Indicators of Attracting Foreign Direct Investment in Developing Countries: Evidence from Vietnam

Abstract

In today’s global economy, whether in advanced or emerging markets, the importance of being open to trade and investment is widely acknowledged as a key driver of economic growth. This economic openness is primarily demonstrated through the unrestricted exchange of goods and services as well as the free movement of international capital. While previous studies have investigated the effects of export-driven, import-driven, and capital-driven growth strategies, this research focuses on analyzing the impact of each indicator of the Provincial Competitiveness Index (PCI) on attracting foreign direct investment (FDI). By utilizing a panel data model covering 63 provinces and cities in Vietnam from 2018 to 2022, this study explores the correlation between PCI, FDI, and economic expansion. Findings suggest that export-oriented growth policies can be more effective in fostering the development of Asian emerging economies than FDI-centric approaches. Nonetheless, FDI continues to be crucial for technology transfer, capital accumulation, and knowledge exchange in management. Regions with advanced economies are more appealing to FDI, while provinces with distinctive industrial strengths also attract foreign investment. To further boost FDI inflows, it is advised that the government streamline market entry procedures, reduce administrative and tax burdens, increase transparency, and promote fair competition. These measures are anticipated to improve the investment climate and enhance competitiveness on the global stage.