Regional Determinants of FDI Location in Vietnam

Abstract:This paper examines empirically determinants of foreign direct investment (FDI) location in Vietnam. Based on a panel dataset of 63 provinces and cities in Vietnam from 2008 to 2012, linear regression models for panel data (fixed-effects and random-effects) and negative binomial models are applied in analysis. The empirical evidence confirms the significant impact of market potential, labour cost, labour quality, infrastructure, provincial policy effectiveness, and the previous year’s FDI concentration on FDI allocation between provinces and cities in Vietnam. Also, market potential and wage rate are statistically shown to affect the size of FDI projects. Moreover, estimation results suggest that provinces with higher FDI accumulation seem to create a dispersion force to new foreign investors and FDI between regions in Vietnam in the form of efficiency-seeking FDI.