1 VIETNAM NATIONAL UNIVERSITY, HANOI INTERNATIONAL SCHOOL STUDENT RESEARCH REPORT THE IMPACTS OF FDI INFLOWS ON LABOR MARKET – EVIDENCE FROM VIETNAM CODE: KT. Nghiem Xuan Hoa Students: Nguyen Ngoc Mai – AC2022B Dao Khanh Ngan – AC2022A Vu Hong Hanh – AC2022C Le Huyen Trang – AC2021B Hanoi, April 15, 2024 2 TEAM LEADER INFORMATION I. Student profile - Full name: Nguyen Ngoc Mai - Date of birth: 19/07/2004 - Place of birth: Quang Ninh - Class: AC2022B - Program: Accounting, Analyzing and Auditing - Address: 17 To Huu, Nhan Chinh, Thanh Xuan, Ha Noi - Phone no. Academic Results (from the first year to now) Academic year Overall score Academic rating 1st year 3.46 Good 2nd year (First semester) 3.38 Good Hanoi, April 15, 2024 Advisor Team Leader Nghiem Xuan Hoa Nguyen Ngoc Mai 3 ACKNOWLEDGEMENT First and foremost, we would like to express our deep gratitude to Dr.
Nghiem Xuan Hoa for his invaluable guidance and support throughout this entire project. His enthusiasm for the research was contagious, and his expertise in the field proved to be instrumental in our success. Hoa's dedication to every detail ensured the quality of our work, and his unwavering support kept us motivated even during challenging moments. He fostered a creative environment where we could brainstorm ideas freely, and his mentorship played a vital role in helping us overcome obstacles.
We could not have achieved this milestone without Dr. Hoa's significant contributions. We sincerely thank him and look forward to collaborating with him on future endeavors. Student Nguyen Ngoc Mai 4 TABLE OF CONTENTS 1 CHAPTER 1: INTRODUCTION .1 Rationale of the study .3 Objective and Scope of the study.4 Structure of the study.
11 2 CHAPTER 2: LITERATURE REVIEW .1 Basic concepts regarding FDI and labor .1 Concepts of foreign direct investment .2 Concepts of labor .2 Theoretical background on how FDI affects labor .1 FDI’s direct effects model by S. KARLSSON ET AL.3 Previous studies on the impact between FDI and labor in Vietnam. 23 3 CHAPTER 3: RESEARCH METHODOLOGY AND HYPOTHESIS DEVELOPMENT .3 Sample’s general explaination .2 Statistical analysis method .1 Multivariate Regression with OLS model .2 Assumption in OLS model with time series data .3 Hypothesis development of the impacts of FDI on labor. 35 4 CHAPTER 4: DATA ANALYSIS AND RESEARCH FINDINGS .1 Linear regression using OLS model .1 Expected effects on dependent variable .2 Running regression model .1 Model’s Suitability Testing.
41 5 5 CHAPTER 5: CONCLUSION AND LIMITATIONS .2 A recommendation for the simultaneous growth of labor and FDI .1 Recommendation for FDI inflows development to enhance labor productivity 44 5.2 Recommendation for FDI inflows development to enhance employment .3 Recommendation for FDI inflows development to enhance real wages .3 Managerial implications for labor development .1 Labor productivity recommendations for FDI expansion .2 Employment recommendations for FDI expansion .4 Limitation of the study. 51 6 LIST OF FIGURES Figure 2.1: FDI firms' share in firms, employment, and revenue.2: Share of working people by sector, 2018 .3: The proportion of worker have social insurance (%) .1: Summary of the variables .1: Linear regression with OLS model (Impact of FDI on labor). 43 7 LIST OF TABLES Table 2.1: Types of FDI based on intrusion form.2: Types of FDI based on investment purposes .3: Description of variables in basic model of FDI .4: Description of variables in Cobb-Douglas production function .2: General variables description.3: Value and label of the variables .1: Expected effect of FDI_Inf on the Dependent variables .2: Regression results summarized .3: Results interpretation of model (1) .4: Results interpretation of model (2) .5: Results interpretation of model (3). 39 8 LIST OF ABBREVIATION Abbreviation/Acronym Explanation BCC Business corporation contract BoP Balance of Payment BOT Build-Operate-Transfer SOE State-owned Enterprise BT Build-Transfer BTO Build-Transfer-Operate CPI Consumer Price Index FDI Foreign Direct Investment FPI Foreign Portfolio Investment GI Greenfield Investment GSO General Statistics Office ILO International Labor Organization IMF International Monetary Fund M&A Merge Acquisition ODA Official Development Assistance OLS Ordinary Least Square DOLISA Department of Labour, War Invalids and Social Affairs 9 ABSTRACTS The relationship between Foreign Direct Investment (FDI) and the labor market has been a central theme in economic discussions.
As a key driver of economic growth, FDI plays a critical role in shaping the landscape of employment and workforce dynamics in a country. This study explores this intricate relationship using data from 2006 to 2023. Employing a Multivariate Regression Analysis with Ordinary Least Squares (OLS), the research investigates how FDI inflows influence three key labor market aspects: employment, labor productivity, and real wages. This statistical and descriptive analysis aims to quantify the qualitative link between FDI and labor market dynamics.
It is hypothesized that FDI will have a positive influence on all three labor market variables, potentially signifying an overall benefit for the host country's workforce. The study acknowledges the potential influence of additional factors and paves the way for future research to explore these moderators for a more comprehensive understanding of the complex interplay between FDI and labor market dynamics. Keywords: Foreign direct investment, labor market, employment, wages, labor productivity, Vietnam 10 1 CHAPTER 1: INTRODUCTION 1.1 Rationale of the study In this era of global economic integration, international money can flow into a country through various methods, including Official Development Assistance (ODA), international loans, Foreign Portfolio Investment (FPI), Foreign Direct Investment (FDI), and more. Among these, Foreign Direct Investment (FDI) plays a crucial role in the global economy, particularly in developing countries, due to the undeniable positive impacts it has on both the host and home countries' economies.
These impacts include job creation, increased competitiveness, higher income levels, boosted exports, improved firm revenues, and more. However, Foreign Direct Investment (FDI) can lead to "economic bubbles" in sensitive sectors such as real estate and the stock market in Vietnam in recent times, which can harm the national economy. Moreover, if countries allow foreign companies to enter strategically important industries such as energy, natural resources, etc., the comparative advantage of that nation could be severely affected, according to an IMF report. Theoretically, among the factors that affect FDI inflow, such as low corporate tax rates, long tax holidays, and relaxed government regulations, labor has always been a primary driver for FDI due to low costs and the highly potential labor market.
Nevertheless, the question of how Foreign Direct Investment (FDI) and labor are interconnected is still controversial. In Vietnam's case, with a significant refinement in law since 1986, especially the introduction of the 1987 Foreign Investment Law, the country's integration process has been accelerated by allowing Foreign Direct Investment (FDI) inflows to be considered an additional source to fill the shortage of domestic investment. As a result, this milestone has led to a significant increase in both the quality and quantity of FDI inflows into Vietnam. Based on the data from the World Bank Group, we experienced a peak in FDI net inflows (BoP, current US$) in 2022, reaching 17.
This amount was more than 1.2 times greater than the FDI net inflows of Vietnam in 2021, which stood at only 15. From the labor perspective, various factors related to labor, such as employment and labor productivity, also follow the same trend as FDI, showing an increase. To fully acknowledge the connection and the degree of the relationship between Foreign Direct Investment (FDI) and labor, the use of statistical analysis and models is essential. Matters concerning Foreign Direct Investment (FDI) and labor are not newly discovered, and there have been quite a few studies on FDI and labor separately from many parts of the world.
Such studies have shed light on these subjects individually; however, they have faced two main 11 problems: failure to provide a comprehensive assessment of the two-way relationship between FDI and labor, and not being Vietnam-based. This gap has created an opportunity for this thesis to explore: (i) the impact of FDI to labor variables in Vietnam, and (ii) to forecast the results of FDI and labor variables in Vietnam.2 Research questions To further contribute to the existing theoretical framework of foreign direct investment (FDI), this study focuses on the following fundamental research question: - How does Foreign Direct Investment (FDI) influence labor, and what perspectives are considered in assessing these effects? - Using the answer above, what implicit solutions can be inferred to stimulate the potential growth of each? 1.3 Objective and Scope of the study - The object of the study is the impacr of FDI to the labor market in Vietnam - Research scope: + About space: Effects of FDI inflows on labor market are presented for Vietnam. + About time: The period from 2006 – 2023 - Research data: Data is collected from the World Bank, General Statistics Office of Vietnam, Statistical Yearbook.4 Structure of the study The content of the research topic is organized into chapters to address the issues outlined in the research objectives. The study includes the rationale for attracting Foreign Direct Investment (FDI) capital and the theoretical basis for the research model concerning the relationship between FDI and Vietnam's labor market.
From a theoretical framework to analyze the impact of Foreign Direct Investment (FDI) on employment levels, wages, and working conditions in Vietnam. The main body of the thesis consists of five chapters: Chapter 1: Introduction 12 Chapter 2: Literature review Chapter 3: Research methodology and hypothesis development Chapter 4: Data analysis and research findings Chapter 5: Conclusion and limitations 2 CHAPTER 2: LITERATURE REVIEW This chapter aims to provide the relevant literature for this study. First, let's discuss the fundamental concepts of the two subjects: Foreign Direct Investment (FDI) and labor in a general context. Second, the theoretical frameworks utilized in the past and currently for researching the interactions between FDI and labor.
Upon reviewing the existing literature in Vietnam, the findings have been gathered and summarized to aid in the development of the research model and hypotheses in the subsequent chapter of the study.1 Basic concepts regarding FDI and labor 2.1 Concepts of foreign direct investment 2.1 Foreign direct investment – FDI FDI stands for Foreign Direct Investment and is a key element in developing a globally integrated economy. Since Foreign Direct Investment (FDI) has only recently entered Vietnam, its fundamental concept still poses a question for us to explore. The definition of FDI can be viewed from various perspectives, both locally and globally. This report will start by explaining the fundamental concepts of Foreign Direct Investment (FDI) that are universally recognized, then shift to Vietnam's perspective, and ultimately highlight key characteristics to provide a basic definition of FDI.
From a global perspective, Foreign Direct Investment (FDI) can be defined as "a form of international investment where a resident in one economy (the direct investor) acquires a long-term interest in an enterprise located in another economy (the direct investment enterprise)." The lasting interest implies the existence of a long-term relationship between the direct investor and the direct investment enterprise, and a significant degree of influence by the investor on the management of the enterprise (IMF, 1993). This may be the most common and simplest understanding of Foreign Direct Investment (FDI) nowadays. In addition to the definition provided by the IMF, another commonly accepted idea of Foreign Direct Investment (FDI) states that it involves "the acquisition by a foreign investor of at least a 10 percent stake in the authorized capital of a commercial organization." The Federal Law on Foreign Investment in the Russian Federation 13 was enacted in 1991. This organization is either established or in the process of being established in the territory of the host country as an economic partnership or company under the civil legislation of the host country.
The term "10 percent" is not only present in Russia's laws but also in India's laws, elucidating the concept of FDI.