Vietnam is expected to be a promising destination for foreign capital replacing China as the world biggest manufactory. There are many researches about the relation between Foreign Direct Investment (FDI) and economic growth both in internationally and nationally. The results, however, has no concensus about this relation.
This study analyses relationship between FDI inflow and economic growth in Vietnam using annual time series data from 1975 to 2015. Through VECM model and OLS method, causal linkages are found between these two variables. The main result of this study is that there exists positive causality from FDI inflow to economic growth in Vietnam both in short term and long term. The causal relationship from GDP to FDI inflow, however, hasn’t found. This outcome can be explained by the objective of FDI in Vietnam is resource-seeking or efficiency seeking, but not market seeking.
The finding of this study also suggests that to take advantage of FDI spillover, Vietnam should improve the skill of labor, the management ability and the capability of applying new technology and develop the supporting industries.
