Tran ToanthangNational Center for Socio-Economic Information and Forecast (NCIF)
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October 2014 - January 2017
Central Institute for Economic Management
- Managing Director
This paper investigates the role of inter-firm interaction and geographical proximity in the determination of productivity spillover effects from foreign to domestic firms. We developed an estimation approach using the Spatial Durbin model and applied this to a firm-level dataset from Vietnam from 2000–2005. We found that productivity spillovers di...
Foreign direct investment (FDI) may benefit local firms in the host country through various kinds of spillovers, but it may also raise competition and result in the crowding out of domestic firms. Using detailed firm-level data for the period 2001-2008, this paper examines the aggregate effect of FDI on the survival of domestic private firms in Vie...
While the positive productivity spillover from Foreign Direct Investment (FDI) to domestic owned firms in host countries is unequivocally emphasized in theory, the empirical evidence is contradictory. This paper, based on firm level data in Vietnam (enterprise census, 2000-2005), provides more inside on that. Using time-varying stochastic frontier...
The world is changing. Remarkable changes have been witnessed in East Asia where China’s emergence and the increasing bilateral/multilateral free trade agreements are shaping the economic and geopolitics pattern in the region. The facts have made regional countries become more inter-dependence. The trade and investment relation between any two countries has been no longer independent but influenced by the relation with third countries. This research is designed to investigate the trade and investment dependence of Vietnam on Korea given the increasing intensity of economic integration and more unstable geopolitics in the region. This research is based on network approach to investigate the bilateral trade and investment of Vietnam and Korea. As such, the relation of Vietnam and Korea is analysed taking into account the trade and investment of 13 other countries/group of countries who are the large trade and investment partners of both Vietnam and Korea, including China, Australia, India, Russia, the United State, Japan, Singapore, Thailand, Indonesia, Malaysia, Cambodia, Indonesia and Philippines. The trade dependence index of Vietnam is calculated not only based on the trade structure of Vietnam, but also that of Korea as well as the power of Korea in the international market. The comparison of trade dependence by countries and by time give critical insights about the relation. In addition, the inclusion of geopolitics into spatial gravity model is one of the innovations of this research. It allows to elaborately investigate the influences of the regional geopolitics, particularly the role of China, on the trade and investment of Korea and Vietnam as well as other major partners in the region. Vietnam and Korea have in touch with a more than 20 years of diplomatic relation and remarkable progress has been made in improving and upgrading their ties. The strategic partnership was signed in 2009 in additional to the free trade commitments under framework of ASEAN Korea agreement (AKFTA). As a result, the trade and investment between Vietnam and Korea has increased remarkably. Korea soon becomes the biggest investors in Vietnam and the bilateral trade growth is recorded around more than 25% per year. The Vietnam-Korea Free Trade Agreement (VKFTA) in 2015 puts a cornerstone in the bilateral relation and is expected potentially and fruitfully brings about benefit to both countries. The reason for such expectation is the fact that the VKFTA is more open than the AKFTA which both countries took a part. It may benefits Vietnamese firms, indeed, both in term of exporting more agro-products to Korea but also importing better quality inputs. It also facilitates restructuring the import market of Vietnam, avoiding heavily dependence on some other markets. From another side, the FTA also facilitates the FDI from Korea because of more open commitments in service and investment. However, for Vietnam, such benefit is conditional. Poor preparation and readiness of both the institution and the domestic enterprise will hinder Vietnam from enjoying the trade with Korea. Given a more intensive cooperation, Vietnam is more and more dependence on trade and investment with Korea. The dependence index shows that in overall, Vietnam’s export dependence on Korea is less than other countries but inclines to increase since 2009. The same observation with a higher pace is found for import dependence in particular for auxiliary of garment and textiles, sea transport vehicles, machinery and mechanical appliances. This tendency is believed to be continued because the VKFTA has taken into effect since 2016 and the expansion of FDI from Korea flowing to Vietnam will trigger a booming of import by Korean companies in Vietnam particularly the import of spare parts. Another note is the trade dependence is intensified over time in line with the expansion of FDI flows from Korea to Vietnam, especially from large corporations because of the shift of investment from China. This led to the argument that FDI is one of factors that make trade dependence increase. The FDI from Korea inflow in Vietnam has been also on the rise, largely contributed by the entry of very large firms in electronics and phone. Korea has become the biggest FDI investor in Vietnam that in turn implying an upward tendency of more investment dependence. Assessing the trade dependence index with Korea does not mean the dependence is good or bad because of the relation between Korea and Vietnam in both economic and political aspects is worm and supportive recent years as well as there is no territorial issue interrupting such relation. The policy implication of dependence is different from the dependence of Vietnam on China since there remain the conflicts of sovereignty between China and Vietnam, and trade dependence may be riskily to be used as an instrument for politics and sovereignty negotiation. Increasing dependence on Korea in terms of both import and export indicates that the two countries have increasingly taken advantage of signed FTAs. However, the dependence also demonstrates the tightened relation between the two and changes in political, economic and trade situation of Korea may notably affect Vietnam. This is the common trend of integration because of increasing inter-dependence among economies. Further investigating the dependence suggest that even for some hypothetically unforeseen cases in which Vietnam would like to reduce such dependence, that the capacity to control international price of Korea is small, hence, Vietnam can proactively optimum the dependence either by diversifying commodities structure exported to Korea as well as diversifying export markets. From this perspective, in a context that Vietnam and Korea are accelerating the negotiation and signing new FTAs with other partners, in the near future, the export dependence of Vietnam on Korea is not a very concern. The findings on the trade pattern using the spatial gravity approach suggested very intuitive evidence on the interdependence among countries. Besides other factors, FTA and geopolitics change both determined the trade and investment. In addition, trade and investment flow of other countries also affect the trade and investment between any pair countries like Korea and Vietnam. The dependence of Vietnam on Korea is no longer only determined by the two countries themselves, but also the involvement of other partners. As examples about the advantages of spatial approach, the analysis about trade and investment multipliers indicates that Korea growth affect the trade between Vietnam and Korea, but besides the direct effect, a large part is through the interaction with other trade partners, among that the influence from Japan, China and Singapore is substantial. Similarly, the institutional improvement and wage improvement of China may have critical impact on the trade and investment between Vietnam and Koreas as well as other countries in the region. This comes to the forecast that the trade and investment dependence of Vietnam to Korea will be continued, however, changeable to the regional geopolitics and macro-economic issues. It implies that the KVFTA are likely does not results into higher export to Korea market unless supported by some favourable environment factor such as the stable geopolitics and sound macroeconomic of Vietnam or in the region. The warming relationship between Vietnam and Korea is a very good environment for the trade and investment ties between the two with in turn bring about fruitful benefits for both sides. The stable regional geopolitics also plays a role for that. It, therefore, implies that keeping a stable environment in the region is not a duty of a single or group of countries but also any countries those have trade and investment relation with. Both Vietnam and Korea government necessitate being awareness about stability of the regional geopolitics. From Korea side, the relation with Vietnam bridges the relation to ASEAN. With cheap labour, large consumption market, this area should not be ignored by Korean investors. However, the role of China in this area also should never been neglected. Influence of China in ASEAN is huge, given more and more interdependence among countries and the implementation of AEC, Korean investment to this region is likely still slower than from Japan or China. This issue should receive a noticeable consideration. With the increasing dependence and inter-dependence. Vietnamese government should take advantage of this factor for their re-structuring economy, particularly improving the manufacture sector toward export oriented strategy. Korea may become a good source of materials import for exporting to other destination, particularly EU markets. EVFTA and VKFTA have generated great opportunities for Vietnam to eliminating the dependence from some traditional market. In the context that TPP may be re-negotiated or cancellation, the critical improvement the readiness of both Vietnamese and Korean firm for VKFTA is very necessary and need to be done as soon as possible.
Target: developing an unique index to measure green FDI for Vietnam; Assessing how green is Vietnam attracting FDI inflow so far and proposing appropriate measurements to attract green FDI. Welcome any suggestions for the methods, literature sources
Analyzing the institutional implication and policy adjustment for Vietnam when the two imminently sign the free trade agreement; the implications focus on SOE reform, demand for enhancing the business environment and competitiveness, demand for improving investment environment.