Spatial effects of foreign direct investment on wage inequality in Vietnam

Abstract

This study analyzes the effects of foreign direct investment (FDI) on wage inequality in Vietnam by utilizing panel data from 63 provinces over the period 2010–2018. The spatial autocorrelation model is used in the study. Empirical results from the spatial econometric model reveal that FDI tends to increase wage inequality in localities and has direct and spatial effects. Economic growth has led to a reduction in the wage inequality between skilled and unskilled labor. The increase in the proportion of the skilled labor force reduces wage inequality in provinces with high human capital and developed education systems. The study results imply that the policy on attracting and utilizing FDI needs to be aligned with training and human capital development to ensure sustainable development. It is also necessary to emphasize professional training for the workforce to attract FDI.