FDI and Development in Vietnam: Policy Implications

FDI and Development in Vietnam: Policy Implications

FDI and Development in Vietnam: Policy Implications

FDI and Development in Vietnam: Policy Implications


As Vietnam's economy moves further along the path of development, this book presents urgent lessons for policymakers from the country's first decade of experience of FDI. A mere decade after the start of its reforms towards a market-oriented economy, a World Bank report named Vietnam the second largest recipient of foreign direct investment (FDI). Drawing on a wealth of hitherto unpublished data and qualitative analysis, this work critically examines the overall impact of FDI on Vietnams economy, as well as the performance of individual projects. A major finding is that government policy and intervention have been important in channelling foreign investment flows towards national and regional development goals. This book is also a significant addition to the debates on FDI-induced effects such as technology transfer and employment creation in developing countries. It will be of great interest to all those researching or involved in policymaking in transitional economies in particular.


Foreign Direct Investment (FDI) to Vietnam between 1988 and 1998 is considered by many observers and policymakers to have played a critical role in the country’s transition from a centrally planned to a marketoriented economy. As a result of the government’s socio-economic reforms which started in 1986, annual committed fdi flows in Vietnam increased from zero in 1988 to $8.6 billion in 1996, making Vietnam the second biggest recipient of fdi in the world, calculated as a percentage of the gross national product (World Bank 1997a, p. 17). Foreign Direct Investment flows not only to Vietnam but also to many other developing countries, making use of their comparative advantages of cheap labour and natural resources. Arguably, as a result of fdi, many developing countries, such as the newly industrializing countries (NICs) of Asia, have achieved the status of middle-income industrialized economies.

There is debate, however, about whether fdi is useful or detrimental to development and what governments can do to make the most of such investment. These debates tend to fall into two camps—what will be referred to in this book as the mainstream and radical views of the impact of fdi on socio-economic development.

The mainstream view is that in several developing countries, especially in Asia’s NICs, fdi flows have covered the savings–investment, foreign exchange, technological and fiscal gaps, and hence promoted economic growth. Foreign Direct Investment flows in these countries have also brought modern technology and management skills that have improved competitiveness and promoted industrialization. It has been argued that high economic growth and changes in economic structure as well as the industrialization process also provide backward and forward linkages to alleviate poverty and income inequality in developing countries in the long term.

In contrast, the radical view points to cases where fdi has had a detrimental effect on socio-economic development. the argument is that fdi has not supplemented, but substituted, domestic savings, thus causing . . .

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