Determinants of Foreign Direct Investment

Revision with unchanged content. This book studies relative significance of provincial determinants of FDI inflows in Vietnam. Results of the impirical models are as follows. National but not provincial market size affects FDI flows strongly and positively, in contrast to findings of previous studies. FDI flows are strongly discouraged by high labor costs. FDI flows are also significantly and positively determined by agglomeration effects from local economies. FDI agglomeration is significant for value of FDI but not for number of projects. Market institution variables strongly affect FDI project count but not FDI value. Both level and change of infrastructure variables are significant determinants of FDI project count but only the change is a significant determinant of FDI value. These differences can be explained by different responses of FDI projects with different sizes. Smaller FDI projects are more sensitive to market institutions, infrastructure and agglomeration effects than large ones. The findings of significant agglomeration effects imply that the extreme patterns will continue into the future. Policies can affect regional FDI inflows by maintaining stable and favorable macro economic environments, promoting private sector and market institution, and providing public goods such as education, labor training and other social policies.