for the years 1990 to 2011. It also examines the attraction of FDI inflows between different economic zones, provinces, and sectors in Vietnam. In addition, this study also examines the effects of the accession into WTO on the inflows of FDI into Vietnam. The results show that the inflows of FDI in Vietnam, which are supply-driven, are significantly influenced by its 9 largest investing partners. The accession into WTO has impact on the determinants of the inflows of FDI to Vietnam, but negative influences in Vietnam. In related literatures review, a positive impact of the WTO to the growth rate of FDI into Vietnam was expected. Even so, it still makes sense to reflect the lack of attraction for FDI inflows to Vietnam by a few key causes such as: steady and hospitable investment policies; skilled workforce, facilities and transport system. Our results also show that increases in GDP and trade between investing partners and Vietnam potentially attract more FDI into Vietnam. Investing partners closer to Vietnam draw more portfolio investment into Vietnam than distant partners - emphasizing that distance has a negligible impact on the FDI. And finally, this study also suggested several recommendations to improve the status of the Vietnam`s economy to attract FDI inflows to Vietnam. It includes major recommendations, that is, the construction of infrastructure, primary transport and irrigation systems, clean water and electricity supplies, education and training development, improvement of people`s intellectual standards and the quality of human resources.