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The Nexus between Inward Foreign Direct Investment and Global Value Chains in Developing Countries: A Case Study of Viet Nam

The Nexus between Inward Foreign Direct Investment and Global Value Chains in Developing Countries: A Case Study of Viet Nam
Date:
26 January 2022
Category:
Viet Nam, Investment
Authors:
Huy Hoang Nguyen, Quang Hoan Truong
Tags:
global value chains, Investment, Viet Nam

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In recent decades, Viet Nam, a developing economy, has significantly improved its export structure and, to some extent, its participation in global value chains (GVCs), which along with foreign direct investment (FDI) is considered amongst the main driving factors for Viet Nam’s impressive economic growth. By employing the AJC-UNCTAD-Eora database on Association of Southeast Asian Nations GVCs, this current study aims to empirically explore the nexus between FDI and other factors for GVC participation in Viet Nam during the 2000–2019 period. The estimation shows that the economic size and market development of Viet Nam and its trading partners are the main determinants of Viet Nam’s GVC participation. We find that inward FDI flows into Viet Nam have a positive impact on the country’s GVC participation in both the forward and backward linkages. The estimation demonstrates that geographical distance is an impediment for Viet Nam’s backward GVC participation, whilst engagement in free trade agreements is found to advantageously affect Viet Nam’s GVC participation in both backward and forward linkages. We find a positive influence of Viet Nam and its and trading partners’ logistics performance on Viet Nam’s GVC participation. The paper also provides policy implications for Viet Nam to better use FDI and other sources to enhance and deepen its GVC participation in the future.

The Nexus between Inward Foreign Direct Investment and Global Value Chains in Developing Countries: A Case Study of Viet Nam

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