The Relationship among Exports, Foreign Direct Investment, and Economic Growth in Vietnam - A VAR Approach

Abstract

This study investigates the causality among export, foreign direct investment (FDI) inflows and economic growth in Vietnam using quarterly time-series data from 2000Q1 to 2017Q4. The vector autoregression (VAR) model is employed to explore the relationship among variables in the long term as well as the short term. The results from the Johansen Cointegration test indicated that there was no long-term equilibrium nexus existing between them, so the VAR model would be qualified to apply for the study. Findings from the Granger causality test show that in the short term, there was a bilateral relationship between GDP and Exports, whereas GDP-FDI and Export-FDI are one-way relationships since both GDP and Exports were found by Granger to cause an increase in FDI in Vietnam but not vice versa. The findings of the causality relationship from GDP to exports and FDI and from exports to FDI in the short term imply that promotions in Vietnam’s economic growth will boost export activities as well as attract more inward FDI to the country. The results also indicate a current trend of Vietnam’s FDI being not really sustainable, as many FDI projects invested in Vietnam take advantage of abundant labor resources, low skills and cheap labor costs, as well as the origin of goods from Vietnam for export, as a result, not significantly contributing to the economic development.