Foreign direct investment in Vietnam: how local institutions matter?

Abstract

This study examines how local institutional factors influence the location of foreign direct investment (FDI) across Vietnamese provinces, using panel data from 2008 to 2018. By performing the Durbin spatial model, we can investigate spatial interdependence between a host province and its neighbouring provinces. The findings reveal a positive relationship between the provincial competition index (PCI), an overarching measure of local institutional quality, and FDI inflows. Nonetheless, when considering spatial interactions, the impact of PCI turns out negative. Particularly, institutional factors such as labour training policies and law enforcement exhibit negative spatial effects. These results suggest that there should be some competition between provinces regarding the attractiveness of the FDI location.