TABLE OF CONTENTS

TABLE OF CONTENTS...............................................................................................................................................1

CHAPTER 1: INTRODUCTION................................................................................................................................2

1.1 Research Background.............................................................................................................................. 2

1.1.1 The Importance of FDI to Vietnam's Economy................................................................3

1.1.2 The Development of Free Trade Agreements (FTAs)...................................................3

1.1.3 FDI in the Context of Globalization.......................................................................................4

1.2. Research Objectives.................................................................................................................................5

1.3 Research Questions.......................................................................................................................12

1.4 Scope of Research..........................................................................................................................17

1.5 Research Methodology................................................................................................................23

CHAPTER 2: LITERATURE REVIEW.................................................................................................................29

2.1. Overview of Free Trade Agreements.............................................................................................30

2.1.1 Definition and Classification of FDI....................................................................................30

2.2.2 The Impact of FTAs on the Economy.................................................................................32

2.3 Economic Theories Related to FDI and FTA.......................................................................35

2.4 Previous Research on the Role of FTAs in Attracting FDI (Continued).................41

CHAPTER 3: THE REAL SITUATION IN VIETNAM.....................................................................................43

3.1 History and Development of FDI in Vietnam.....................................................................43

3.2 Role of FDI in Vietnam’s Economic Development...........................................................48

3.3 Vietnam’s Free Trade Agreements (FTAs).........................................................................52

3.4 FDI Trends in Vietnam in the Context of FTAs..................................................................56

CHAPTER 4: DATA ANALYSIS.............................................................................................................................62

4.1. Data Collection Methods.....................................................................................................................62

1. Business Surveys:.............................................................................................................................62

2. In-depth Interviews with Experts:............................................................................................62

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 3. Focus Groups:.....................................................................................................................................63

4.1.2.Secondary Data.....................................................................................................................................63

1. Statistics from the General Statistics Office of Vietnam (GSO):....................................63

2. Reports from International Organizations (World Bank, IMF):...................................64

3. Academic Research and Institutional Studies:.....................................................................64

4.2 Analysis of FTAs’ Impact on FDI.......................................................................................................65

4.2.1.Using Statistical Data to Analyze FTA-FDI Relationships.........................................65

4.2.2. Examples of FDI Inflow Changes Post-FTA....................................................................66

4.2.3. Economic Indicators and FDI Contribution...................................................................67

CHAPTER 5: CONCLUSION AND RECOMMENDATIONS..........................................................................70

5.1 Summary of Research Findings.........................................................................................................70

5.2 Policy Recommendations.....................................................................................................................71

1. Leverage FTAs by Enhancing the Investment Environment:........................................71

2. Develop a High-Quality Workforce:..........................................................................................72

3. Attract FDI into High-Tech and Sustainable Sectors:........................................................72

4. Continue Reforming Tax and Investment Incentive Policies:.......................................72

5.3 Limitations of the Research................................................................................................................72

1. Data Limitations:...............................................................................................................................73

2. Methodological Limitations:........................................................................................................73

CONCLUSION.............................................................................................................................................................. 74

REFERENCE LIST..................................................................................................................................................... 76

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 CHAPTER 1: INTRODUCTION

1.1 Research Background

1.1.1 The Importance of FDI to Vietnam's Economy.

Foreign Direct Investment (FDI) has played a crucial role in the global
economy. For developing countries like Vietnam, FDI is not only a vital source of
capital but also a bridge to facilitate technology transfer, improve management
expertise, and boost exports.
Since the Renovation period in 1986, Vietnam has made significant strides in
improving its investment environment and attracting FDI. In fact, FDI has
contributed substantially to the development of various sectors such as industry,
agriculture, services, and infrastructure. Through market liberalization, Vietnam has
accessed international capital sources and attracted global investors, which has
helped build a modern industrial and service infrastructure.

According to the Ministry of Planning and Investment, registered FDI into

Vietnam in 2020 exceeded $28 billion, despite the impact of the COVID-19
pandemic. The steady growth of FDI inflows over the past three decades has
demonstrated the strategic role of FDI in economic growth. Large investment
projects from international corporations such as Samsung, LG, Intel, and many
others have turned Vietnam into one of the most attractive destinations for foreign
investors in Southeast Asia.

Moreover, FDI has made significant contributions to enhancing labor

productivity, creating jobs, and developing supporting industries. This, in turn, has
improved people's living standards and promoted the economic structural shift
from agriculture to industry and services. A World Bank study shows that FDI
accounts for about 20-25% of total social investment and 70% of Vietnam's export
turnover.

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1.1.2 The Development of Free Trade Agreements (FTAs)
In addition to enjoying fast economic growth and a stable political climate,
Vietnam actively participates in free trade agreements (FTAs) in an effort to further
integrate into the world economy.Vietnam has signed over 15 bilateral and
multilateral trade agreements since joining the World Trade Organization (WTO) in
2007. FTAs include key accords like the Vietnam-EU Free Trade Agreement
(EVFTA), the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP), and the Regional Comprehensive Economic Partnership
(RCEP).

These FTAs have expanded Vietnam's access to international markets and

served as catalysts for domestic reforms. The signing and implementation of FTAs
have helped improve the business environment, streamline administrative
procedures, and enhance the competitiveness of domestic enterprises. Particularly,
provisions in the FTAs concerning intellectual property rights, labor, and
environmental standards have created a more transparent and attractive business
environment for foreign investors.

The EVFTA, which became operational in August 2020, has minimized taxes
on goods exported from Vietnam to Europe. This has not only enhanced exports but
also established advantageous for European enterprises to invest in Vietnam. In this
context, Vietnam has chosen by multinational companies, as a base for production
and service supply to regional and global markets.

1.1.3 FDI in the Context of Globalization

FDI flows have been greatly impacted by globalization, particularly in
developing nations like Vietnam. Due to the quick advancements in e-commerce,
global supply chains, and information technology, international investors are
becoming more and more interested in emerging markets with significant growth
potential. Vietnam, with its young population, growing domestic consumer market,
and open-door policies, has become an ideal destination for investors.

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 In this context, multinational corporations are not only seeking profits from
new markets but also aiming to build long-term and stable relationships. Vietnam’s
open policy in joining international organizations such as the WTO, APEC, and
ASEAN, and its signing of FTAs, has created a favorable environment for FDI.
However, Vietnam also faces challenges in balancing FDI attraction with national
interests, especially in sensitive areas such as natural resources, the environment,
and national security.

1.2. Research Objectives

The principal aim of this study is to examine the function of Free Trade
Agreements (FTAs) in drawing Foreign Direct Investment (FDI) to Vietnam and
evaluate the consequent influence of FDI on the economic growth of the nation.
Comprehending these dynamics is essential for forming future economic policies, as
Vietnam's integration into the global economy grows. The research will address a
variety of key dimensions, aiming to achieve a comprehensive understanding of how
FTAs have facilitated FDI flows and how FDI, in turn, contributes to Vietnam’s
economic progress.

1.2.1 Identifying the Role of FTAs in Attracting FDI

Because free trade agreements create more advantageous circumstances for
foreign investors, they have profoundly changed Vietnam's trade and investment
landscape. Vietnam has depended more and more on free trade agreements (FTAs)
to strengthen its standing as a key center for investments in Southeast Asia ever
since it joined the World Trade Organization (WTO) in 2007. The research aims to
deeply explore the role of these agreements in the context of FDI attraction:

1. Reduction of Trade Barriers:

One of the primary objectives is to examine how the reduction of trade

barriers, especially through tariff eliminations and lower import/export duties, has
contributed to the inflow of foreign investment. Many FTAs, such as the CPTPP and
the EVFTA, offer extensive tariff reductions, which lower the cost of doing business

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in Vietnam. This study will quantify the extent to which these tariff changes have
influenced investor decisions and how they have impacted key sectors such as
electronics, textiles, and consumer goods.

2. Investment Protection and Legal Stability:

Foreign investors often seek stability and protection in their investments,

and many FTAs include provisions that safeguard the rights of investors. By
examining specific clauses in agreements like the EU-Vietnam Investment
Protection Agreement (EVIPA), this research will identify how these protections,
including dispute resolution mechanisms, help build investor confidence. Legal
stability is particularly important for long-term investments in capital-intensive
industries such as infrastructure, real estate, and energy.

3. Market Access and Economic Integration:

Another important aspect of FTAs is their role in facilitating broader market

access. By providing Vietnam with preferential access to major global markets such
as the European Union and North America, FTAs have effectively expanded the
opportunities available to foreign investors looking to export products
manufactured in Vietnam. The research will evaluate how increased market access
has influenced FDI in export-oriented industries, including manufacturing,
agricultural processing, and software development.

4. Sector-Specific Impacts:

The research will further investigate how different FTAs influence FDI in
various sectors. For example, the EVFTA has particular significance for Vietnam's
agricultural exports, while the CPTPP provides a platform for technological and
service-related investments. This study will examine whether specific agreements
have spurred sector-specific investment trends, and it will explore why certain
sectors attract more FDI than others. Knowing these characteristics will help
identify the industries with the most growth potential in the future.

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 5. Comparative Analysis with Other ASEAN Countries:

Comparing Vietnam's FDI performance to that of its neighboring nations—

Thailand, Malaysia, and Indonesia, for example—who have also negotiated
significant free trade agreements, is a crucial aspect of the research. This
comparison will highlight whether Vietnam’s FTA network is uniquely effective in
attracting FDI, or if there are lessons to be learned from other countries’ approaches
to FTA implementation. The comparative analysis will shed light on how
competitive Vietnam is in the regional FDI landscape and where further
improvements can be made.

6. Influence of Non-Tariff Measures (NTMs):

In addition to tariff reductions, FTAs often address non-tariff measures, such

as licensing requirements, quotas, and technical barriers to trade. The research will
investigate how the removal or relaxation of these NTMs has influenced foreign
investors' decisions to enter the Vietnamese market. For example, investors in high-
tech industries may be more inclined to invest if technical standards are
harmonized through FTAs, making it easier to meet local regulations and export
requirements.

1.2.2 Evaluating the Impact of FDI on Vietnam’s Economic Development

Foreign Direct Investment has long been recognized as a key driver of
Vietnam's rapid economic development. This research will evaluate the multifaceted
impacts of FDI on the Vietnamese economy, seeking to understand the depth and
breadth of FDI’s contributions. The goal is to capture both quantitative outcomes
(such as GDP growth) and qualitative changes (such as technology transfer and skill
development) that have been catalyzed by FDI.

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 1. Contribution to GDP Growth:

A core objective of the research is to analyze how FDI has driven Vietnam’s
impressive GDP growth, particularly in the post-WTO accession period. Since 2007,
Vietnam has consistently achieved high rates of economic growth, largely fueled by
FDI in manufacturing, real estate, and infrastructure development. The study will
assess the direct correlation between increased FDI and GDP expansion, identifying
which sectors have benefited the most from foreign investment. Furthermore, it will
examine the multiplier effects of FDI in promoting economic activity across the
supply chain, thereby contributing to broader economic development.

2. Job Creation and Wage Growth:

One of the most visible benefits of FDI is job creation. This research aims to
quantify the employment impact of FDI across various sectors and regions in
Vietnam. Special attention will be given to labor-intensive sectors such as textiles
and electronics, where foreign-invested enterprises (FIEs) employ millions of

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Vietnamese workers. The study will explore how FDI has not only created jobs but
also contributed to wage growth and the improvement of working conditions,
particularly in regions with high concentrations of industrial parks and export
processing zones.

3. Technology Transfer and Skill Development:

FDI has played a significant role in upgrading Vietnam’s technological

capabilities and enhancing workforce skills. This study will look at particular
instances where foreign-invested businesses offered cutting-edge technologies and
management techniques that domestic businesses later embraced. For instance, big
international companies like Samsung and Intel have set up R&D facilities in
Vietnam, encouraging the local workforce to be innovative and to advance their
technological skills. The study will explore how these technology transfers have
enhanced Vietnam’s industrial capacity and contributed to the growth of
knowledge-based industries.

4. Export Growth and Industrialization:

FDI has been instrumental in transforming Vietnam into a global

manufacturing hub, particularly for electronics, textiles, and footwear. The research
will analyze how FDI has contributed to Vietnam’s export growth, with foreign-
invested enterprises accounting for a significant portion of the country's total
export value. The study will also investigate how FDI has accelerated Vietnam’s
industrialization process by fostering the development of supporting industries,
such as logistics and supply chain management, that are essential for export-
oriented production.

5. Regional Development and Poverty Reduction:

While much of the FDI in Vietnam has been concentrated in key urban
centers like Ho Chi Minh City and Hanoi, there is growing interest in understanding
FDI’s impact on regional development. This research will assess whether FDI has

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contributed to reducing income inequality by promoting economic growth in less-
developed provinces, especially in the Mekong Delta and Central Highlands. The
study will explore how FDI projects in these regions have improved infrastructure,
created jobs, and helped alleviate poverty by providing new economic opportunities
to rural populations.

6. Sustainable Development and Green Growth:

An emerging area of focus for FDI in Vietnam is its contribution to

sustainable development. This research will investigate whether foreign investors
are increasingly aligning their investments with Vietnam’s green growth strategy,
which prioritizes environmentally friendly practices, energy efficiency, and
renewable energy development. The study will highlight cases where FDI has
supported the development of clean energy projects, sustainable agriculture, and
eco-friendly manufacturing processes. It will also examine whether Vietnam has
successfully attracted environmentally responsible investments that contribute to
the country’s climate change goals.

1.2.3 Proposing Solutions to Maximize Benefits from FDI and FTAs

Despite the successes achieved through FTAs and FDI, challenges remain in
fully leveraging these tools for sustainable, long-term growth. This research will
propose strategies to maximize the benefits of FDI and FTAs for Vietnam's future
development, considering both the global economic landscape and domestic needs.

1. Enhancing FDI Policy Framework:

The research will identify gaps in Vietnam’s current FDI policy framework,
focusing on areas such as regulatory clarity, administrative efficiency, and the
enforcement of investor rights. Based on these findings, the study will propose
policy recommendations to streamline FDI approval processes, enhance
transparency, and reduce bureaucratic delays. The goal is to make Vietnam an even

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more attractive destination for FDI, particularly in high-tech and value-added
industries.

2. Promoting High-Quality and Sustainable FDI:

The research will explore strategies to attract more high-quality, sustainable

FDI that aligns with Vietnam’s long-term development goals. This includes focusing
on investments in clean energy, advanced manufacturing, and digital technologies
that offer greater economic value and contribute to environmental sustainability.
The study will offer recommendations on how Vietnam can strengthen its position
in these sectors through targeted incentives, improved infrastructure, and increased
collaboration with international organizations.

3. Improving the Implementation of FTAs:

While FTAs provide numerous benefits, the effectiveness of these

agreements depends on their implementation. This study will identify opportunities
for Vietnam to strengthen the way it carries out its FTA obligations, including
streamlining customs processes, removing non-tariff barriers, and harmonizing
technical standards. The study will also propose strategies to ensure that
Vietnamese businesses, especially small and medium-sized enterprises (SMEs), are
better equipped to take full advantage of the opportunities created by FTAs.

4. Regional Development through FDI:

Another important recommendation will focus on spreading the benefits of

FDI more evenly across Vietnam’s regions. The study will propose policies that
incentivize investment in underdeveloped areas by offering tax breaks, subsidies,
and infrastructure support to foreign investors. This will help reduce the economic
disparities between urban and rural areas, contributing to more balanced and
inclusive growth.

5. Aligning FDI with Vietnam’s 2045 Vision:

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 Finally, the research will propose ways to align future FDI attraction efforts
with Vietnam’s ambitious 2045 development goals, which include becoming a high-
income country by that year. This will involve crafting long-term strategies that
ensure FDI continues to play a central role in Vietnam’s economic transformation,
supporting both industrial modernization and sustainable development objectives.

1.3 Research Questions

In order to achieve the research objectives outlined above, this study seeks to
address the following key research questions. These questions will serve as a
guiding framework to assess the role of Free Trade Agreements (FTAs) in attracting
Foreign Direct Investment (FDI) to Vietnam, as well as the impact of FDI on the
country’s economic growth and development. The purpose of the research
questions is to give a thorough understanding of how Vietnam can optimize the
advantages of both free trade agreements and foreign direct investment in a
cutthroat global market.

1.3.1 How have Free Trade Agreements (FTAs) influenced the flow of FDI into
Vietnam?
The first research question focuses on the critical role that FTAs have played
in reshaping the landscape of FDI in Vietnam. By reducing trade barriers, offering
greater market access, and ensuring legal protections for investors, FTAs are
expected to contribute positively to the inflow of foreign investment. However, the
magnitude and nature of this impact vary depending on the specific provisions of
each agreement and the sectors they affect. Therefore, this question will explore:

1. What specific elements of FTAs have had the greatest impact on

attracting FDI?

This sub-question will investigate the significance of key FTA provisions such
as tariff reductions, investment protections, intellectual property rights, and dispute
resolution mechanisms. These elements are critical in determining the level of
confidence and interest that foreign investors have in the Vietnamese market. For

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example, in the Vietnam-EU Free Trade Agreement (EVFTA), tariff eliminations are
expected to benefit export-oriented industries, but it is important to examine
whether these changes have had a direct impact on FDI inflows in specific sectors
such as manufacturing, services, and agriculture.

2. How do different FTAs vary in their effectiveness in attracting FDI?

Vietnam has signed multiple FTAs with varying scopes and partner countries.
This question aims to compare the effectiveness of different FTAs, including the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),
the EVFTA, and the Regional Comprehensive Economic Partnership (RCEP). By
comparing FDI inflows before and after the implementation of these agreements,
the research will identify which FTAs have had the most significant influence on
foreign investment, and in which sectors these agreements have generated the most
impact.

3. What is the role of market access in attracting FDI?

Increased market access is one of the key incentives for foreign investors
when they choose a country as an investment destination. This research will
examine how FTAs that grant preferential access to international markets (such as
the EU and CPTPP countries) have influenced foreign companies’ decisions to set up
production facilities in Vietnam. The study will assess whether Vietnam’s access to
new consumer markets has led to greater investment in sectors like manufacturing,
technology, and export processing.

4. How do non-tariff measures (NTMs) affect FDI under FTAs?

Non-tariff measures, such as licensing requirements, technical standards, and

regulatory compliance, can either facilitate or hinder FDI inflows. While FTAs aim to
reduce trade barriers, they often leave room for these NTMs. This sub-question will
assess how these measures impact FDI, particularly in high-tech industries that
require specific regulatory frameworks. It will also explore whether Vietnam has

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been able to harmonize its technical standards with FTA partners to facilitate easier
market entry for foreign investors.

1.3.2 How has FDI contributed to Vietnam’s economic development?

The second major research question will investigate the impact of FDI on
Vietnam’s overall economic growth, with a focus on how foreign investments have
contributed to various aspects of economic development. FDI is widely recognized
as a key driver of industrialization, modernization, and economic transformation,
but its benefits can manifest in different ways depending on the sector and region.
Therefore, this question seeks to understand:

1. What is the direct contribution of FDI to Vietnam’s GDP?

The relationship between FDI and GDP growth is one of the most critical
indicators of the effectiveness of foreign investment. This sub-question will quantify
FDI’s direct contribution to Vietnam’s GDP over time, particularly in high-growth
sectors like manufacturing, construction, and services. The research will analyze
statistical data from the General Statistics Office of Vietnam (GSO) and other
relevant sources to track FDI’s share of GDP growth across different periods,
especially after the implementation of major FTAs.

2. How has FDI influenced job creation and income growth?

FDI has been instrumental in generating employment opportunities for

millions of Vietnamese workers. This research will investigate the extent to which
FDI has created both direct and indirect jobs, especially in labor-intensive industries
such as textiles, electronics, and agricultural processing. It will also look at the pay,
perks, and working conditions of jobs produced by foreign-invested businesses in
comparison to jobs created domestically. In important areas of the nation, the study
will evaluate whether FDI has lowered poverty rates and increased income growth.

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 3. What role has FDI played in technology transfer and skill
development?

One of the key benefits of FDI is the transfer of technology and knowledge
from foreign companies to local firms and workers. This sub-question will explore
how FDI has facilitated the transfer of advanced technologies and management
practices, particularly in high-tech industries such as electronics and IT. The
research will examine whether this technology transfer has led to improvements in
Vietnam’s productivity, innovation capacity, and industrial sophistication. It will
also investigate the role of FDI in skill development, particularly through vocational
training and on-the-job learning provided by foreign investors.

4. FDI has contributed to Vietnam’s export performance:

Vietnam’s rapid growth as an export powerhouse is closely linked to FDI,

especially in sectors like electronics, textiles, and footwear. This sub-question will
assess how FDI has supported Vietnam’s export growth by establishing large-scale
production facilities and integrating local supply chains into global markets. The
research will explore whether foreign-invested enterprises have helped improve
Vietnam’s competitiveness in the global marketplace by increasing production
capacity, improving product quality, and reducing costs.

5. The regional impacts of FDI on economic development:

While much of the FDI in Vietnam has been concentrated in urban centers
like Hanoi and Ho Chi Minh City, there are significant questions about the broader
regional impact of FDI. This research will explore whether FDI has contributed to
reducing regional disparities by promoting economic development in less-
developed provinces. It will investigate whether foreign investment has supported
infrastructure development, created jobs, and improved living standards in rural
areas, particularly in the Mekong Delta and the Central Highlands.

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1.3.3 What challenges and opportunities does Vietnam face in attracting FDI
through FTAs?
The third major research question examines the challenges and
opportunities that Vietnam faces in leveraging FTAs to attract FDI. While FTAs offer
significant benefits, they also present certain obstacles and limitations that must be
addressed to maximize their potential. This question will explore:

1. What are the regulatory challenges that hinder FDI attraction

under FTAs?

Although FTAs have simplified many aspects of trade and investment, foreign
investors often face regulatory challenges in Vietnam. These include complex
administrative procedures, unclear legal frameworks, and inconsistent enforcement
of laws. This sub-question will identify the main regulatory barriers that deter
foreign investors, particularly in sectors such as infrastructure and finance. The
research will propose solutions to streamline regulatory processes and improve the
ease of doing business for foreign investors under FTAs.

2. How can Vietnam improve its infrastructure to support FDI

growth?

Infrastructure development is critical for attracting FDI, especially in sectors

like manufacturing, logistics, and energy. However, Vietnam still faces infrastructure
bottlenecks, including inadequate transportation networks, energy shortages, and
limited access to high-quality industrial parks. This research will investigate the
extent to which infrastructure challenges have affected FDI inflows and propose
strategies to address these issues. It will also assess the role of FDI itself in financing
and developing infrastructure projects, particularly in partnership with the
Vietnamese government.

3. What opportunities do emerging industries and technologies offer

for FDI attraction?

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 As the global economy transitions toward digitalization and green growth,
new opportunities are emerging for Vietnam to attract FDI in high-tech industries,
renewable energy, and digital services. This sub-question will explore how Vietnam
can position itself as a destination for next-generation FDI by improving its
regulatory environment, offering targeted incentives, and investing in infrastructure
for advanced industries. The research will also assess Vietnam’s readiness to attract
foreign investments in sectors like e-commerce, artificial intelligence, and
renewable energy, which are expected to play a key role in the country’s future
economic development.

4. How can Vietnam better leverage FTAs to enhance FDI attraction?

Despite the extensive network of FTAs that Vietnam has signed, there is still
room for improvement in leveraging these agreements to attract FDI. This sub-
question will examine how Vietnam can better promote its FTA benefits to potential
investors, particularly through targeted marketing campaigns, investment
promotion programs, and business-to-business (B2B) partnerships. The research
will also explore whether Vietnam needs to renegotiate certain aspects of its FTAs
to address the evolving needs of foreign investors and ensure that the country
remains competitive in the global FDI market.

1.4 Scope of Research

The scope of this research defines the parameters within which the study will
be conducted. It helps to focus the analysis on specific periods, geographical areas,
and key factors related to the impact of Free Trade Agreements (FTAs) on Foreign
Direct Investment (FDI) and, in turn, the effects of FDI on Vietnam’s economic
development. The scope is divided into three dimensions: time, geographical
(spatial), and content.

1.4.1 Time Scope

This study focuses on the period from 2010 to 2023, a crucial time frame in
which Vietnam saw significant changes in its trade and investment environment,

17
largely due to the implementation of various FTAs and a surge in FDI. This period
was selected for several reasons:

1. Implementation of Major FTAs:

During this time, Vietnam has aggressively signed and implemented a

number of significant free trade agreements (FTAs), such as the Regional
Comprehensive Economic Partnership (RCEP), the Vietnam-EU Free Trade
Agreement (EVFTA), and the Comprehensive and Progressive Agreement for Trans-
Pacific Partnership (CPTPP). These agreements have brought about substantial
changes in Vietnam’s trade policies, tariff reductions, and legal frameworks, which
are expected to influence FDI inflows.

2. Post-WTO Integration:

Vietnam joined the World Trade Organization (WTO) in 2007, marking a

significant step toward integrating into the global economy. However, the effects of
post-WTO membership became more visible in the subsequent decade, particularly
after 2010, as Vietnam continued to adjust its legal and regulatory frameworks to
comply with global trade standards. This period reflects a critical phase of Vietnam’s
economic development as it sought to align its policies with international norms.

3. Impact of Global Events:

The time frame includes significant global events, such as the financial crisis
of 2008 and the COVID-19 pandemic in 2020. These events had profound effects on
global trade and investment patterns. By studying the FDI inflows during these
periods, the research will examine how Vietnam’s FTA framework helped mitigate
the impact of these global shocks and whether FDI remained resilient in the face of
these challenges.

4. Post-FTA Economic Shifts:

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 The analysis will include data from before and after the implementation of
key FTAs, allowing for a comprehensive comparison of FDI inflows and economic
outcomes. This approach will enable the research to capture the dynamic changes in
Vietnam's investment environment and assess the direct impact of FTAs on foreign
investment.

The 2010-2023 period provides a comprehensive timeline for evaluating the

effectiveness of FTAs in attracting FDI and how foreign investment has contributed
to Vietnam's economic development during these transformative years.

1.4.2 Geographical (Spatial) Scope

The geographical focus of this research is primarily on Vietnam, although
comparative analyses with other countries in Southeast Asia, such as Thailand,
Malaysia, Indonesia, and the Philippines, will also be conducted to provide
regional context. The focus on Vietnam is justified by the country’s unique position
as one of the most dynamic emerging markets in Asia, particularly in terms of its
integration into global trade networks through FTAs.

1. Vietnam’s Regions:

Within Vietnam, the study will examine how FDI has impacted different
regions of the country. Much of Vietnam’s FDI is concentrated in key urban centers
such as Ho Chi Minh City, Hanoi, and Da Nang. However, the research will also
assess the extent to which FDI has benefited less-developed regions such as the
Mekong Delta, the Central Highlands, and the northern mountainous areas. This
will provide a clearer understanding of how FDI and FTAs have contributed to
reducing regional disparities and promoting more inclusive growth across the
country.

2. Comparative Regional Analysis:

The research will also compare Vietnam’s performance in attracting FDI

with other ASEAN countries that have signed similar FTAs. FDI has been

19
successfully attracted to nations like Malaysia and Thailand, who have also inked a
number of trade agreements. To determine how effective Vietnam's strategy is in
leveraging FTAs for FDI in comparison to its neighbors, a comparative analysis will
be conducted. This will also help identify best practices that Vietnam can adopt to
further improve its FDI policies.

3. Global Comparisons:

Global comparisons on FDI appeal may also be included in the study,

especially with respect to other significant FDI destinations like China and India.
These comparisons will provide a broader perspective on how Vietnam competes in
the global FDI market and how its FTA strategy compares to other major emerging
economies.

By focusing on Vietnam while incorporating regional and global comparisons,

the research will offer a nuanced understanding of Vietnam’s position in the global
and regional FDI landscape. This spatial scope ensures that the findings are relevant
not only to policymakers in Vietnam but also to investors and international
organizations interested in Southeast Asia’s investment dynamics.

1.4.3 Content Scope

The content of the research will be focused on two main aspects: the role of
FTAs in attracting FDI to Vietnam and the subsequent impact of FDI on various
dimensions of Vietnam’s economic development. The study will analyze these
factors in detail, based on the following:

1. Role of FTAs in Attracting FDI:

The research will analyze the influence of key FTAs that Vietnam has signed
in the past decade, including but not limited to:Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (CPTPP)

o Vietnam-EU Free Trade Agreement (EVFTA)

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 o Regional Comprehensive Economic Partnership (RCEP)
o ASEAN Trade in Goods Agreement (ATIGA)

The study will assess the specific provisions of these FTAs that have created a
favorable investment environment for foreign investors. These include:

o Tariff Reductions: How lowering tariffs and eliminating trade

barriers have influenced foreign companies' decisions to invest in
Vietnam.
o Investment Protection: How the legal and regulatory protections
offered under FTAs, such as dispute resolution mechanisms, have
enhanced investor confidence.
o Market Access: How the increased market access to FTA partner
countries has incentivized foreign firms to use Vietnam as a
production base for exports.
o Non-Tariff Measures (NTMs): How the reduction or elimination of
non-tariff barriers has simplified regulatory processes and facilitated
FDI.

2. Impact of FDI on Economic Development:

The research will focus on how FDI has impacted several critical areas of
Vietnam’s economy, including:

o GDP Growth: The direct and indirect contributions of FDI to

Vietnam’s economic expansion, particularly in the industrial, service,
and high-tech sectors.
o Job Creation and Labor Market Development: The function of
foreign direct investment (FDI) in creating jobs, enhancing labor
market conditions, and raising salaries in various industries.

21
 o Technology Transfer and Skill Development: The extent to which
FDI has facilitated technology and knowledge transfer, as well as the
development of local skills, especially in high-tech industries.
o Industrialization and Export Growth: How FDI has contributed to
the industrialization process and boosted Vietnam’s export
competitiveness, particularly in sectors such as electronics, textiles,
and agriculture.
o Sustainable Development: The impact of FDI on achieving
sustainable development goals, such as environmental protection,
energy efficiency, and the promotion of green growth.

3. Challenges and Opportunities in Attracting FDI:

The research will identify and analyze the challenges Vietnam faces in fully
leveraging FTAs to attract FDI, including:

o Regulatory Barriers: Administrative and legal challenges that may

deter foreign investors, such as complex bureaucratic procedures and
inconsistent enforcement of laws.
o Infrastructure Deficiencies: How limitations in infrastructure,
including transportation, energy supply, and logistics, impact
Vietnam’s attractiveness to FDI.
o Competition with Other Countries: The competitive landscape
within Southeast Asia and how Vietnam’s FDI policies compare with
those of neighboring countries like Thailand, Malaysia, and Indonesia.
o Emerging Industries and Future Opportunities: Opportunities for
Vietnam to attract FDI in emerging sectors such as renewable energy,
digital economy, and high-tech industries in alignment with global
trends.

4. Comparison Across Key Sectors:

22
 The study will categorize the impact of FTAs and FDI across different sectors,
including:

o Manufacturing: A critical driver of Vietnam’s growth, particularly in

electronics, textiles, and machinery.
o Services: Analyzing the growth of sectors like logistics, finance, and
information technology as a result of FDI inflows.
o Agriculture: Assessing how FTAs and FDI have transformed
traditional sectors like agriculture and fisheries, particularly with
regard to exports.

By focusing on these core content areas, the research will provide a

comprehensive analysis of how FTAs and FDI intersect and contribute to Vietnam’s
long-term economic goals. The study’s content scope ensures that all key
dimensions—legal, economic, and infrastructural—are addressed in a detailed and
structured manner.

1.5 Research Methodology

The methodology of this research combines both qualitative and
quantitative approaches, using primary and secondary data to comprehensively
examine the role of Free Trade Agreements (FTAs) in attracting Foreign Direct
Investment (FDI) to Vietnam, as well as the impact of FDI on Vietnam’s economic
development. By employing a mixed-methods approach, this study will provide a
robust and well-rounded analysis that captures both the statistical trends and the
underlying factors influencing FDI flows and economic growth. The research
methodology is divided into the following components: qualitative methods,
quantitative methods, and data collection sources.

1.5.1 Qualitative Methods

The qualitative portion of this study will concentrate on investigating the
detailed viewpoints and situational elements that impact the connection between
free trade agreements, foreign direct investment, and economic growth. This

23
method is essential for understanding the complex legal, policy, and business
environment that shapes FDI flows in Vietnam. The qualitative analysis will include:

1. Document Analysis:
The study will examine a range of policy documents, trade agreements,
government reports, and academic literature related to FTAs and FDI. These
documents will include:

o Full texts of FTAs such as the CPTPP, EVFTA, and RCEP, with a focus
on key provisions that directly impact FDI, such as tariff eliminations,
investment protection clauses, and dispute resolution mechanisms.
o Reports from international organizations such as the World Bank,
the World Trade Organization (WTO), and the Asian Development
Bank (ADB) on the economic impact of FTAs and FDI in Vietnam and
other Southeast Asian countries.
o Government publications from the Ministry of Planning and
Investment, the Ministry of Industry and Trade, and the General
Statistics Office of Vietnam, which provide detailed insights into
Vietnam’s FDI policies, sectoral performance, and economic
development strategies.

The document analysis will identify patterns and themes related to the legal
and economic factors that influence FDI, including how FTAs are implemented in
practice and what challenges exist in enforcing these agreements. By synthesizing
information from these various sources, the research will build a comprehensive
understanding of the broader policy context.

2. Interviews with Key Stakeholders:

To gain qualitative insights from experts, the research will conduct semi-
structured interviews with key stakeholders, including:

24
 o Government officials involved in FDI policy-making and the
negotiation of FTAs, especially from the Ministry of Planning and
Investment and the Ministry of Industry and Trade.
o Foreign investors who have established operations in Vietnam,
particularly representatives from multinational corporations in key
sectors such as electronics, textiles, and manufacturing. These
interviews will focus on the challenges and opportunities investors
face in leveraging Vietnam’s FTA network.
o Business associations such as the Vietnam Chamber of Commerce
and Industry (VCCI) and foreign chambers of commerce (e.g.,
EuroCham, AmCham) to understand the perspectives of the private
sector on how FTAs influence FDI decisions.

These interviews will provide firsthand insights into the practical aspects of
FDI attraction and the implementation of FTAs, particularly in terms of regulatory
barriers, market access issues, and the overall investment environment.

3. Case Studies:

The research will include several in-depth case studies of specific FTAs and
their impact on FDI inflows in targeted industries. For example:

o The impact of the CPTPP on FDI in the textile and apparel sectors,
which have benefitted from preferential tariff treatment and
expanded market access to countries like Canada, Japan, and
Australia.
o The role of the EVFTA in attracting high-tech investments from
European companies in the electronics and renewable energy
sectors.
o How the RCEP has influenced intra-Asian investments, particularly
from China, Japan, and South Korea, into Vietnam’s manufacturing
and automotive sectors.

25
 These case studies will provide detailed examples of how specific FTAs have
affected investor behavior, sectoral growth, and regional development within
Vietnam.

1.5.2 Quantitative Methods

The quantitative analysis will focus on examining statistical data to measure
the impact of FTAs on FDI inflows and the broader economic development of
Vietnam. This part of the research aims to identify correlations and causations
between FTA implementation and various economic indicators, such as FDI volume,
GDP growth, job creation, and export performance. The following approaches will
be used:

1. Data Analysis on FDI Inflows:

The study will analyze time-series data on FDI inflows to Vietnam from 2010
to 2023. This data will be obtained from sources such as the General Statistics
Office of Vietnam, the Ministry of Planning and Investment, and international
databases like the World Bank and UNCTAD. The analysis will focus on:

o The overall trends in FDI inflows, comparing the periods before and
after the implementation of key FTAs.
o Sector-specific FDI data to determine which industries have
benefitted the most from FTAs. For instance, the study will look at FDI
trends in manufacturing, technology, agriculture, and services.
o Comparative analysis with neighboring ASEAN countries to
understand Vietnam’s relative performance in attracting FDI.

By tracking these trends, the research will quantify the direct impact of FTAs
on Vietnam’s FDI performance and assess whether certain agreements have had a
more pronounced effect than others.

2. Regression Analysis:

26
 To further explore the relationship between FTAs and FDI inflows, the study
will use econometric techniques such as multiple regression analysis. The model
will examine the following variables:

o Independent variables: Key provisions from FTAs (such as tariff

reductions, investment protection, and dispute resolution), as well as
Vietnam's domestic economic indicators (inflation rate, infrastructure
development, labor costs).
o Dependent variable: FDI inflows into Vietnam, measured both in
terms of total volume and sector-specific investments.

The regression analysis will help determine the statistical significance of each
variable, providing a clearer understanding of which factors are most influential in
attracting FDI to Vietnam under its FTA framework.

3. Impact on GDP, Employment, and Exports:

Beyond FDI inflows, the quantitative analysis will also assess the impact of
FDI on key economic outcomes such as:

o GDP growth: How FDI has contributed to Vietnam’s overall economic

expansion, particularly in sectors that have received substantial
foreign investment.
o Employment generation: The number of jobs created by FDI, both
directly in foreign-owned enterprises and indirectly in domestic
supply chains.
o Export performance: The role of foreign-invested enterprises (FIEs)
in boosting Vietnam’s export capacity, particularly in high-value
industries such as electronics, textiles, and agriculture.

The research will use available economic data to quantify these impacts,
helping to identify the broader benefits of FDI for Vietnam’s development.

27
1.5.3 Data Collection Sources
The data used in this research will be drawn from a combination of primary
and secondary sources to ensure a comprehensive and reliable analysis.

1. Primary Data:

o Interviews with key stakeholders as mentioned above, providing

qualitative insights into the FDI decision-making process and the
implementation of FTAs.
o Survey data collected from foreign investors, business associations,
and government officials, focusing on their experiences with
Vietnam’s FTA network and investment environment.

2. Secondary Data:

o Government and Institutional Reports: Data from the General

Statistics Office of Vietnam (GSO), the Ministry of Planning and
Investment (MPI), and the Ministry of Industry and Trade will
provide official statistics on FDI inflows, sectoral performance, and
economic growth. These reports will also offer insights into Vietnam’s
FTA policies and their economic impact.
o International Databases: Sources such as the World Bank, United
Nations Conference on Trade and Development (UNCTAD), and
the OECD will be used for cross-country comparisons, particularly in
terms of FDI inflows and economic indicators across ASEAN and other
regions.
o Academic Research: Existing studies and academic literature on the
relationship between FTAs, FDI, and economic development will serve
as a foundation for the theoretical framework of this research.

1.5.4 Limitations of the Study

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 While this research employs a rigorous methodology, it is important to
acknowledge potential limitations:

 Data Availability: Accurate and up-to-date data on FDI inflows and

economic performance may not always be available, especially at the
regional or sectoral level. The study will rely on the most recent and reliable
data, but gaps may exist in certain time periods or sectors.
 Causality vs. Correlation: While regression analysis can help establish
relationships between variables, it may be difficult to definitively prove
causality between FTAs and FDI inflows. External factors, such as global
economic conditions and domestic policy changes, may also influence these
relationships.
 Subjectivity in Qualitative Analysis: Interviews and case studies involve
subjective perspectives that may vary depending on the respondents’
experiences. The study will attempt to mitigate this by ensuring a diverse
and representative sample of interviewees.

29
 CHAPTER 2: LITERATURE REVIEW

2.1. Overview of Free Trade Agreements.

2.1.1 Definition and Classification of FDI

1. Definition of FDI (Foreign Direct Investment)

A person, company, or organization from one nation may invest in the
enterprises, infrastructure, or productive assets of another nation with the intention
of retaining long-term control. This type of international investment is known as
foreign direct investment, or FDI. This differs from short-term financial
investments, such as in stocks or bonds, where the investor does not directly
participate in the management of the invested company or project.

Foreign direct investment (FDI) is generally made when a corporation wants

to enter new markets or take advantage of manufacturing factors (such low-cost
labor or raw materials) in the country of destination. The long-term nature of
foreign direct investment (FDI) and its capacity to either directly or indirectly
influence the management of the company in which it has invested are important
characteristics.

According to the International Monetary Fund (IMF) and the Organization for
Economic Cooperation and Development (OECD), for an investment to be
considered FDI, the investor must own at least 10% of the voting shares in the
company being invested in.

2. Classification of FDI

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 FDI can be classified in various ways, depending on the investor’s goals,
methods of investment, and other factors. Below are the primary classifications of
FDI:

Classification by Investment Direction:

o Horizontal FDI: This occurs when a company invests in an industry

similar to the one in which it operates in its home country. For
example, a car manufacturing company in the U.S. might open a car
manufacturing plant in Vietnam. The primary goal of this type of FDI
is often market expansion and reducing transportation and tariff costs
when selling products locally.
o Vertical FDI: This type of FDI occurs when a company invests in
activities that belong to different stages of its production value chain.
Vertical FDI is divided into two types:

1. Forward Vertical FDI: A company invests in activities that

take place after the production process, such as opening
distributors or sales agents abroad.
2. Backward Vertical FDI: A company invests in activities that
provide inputs or resources for its production process, such as
opening a raw materials plant overseas.

o Conglomerate FDI: This is a type of FDI in which the investor invests

in industries unrelated to its core business operations. For example, a
car manufacturing company might invest in a financial services firm in
another country. This type of FDI is the least common due to the high
risk and complexity of managing different industries.

Classification by Form of Investment:

o Greenfield Investment: In this type of foreign direct investment

(FDI), the foreign investor constructs brand-new commercial facilities

31
 in the host nation. Building a new factory, production facility, or office
building, for instance. Because it boosts production capacity, creates
jobs, and frequently involves technology transfer and the introduction
of new managerial skills, greenfield FDI has a substantial effect on the
local economy.
o Mergers and Acquisitions (M&A): This is a form of FDI in which the
foreign investor acquires all or part of a domestic company in the host
country. M&A can help investors save time and costs by avoiding the
need to build new facilities, while also enabling quicker access to local
markets. However, M&A can face risks such as cultural and
managerial differences between the parent company and the acquired
company.

Classification by Strategic Objective:

o Market-seeking FDI: This type of FDI is primarily aimed at accessing

new markets and expanding the investor’s market share. Investors
typically seek to enter countries with large consumer potential, such
as developing nations with large populations or emerging markets.
o Resource-seeking FDI: Investors make investments in countries with
abundant natural resources, such as oil, gas, minerals, or cheap labor.
Industries such as oil and gas, mining, and heavy industry typically fall
under this category.
o Efficiency-seeking FDI: The goal for investors is to optimize
production costs, reduce labor costs, or take advantage of favorable
production conditions. For example, many international companies
invest in countries with low labor costs like Vietnam, Bangladesh, or
Mexico to reduce production expenses.

3.Distinguishing FDI from Other Forms of Investment

FDI is clearly distinguished from other forms of investment, such as Foreign
Portfolio Investment (FPI). In FPI, investors purchase financial securities or assets

32
of a foreign country but do not have control or participate in the business
operations of the investee company. In contrast, FDI requires the investor to take an
active role in managing and controlling the business or project they are investing in,
with the long-term goal of influencing and directing its operations.

2.2.2 The Impact of FTAs on the Economy

Free Trade Agreements (FTAs) have profound impacts on the economies of
participating countries, including both positive effects and potential challenges.
Below is a detailed analysis of the main impacts of FTAs on the economy:

1. Increase in International Trade

FTAs help eliminate or reduce trade barriers such as tariffs, quotas, and
other protective measures, leading to an increase in trade between member
countries. Participating countries have the opportunity to access larger markets,
thereby boosting exports and enhancing the competitiveness of domestic
businesses.

 Increased exports: With reduced tariffs, a country’s products become more

competitive in partner markets, driving up exports and increasing foreign
revenue.
 Expanded import markets: The quality of domestic goods is improved and
consumer choices are diversified by free trade agreements (FTAs), which
also grant lower-cost access to imported goods and services.

2. Promote Foreign Investment

FTAs not only facilitate trade in goods but also have a significant impact on
attracting foreign direct investment (FDI). Investors feel more confident investing in
countries with FTAs due to a more secure and stable legal environment.

 Attract FDI: Countries involved in FTAs often commit to more transparent

investment standards and conditions. This attracts foreign investors,
especially in long-term sectors such as industrial production, infrastructure,
and services.

33
  Strengthen supply chain linkages: FTAs connect countries within a global
supply chain, making it easier for multinational companies to establish
production facilities or branches in countries with cost advantages or
favorable geographic locations.

3. Enhance Competition and Improve Production Efficiency

FTAs force domestic businesses to face greater competition from foreign
companies. This pressure fosters technological innovation, better management, and
improved production efficiency.

 Improved performance: Domestic companies are forced to improve their

production and management procedures in order to compete on both price
and quality when foreign companies join the market through free trade
agreements. Increased labor productivity and economic efficiency are mostly
caused by this.
 Technological innovation: Competition from international partners also
encourages domestic businesses to invest in advanced technologies and
develop new products, thereby enhancing their competitiveness in global
markets.

4. Facilitate Economic Structural Transformation

FTAs promote the process of economic restructuring towards modernization.
Traditional industries may weaken under international competition, but FTAs also
create opportunities for the growth of new industries and services with high added
value.

 Industrial transformation: Industries relying on cheap labor and low added

value may lose market share due to FTAs. However, a country can benefit
from the development of high-tech industries, services, and sectors that can
be exported to international markets with higher value.

34
  Enhance export capacity: FTAs open up new markets for a country’s
competitive products, particularly in sectors like agriculture, food, and
technology products.

5. Potential Negative Effects

In addition to benefits, FTAs can also bring some negative impacts to
economies, especially in countries where domestic industries are not sufficiently
developed.

 Decline in domestic industries: Under the pressure of cheaper, better-

quality imported goods and services from FTA partner nations, industries
that are weaker or lack competitive advantages may contract or fail.
 Income inequality: FTAs can lead to income disparities between economic
regions or sectors. Sectors that benefit from FTAs will grow strongly, while
those without competitive advantages may decline, leading to job losses and
uneven income distribution.

2.3 Economic Theories Related to FDI and FTA

Economic theories serve as the foundation for understanding the
motivations, mechanisms, and impacts of Foreign Direct Investment (FDI) and Free
Trade Agreements (FTA) on economies. This section presents key theories related
to FDI and FTA, providing deeper insights into these economic phenomena.

2.3.1 International Investment Theories

International investment theories focus on explaining the factors that drive
companies to expand their operations beyond national borders through direct
investment. The main theories include:

1. Comparative Advantage Theory

One of the key economic ideas in international trade is the comparative

advantage hypothesis, which David Ricardo created. According to this notion, every
nation should concentrate on manufacturing items that it can make more cheaply

35
than those produced in other nations. Comparative advantage applies not only to
trade in goods but also explains the movement of capital and international
investment. Companies seeking FDI often target countries where they can exploit
lower production costs, abundant resources, or favorable investment environments,
thus achieving a comparative advantage over producing at home.

2. OLI Theory (Ownership, Location, Internalization - Eclectic

Paradigm)

The OLI theory, developed by John Dunning, is one of the most important
theoretical frameworks for explaining the FDI behavior of multinational companies.
According to this theory, a company’s decision to invest abroad depends on three
factors:

 Ownership advantages: These are the advantages the investing

company possesses, such as advanced technology, brand, large scale,
or superior management skills. These advantages enable the company
to compete effectively in foreign markets.
 Location advantages: This factor relates to the characteristics of the
host country, such as low production costs, abundant labor, favorable
tax policies, or a large consumer market. Companies choose to invest
in countries that have location advantages aligned with their strategy.
 Internalization advantages: This refers to a company’s preference to
control and operate its foreign business rather than using partners or
trade contracts. Internalization helps the company minimize risks and
maximize benefits from its ownership and location advantages.

3. Product Life Cycle Theory

Raymond Vernon developed the product life cycle theory to explain FDI
dynamics. According to this theory, new products are often developed and produced
in developed countries, where advanced technology and high capital investment are

36
available. As the product enters its growth and saturation phases, production costs
in developed countries increase, leading companies to shift production to
developing countries to take advantage of lower labor costs and maintain
competitiveness.

This theory clearly explains the FDI process when companies move
production abroad to extend the product life cycle and optimize costs. For example,
many multinational corporations have shifted production from developed countries
like the U.S. and Japan to developing countries like China and Vietnam to take
advantage of cheap labor.

4. Capital Movement Theory

The reason why foreign direct investment (FDI) tends to flow from
developed to developing nations is examined under this theory. The primary reason
is that foreign investors may earn higher profits in emerging nations than they do in
their home countries, and there is a greater need for cash to grow companies, build
infrastructure, and produce. Companies look for investment possibilities in
emerging regions in order to maximize earnings because the investment
environment in established countries may be saturated or offer lower returns.

5. Porter’s National Competitive Advantage Theory

This idea was proposed by Michael Porter, who emphasized that four key
variables determine the success of multinational industries and businesses:

 Factor Conditions: The country has the labor force, capital, and
natural resources needed to produce particular goods.
 Demand Conditions: Domestic demand for products and services
drives innovation and quality improvement.
 Related and Supporting Industries: The development of strong
supporting industries fosters competition and innovation.

37
  Firm Strategy, Structure, and Rivalry: Companies are forced by
fierce home rivalry to constantly enhance their performance and
quality, which helps them to compete more successfully abroad.

2.3.2 International Trade and Economic Integration Theories

Theories of international trade and economic integration aid in our
comprehension of how free trade agreements affect economies and how nations
gain from joining the world trade network.

1. Heckscher-Ohlin Theory

Heckscher-Ohlin is one of the most important theories in international trade

economics. This theory states that countries will export goods that require factors of
production in which they have a relative advantage (such as labor or resources) and
import goods for which they lack those factors. FTAs facilitate this process by
removing trade barriers, leading to more efficient international labor division.

For example, a country rich in natural resources but lacking technology will
export raw materials and import high-tech products from countries with
technological advantages.

2. Economies of Scale Theory

The economies of scale theory suggests that when countries participate in

FTAs, they can expand production, thereby reducing the per-unit cost of production.
Larger-scale production leads to higher economic efficiency and better international
competitiveness. For businesses, accessing new markets through FTAs not only
helps increase production but also optimizes costs and resources.

3. Economic Integration Theory

Economic integration is the process by which countries economically connect

by removing or reducing trade barriers and fostering interdependence. The level of

38
integration can range from simple free trade agreements (FTA) to comprehensive
economic unions. The levels of integration include:

 Free Trade Agreement (FTA): Elimination of tariffs between member

countries while maintaining independent trade policies with other countries.
 Customs Union: Countries not only remove tariffs but also establish a
common tariff policy toward non-member countries.
 Common Market: Allows free movement of labor and capital between
member countries, in addition to eliminating tariffs.
 Economic Union: This is the highest level of integration, including a
common market and harmonized fiscal, monetary, and economic policies.

4. International Division of Labor Theory

The International Division of Labor Theory examines how, in a worldwide
economy, labor and production responsibilities are distributed across various
nations. It explains the specialization of countries in specific industries or
production stages based on their comparative advantages, resources, and level of
development. As global trade and investments have expanded, the international
division of labor has evolved, allowing nations to optimize production processes and
enhance economic efficiency.

2.3.3. Key Concepts of International Division of Labor Theory

1. Specialization Based on Comparative Advantage:

This theory builds on David Ricardo’s comparative advantage theory, where

countries focus on producing goods or services in which they have a relative
efficiency advantage. For example, nations with a surplus of labor could specialize in
labor-intensive manufacturing, whereas nations with superior technology would
concentrate on businesses requiring a lot of capital or technology.

2. Global Supply Chains:

39
 In modern international trade, production is often spread across multiple
countries, forming global supply chains. Each country or region specializes in
different stages of production. For example, raw materials may be extracted in one
country, assembled in another, and marketed in a third, reflecting the efficiency of
international labor division.

3. North-South Division:

In the past, the global division of labor was frequently described in terms of
the "North-South" divide, in which developed nations (the Global North) were
concentrated on high-technology, capital-intensive industries, while developing
nations (the Global South) were more interested in labor-intensive or resource-
based sectors. Over time, however, this division has shifted as emerging economies
have developed more advanced industries.

4. Industrial Upgrading:

The theory also explains how countries evolve in their specialization. As

countries industrialize and develop more sophisticated capabilities, they move up
the value chain—from low-skill, low-wage industries to higher-skill, higher-wage
industries. For example, countries like China and South Korea transitioned from
being primarily manufacturers of low-cost consumer goods to leaders in high-tech
and innovation sectors.

2.3.4. Impacts of the International Division of Labor

 Economic Growth: By focusing on sectors where they have an advantage,

countries can increase their productivity, promote economic growth, and
improve the welfare of their population.
 Interdependence: The international division of labor fosters
interdependence among countries, as no single nation can produce all the
goods and services it needs. This encourages trade and economic
cooperation.

40
  Wage and Labor Conditions: In some cases, the international division of
labor can lead to wage disparities, with workers in developing countries
receiving lower wages for labor-intensive tasks while workers in developed
countries command higher wages for skilled work.
 Global Inequality: While the theory promotes efficiency, critics argue that it
can perpetuate global inequality. Developing nations may remain trapped in
low-value-added industries, while wealthier nations control high-value-
added sectors, reinforcing economic imbalances.

2.4 Previous Research on the Role of FTAs in Attracting FDI (Continued)

2.4.1. Overview of Global Research

Many studies around the world have shown that free trade agreements
(FTAs) play a crucial role in attracting foreign direct investment (FDI). According to
research by Yeyati, Stein, and Daude (2003), FTAs can facilitate FDI inflows by
reducing trade barriers, enhancing transparency, and improving the investment
environment. Furthermore, Medvedev (2012) confirmed that countries involved in
FTAs tend to attract larger FDI flows compared to those without such agreements.
Baier and Bergstrand's (2007) research demonstrated that the growth of FDI in FTA
regions often stems from market expansion and policy stability.

Another study by Ekholm et al. (2007) emphasized that FTAs not only
promote FDI from member countries but also increase capital flows from non-
member countries, thanks to the advantages of simplified tariffs and trade
regulations. Thus, signing and participating in FTAs not only helps expand export
markets but also makes countries more attractive to international investors.

In addition to the aforementioned studies, many researchers also emphasize

the impact of specific factors within FTAs on FDI. According to Banga (2003), a key
factor is intellectual property (IP) provisions. Strong protection of IP rights in FTAs
often helps attract investors in high-tech and creative industries. The study
highlighted that countries entering into FTAs with strict IP protection clauses tend

41
to receive more FDI in sectors such as technology, pharmaceuticals, and advanced
manufacturing.

Moreover, Dunning et al. (2008) argue that FTAs enhance the credibility of
the legal environment, reducing risks for foreign investors. Investors often seek
countries with stable legal and policy frameworks, and FTAs can serve as a
guarantee for these standards. For example, FTAs typically include provisions for
international dispute resolution, which helps mitigate legal risks and encourages
investment.

2.4.2. Research in Vietnam

In Vietnam, studies on the impact of FTAs on FDI have shown similar results.
According to research by Nguyen and Le (2016), participation in FTAs, especially
new-generation agreements such as the Comprehensive and Progressive Agreement
for Trans-Pacific Partnership (CPTPP), has contributed to attracting FDI flows into
Vietnam. The study found that foreign investors view Vietnam as an appealing
destination due to tariff reductions, administrative transparency, and improved
intellectual property rights protection.

Research by Tran et al. (2020) also indicated that trade agreements with the
EU, such as the EU-Vietnam Free Trade Agreement (EVFTA), have had positive
effects on FDI in sectors such as manufacturing, processing industries, and high
technology. Additionally, these agreements have helped Vietnam raise its
international profile and become a global manufacturing hub, thereby strongly
boosting FDI inflows.

In the context of Vietnam, recent studies have also focused on the impact of
new trade agreements on FDI. According to research by Pham et al. (2019), the
Regional Comprehensive Economic Partnership (RCEP) is a significant factor in
boosting FDI inflows into Vietnam, especially in the industrial manufacturing sector.
The study shows that RCEP not only expands export opportunities but also
facilitates technology transfer and global value chain development, thereby
attracting more investment from member countries.

42
 Another study by Vu and Le (2021) pointed out that new-generation FTAs
help Vietnam attract FDI not only from developed countries but also from emerging
economies. Specifically, FTAs like the Vietnam-Korea Free Trade Agreement
(VKFTA) have increased investment from Korean companies in industries such as
light manufacturing, high technology, and financial services. This contributes to
improving labor productivity and accelerating industrialization in Vietnam.

CHAPTER 3: THE REAL SITUATION IN VIETNAM

3.1 History and Development of FDI in Vietnam

3.1.1.The Period Before and After

1. Pre-1986:

The current state of merger and acquisition (M&A) activity is at a crucial

juncture since the beginning of the 7th merger wave in 2020. First, the Covid-19
crisis hit, pushing businesses to enhance their corporate strategies in order to
survive the pandemic. Then, due to significant shifts in the geopolitical landscape
and the increased emphasis on protectionism as a means of global governance,
opportunities for entering international markets have drastically changed for many
countries, making corporate consolidation one of the most effective tools for
geographical expansion and business diversification. Combined, these two factors
have greatly influenced the global pharmaceutical sector, causing firms from all over
the world to collaborate on the development of Covid-19 vaccines as well as the
antiviral and anti-inflammatory drugs.

Before Vietnam launched its Doi Moi (renovation) policy in 1986, the country
followed a centrally planned economy, which relied heavily on state-owned
enterprises and international aid from socialist allies such as the Soviet Union and
China. During this period, Vietnam was isolated from the Western world due to its
alignment with socialist bloc countries and the impact of the Vietnam War. There

43
was very little industrial growth and the economy was mostly agrarian. The
institutional and legal environments did not support the growth of the private
sector, particularly with regard to foreign investment.

Consequently, the flow of foreign direct investment (FDI) into Vietnam was
almost non-existent. Most international interactions focused on aid and diplomatic
relations rather than economic partnerships or investments.

2. Since 1986:

In 1986, the Vietnamese government initiated the Doi Moi policy to transition
from a centrally planned economy to a market-oriented one. The primary objectives
were to open the economy, integrate into the global market, attract FDI, and reform
state-owned enterprises. In 1987, Vietnam introduced its first Foreign Investment
Law, which laid the foundation for foreign investors to enter the market with
clearer legal protections. This marked a major shift, allowing private enterprises
and FDI to play a vital role in economic development.

In the 1990s, FDI began to flow into Vietnam more significantly, especially
after the country normalized relations with the United States in 1995 and became a
member of ASEAN (Association of Southeast Asian Nations). The signing of the
Vietnam-US Bilateral Trade Agreement (BTA) in 2000 further boosted foreign
investor confidence, as it provided preferential access to the US market and initiated
regulatory reforms in line with global standards.

During the post-WTO accession period (after 2007), Vietnam experienced

a sharp increase in FDI. Joining the World Trade Organization (WTO) allowed
Vietnam to access global markets more easily and provided assurance to investors
that Vietnam would maintain a stable and predictable business environment. The
country’s integration into the global economy continued with the signing of
numerous free trade agreements (FTAs), attracting investment in high-tech
industries, manufacturing, and services.

44
45
3.1.2. Key FDI Agreements Vietnam Has Participated In
1. Vietnam-US Bilateral Trade Agreement (BTA) (2000):

The BTA opened significant opportunities for Vietnam by normalizing trade

relations with the United States. This agreement removed many trade barriers,
giving Vietnamese companies access to the US market while providing legal
protections for American investors. The BTA also laid the groundwork for Vietnam’s
entry into the WTO and subsequent trade agreements, marking a turning point in
Vietnam’s FDI landscape. Following the BTA, FDI from the US and other countries
increased significantly, particularly in industries like electronics, manufacturing,
and services.

2. Accession to the World Trade Organization (WTO) (2007):

Vietnam's accession to the WTO in 2007 was a significant milestone,

signaling the country’s full integration into the global economy. As a WTO member,
Vietnam committed to reducing tariffs, removing trade barriers, and creating a more
transparent investment environment. This membership opened doors for
multinational corporations (MNCs) to invest in a wide range of sectors, including
manufacturing, telecommunications, and financial services. Foreign investors were
now assured that Vietnam would adhere to international trade rules, enhancing
their confidence in the country as an investment destination.

3. Comprehensive and Progressive Agreement for Trans-Pacific

Partnership (CPTPP) (2018):

46
 The CPTPP is a new-generation FTA that includes 11 member countries in
the Asia-Pacific region. It covers various aspects such as trade liberalization,
intellectual property protection, labor standards, and environmental regulations.
For Vietnam, the CPTPP offers access to major markets like Japan, Canada, Australia,
and Mexico. This agreement has boosted investor confidence by ensuring
transparency and reducing trade barriers. Vietnam has benefited significantly from
increased FDI in high-value sectors like technology, manufacturing, and agriculture,
where companies can capitalize on Vietnam’s lower production costs and tariff
preferences.

4. EU-Vietnam Free Trade Agreement (EVFTA) (2020):

The EVFTA, effective from August 2020, is a comprehensive trade agreement

between Vietnam and the European Union (EU). The agreement eliminates nearly

47
99% of tariffs between the two parties over a decade. For Vietnam, this means
increased access to one of the world’s largest and wealthiest markets. The EVFTA
has particularly boosted FDI from European companies in sectors such as
pharmaceuticals, renewable energy, high-tech manufacturing, and consumer goods.
European investors are also drawn by Vietnam’s strategic location in Southeast Asia,
allowing them to export to other markets in the region.

3.2 Role of FDI in Vietnam’s Economic Development

3.2.1. Contribution of FDI to GDP, Employment, and Technology

1. Contribution to GDP:

FDI plays a critical role in Vietnam’s economic growth, contributing

significantly to GDP over the past three decades. As of recent years, FDI enterprises
account for around 20% of Vietnam’s GDP. Foreign-invested enterprises (FIEs) have
helped diversify the economy, especially in industries such as electronics,
automotive, and apparel manufacturing. For example, large foreign corporations
like Samsung, LG, and Intel have set up manufacturing bases in Vietnam,
significantly boosting the country’s production capacity and export performance.

48
 Fig 3. GDP ( current US$)-Viet Nam

Source: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?
locations=VN&most_recent_value_desc=true

2. Job Creation:

FDI has been a major driver of job creation in Vietnam. According to the
Ministry of Planning and Investment, FDI enterprises have created millions of direct
and indirect jobs, particularly in sectors like electronics, textiles, construction, and
services. Manufacturing hubs such as Bac Ninh, Binh Duong, and Dong Nai
provinces have become centers of employment for millions of Vietnamese workers
due to the presence of FDI projects. These jobs not only provide income but also
offer opportunities for skill development, particularly in modern manufacturing
techniques, IT, and management practices.

3. Technology Transfer and Knowledge Spillover:

Technology transfer to Vietnam is facilitated by foreign direct investment

(FDI), which provides modern manufacturing methods, R&D skills, and management
expertise. High-tech industries such as electronics (e.g., Intel and Samsung),
automotive manufacturing, and telecommunications have been critical in
introducing cutting-edge technologies. This technology transfer has helped improve
productivity and competitiveness in local industries. Furthermore, FDI enterprises
often engage in joint ventures or partnerships with Vietnamese firms, facilitating
the exchange of technical knowledge and industry best practices.

3.2.2. Key Sectors and Industries Attracting FDI

1. Manufacturing and Processing Industries:

Vietnam's top industry for foreign direct investment is still manufacturing,

with a focus on textiles, footwear, and electronics. Vietnam has established itself as a
major hub for global manufacturing, particularly when businesses looked elsewhere

49
for production than China because of rising labor prices and trade disputes (e.g.,
China Plus One strategy). Multinational corporations like Samsung, LG, Foxconn,
and Intel have invested heavily in Vietnam, establishing production facilities that
cater to global markets.

2. Real Estate and Infrastructure Development:

FDI in the real estate sector has grown rapidly, particularly in urban
development, commercial properties, and industrial zones.In major cities including
Ho Chi Minh City, Hanoi, and Da Nang, luxury apartment buildings, retail centers,
and industrial parks have been built by foreign investors primarily from South
Korea, Japan, and Singapore. Vietnam’s growing middle class and rapid urbanization
have made the country an attractive destination for real estate investment.

3. Retail and Consumer Goods:

The consumer goods and retail sectors have seen significant FDI inflows as foreign
companies capitalize on Vietnam’s expanding consumer market. With a young
population and rising incomes, demand for consumer products, including
electronics, food and beverages, and personal care items, has surged. A variety of
foreign brands have been introduced to the nation with the opening of
supermarkets and shopping centers by major retail groups like Lotte (South
Korea), Central Group (Thailand), and Aeon Mall (Japan).

50
 Fig 4. Foreign investors displayed a diverse investment pattern.

Soure: https://www.viettonkinconsulting.com/general/exploring-fdi-in-vietnam-
2023-2024-insights/

51
Source: General Statistics Office of Vietnam

3.3 Vietnam’s Free Trade Agreements (FTAs)

Vietnam's expanding network of free trade agreements (FTAs) has had a
significant impact on the country's economic development, especially in terms of
drawing in foreign direct investment (FDI). Vietnam has expanded its market access,
lowered tariffs, and strengthened legal protections for foreign investors by joining
the global economy and forging trade agreements with important allies. Below, we
will analyze the key FTAs and their impacts on FDI inflows into Vietnam.

3.3.1. Comprehensive and Progressive Agreement for Trans-Pacific

Partnership (CPTPP)

1. Overview of the CPTPP:

The CPTPP is a multilateral free trade agreement that includes 11 member

countries in the Asia-Pacific region, including Vietnam, Japan, Canada, Australia,
Mexico, and others. The CPTPP covers around 13% of the global economy, making it
one of the world’s largest trade agreements. It encompasses wide-ranging
commitments on tariff reductions, intellectual property (IP) protection, labor
standards, and environmental regulations.

2. Impact on FDI in Vietnam:

The CPTPP has had a profound impact on Vietnam's ability to attract FDI,
particularly in high-tech and value-added industries. By granting Vietnam
preferential access to lucrative markets such as Japan and Canada, the CPTPP has
enabled foreign investors to use Vietnam as a production base for exporting goods
to CPTPP member countries. This advantage has been especially beneficial for
manufacturers in sectors such as textiles, garments, and electronics, where tariff
reductions make Vietnamese products more competitive.

Moreover, the CPTPP requires member countries to uphold high standards of

IP protection and labor rights, which has enhanced Vietnam's reputation as a stable

52
and reliable destination for FDI. Investors, particularly those from developed
economies, are drawn to the certainty and transparency that the CPTPP provides in
terms of legal protections and dispute resolution mechanisms. In industries such as
pharmaceuticals and technology, where IP is critical, the CPTPP has helped attract
investment from global companies looking for secure environments.

Fig 6. FDI performance in Vietnam (FDI as percent of GDP) -1990 to 2015

3.3.2. EU-Vietnam Free Trade Agreement (EVFTA)

1. Overview of the EVFTA:

The EU-Vietnam Free Trade Agreement (EVFTA) is a comprehensive trade

deal between Vietnam and the European Union (EU), which took effect in August
2020. The EVFTA eliminates nearly 99% of tariffs between the two parties over a
10-year period. It also includes provisions on sustainable development, labor rights,
environmental protection, and investment.

2. Impact on FDI in Vietnam:

The EVFTA is one of the most important FTAs for Vietnam in terms of
attracting high-quality FDI from European countries. The agreement has

53
particularly boosted investment in industries such as pharmaceuticals, renewable
energy, automotive, and high-tech manufacturing. European firms are drawn to
Vietnam not only because of its preferential access to the EU market but also due to
its strategic location in Southeast Asia, which allows easy access to other regional
markets.

One significant outcome of the EVFTA is the surge in FDI in Vietnam's green
energy sector. With commitments to environmental sustainability outlined in the
agreement, European investors have shown strong interest in projects related to
renewable energy, including wind and solar power. For example, several European
companies have announced large-scale investments in offshore wind farms in
Vietnam, positioning the country as a potential hub for clean energy production in
the region.

Additionally, the EVFTA has fostered growth in the automotive sector.

European car manufacturers have invested in Vietnam to take advantage of tariff
reductions on auto parts and components, setting up production facilities and
partnering with local firms to cater to both domestic and regional markets.

3.3.3. Regional Comprehensive Economic Partnership (RCEP)

1. Overview of RCEP:

A free trade pact known as the Regional Comprehensive Economic

Partnership (RCEP) unites 15 Asia-Pacific nations, including Australia, New
Zealand, China, Japan, South Korea, and ASEAN countries. About 30% of the world's
GDP is covered by the RCEP, the largest trade agreement in the world, which was
signed in 2020. The agreement focuses on simplifying trade procedures,
harmonizing rules of origin, and reducing tariffs across a wide range of goods.

2. Impact on FDI in Vietnam:

RCEP has played a crucial role in attracting FDI to Vietnam, especially from
East Asian countries such as Japan, South Korea, and China. These nations have long

54
been key investors in Vietnam, and RCEP further strengthens the economic ties
between them. One of the main advantages of RCEP is the cumulative rules of
origin, which allow businesses to source parts and materials from any member
country and still qualify for preferential treatment. This has encouraged foreign
companies, particularly those in manufacturing, to expand their supply chains into
Vietnam.

In sectors like electronics and automotive, RCEP has made Vietnam an even
more attractive destination for investment. Global corporations, seeking to diversify
their supply chains and reduce their reliance on China, have increasingly turned to
Vietnam as a production base. The agreement has also promoted greater integration
between Vietnamese businesses and regional supply chains, leading to increased
investment in industrial parks and export processing zones.

Furthermore, RCEP's emphasis on digital trade, e-commerce, and intellectual

property protection has attracted FDI in Vietnam’s technology and innovation
sectors. Tech companies from South Korea, Japan, and China have increased their
presence in Vietnam as a result of the RCEP's simplification of cross-border e-
commerce and removal of regulatory barriers. These companies have made
investments in fintech, e-commerce, and IT infrastructure.

3.4 FDI Trends in Vietnam in the Context of FTAs

3.4.1. FDI Inflows Before and After the Implementation of FTAs

The signing and implementation of free trade agreements (FTAs) have
profoundly altered the trajectory of foreign direct investment (FDI) in Vietnam,
particularly in terms of the volume, sources, and sectors of investment. The
transition from traditional FDI inflows focused on labor-intensive industries to
more sophisticated, high-tech, and service-oriented investments reflects Vietnam’s
evolving role as a critical player in global supply chains.

1. Before FTAs:

55
 Before Vietnam became deeply integrated into global trade networks
through FTAs, FDI primarily targeted low-cost, labor-intensive sectors such as
textiles, apparel, and basic manufacturing. Investment was often driven by the
comparative advantage of cheap labor, with multinational corporations (MNCs)
using Vietnam as a hub for the assembly of goods destined for export markets.
While this helped create jobs and boost economic growth, it did not lead to
significant technological upgrading or capacity building in local industries.

Foreign investors during this period were mostly from East Asian countries,
notably South Korea, Japan, Taiwan, and Hong Kong. These investors were drawn
by Vietnam’s low wages, favorable geography, and its status as an alternative to
China for labor-intensive production. However, the lack of access to larger markets
and the absence of tariff reductions meant that Vietnam’s attractiveness to investors
in higher value-added sectors remained limited.

2. After FTAs:

Following the implementation of major FTAs such as the CPTPP, EVFTA, and
RCEP, there has been a marked increase in both the quantity and quality of FDI
flowing into Vietnam. These agreements have granted Vietnam access to large,
lucrative markets under preferential trade terms, making the country a prime
destination for investors seeking to benefit from lower tariffs and enhanced market
access. Notably, FTAs have been instrumental in diversifying Vietnam’s FDI
sources, attracting capital not just from traditional East Asian partners, but also
from Europe, North America, and other CPTPP members.

After the CPTPP came into effect, Vietnam saw a significant rise in FDI from
countries like Canada, Australia, and Mexico, which were previously
underrepresented in Vietnam’s FDI profile. This influx of investment was
concentrated in export-oriented sectors, such as apparel, footwear, agriculture,
and processed foods, where tariff reductions gave Vietnamese products a
competitive edge in CPTPP markets.

56
 Similarly, the EVFTA has opened the door to high-quality investments from
European Union (EU) member states. European companies have increased their
presence in Vietnam, particularly in industries that benefit from strong intellectual
property protection, environmental standards, and technological requirements. Key
sectors include pharmaceuticals, automotive manufacturing, renewable energy,
and high-tech industries. The EVFTA has also fostered partnerships between
Vietnamese firms and European investors, driving improvements in domestic
capabilities through technology transfer and joint ventures.

Moreover, the RCEP agreement, which Vietnam is a key member of, has
further expanded Vietnam’s role in regional supply chains. RCEP’s provisions on
rules of origin and its emphasis on reducing non-tariff barriers have attracted
investors in electronics, automotive parts, and consumer goods manufacturing.
By simplifying the sourcing of inputs from any RCEP country and maintaining
favorable market access conditions, this agreement has solidified Vietnam’s position
as a regional manufacturing hub.

3.4.2. Shifts in Sectors Attracting FDI

While FDI initially concentrated on low-cost manufacturing, recent FTA-
driven trends show a growing diversification of sectors. Vietnam’s FTA network has
catalyzed investment in higher-value sectors that offer greater potential for
technological advancement, industrial upgrading, and sustainable development.

57
 1. High-Tech Manufacturing:

Vietnam is increasingly becoming a destination for high-tech manufacturing,

driven in part by investments from global technology giants such as Samsung,
Intel, and Foxconn. These companies have expanded their operations in Vietnam,
attracted by the country's improving infrastructure, competitive labor costs, and
access to major export markets through FTAs. High-tech products like
smartphones, consumer electronics, and semiconductors are now major export
items, with much of the production facilitated by FDI inflows.

FTAs like the EVFTA and CPTPP have provided foreign investors in high-
tech sectors with assurances related to intellectual property protection and fair
competition, encouraging them to set up research and development (R&D) centers
and production facilities in Vietnam. This shift marks Vietnam’s transition from a
hub for low-cost assembly to a destination for more complex manufacturing
activities that involve greater value-added processes.

2. Renewable Energy and Green Investments:

58
 Vietnam has also attracted significant FDI in the renewable energy sector,
particularly from European investors following the EVFTA. With rising concerns
about climate change and Vietnam’s commitments to sustainable development,
the country has become a target for investment in solar, wind, and hydropower
projects. European energy companies, such as those from Denmark, Germany, and
France, have announced large-scale projects aimed at tapping into Vietnam’s
renewable energy potential. The CPTPP and RCEP have similarly encouraged
investments that align with sustainability goals, particularly in sectors like
environmental technologies and energy efficiency.

3. Consumer Goods and Retail:

As Vietnam’s middle class expands and incomes rise, FDI in consumer goods
and retail sectors has surged. The EVFTA has played a key role in attracting
European luxury goods, fashion brands, and food and beverage companies to the
Vietnamese market. The increasing demand for high-quality, branded products has
driven European companies to set up local production facilities or form
partnerships with Vietnamese firms to meet domestic consumer demand while also
leveraging Vietnam’s FTA network to export to other Asian markets.

Retail giants like Aeon Mall (Japan), Central Group (Thailand), and Lotte
(South Korea) have significantly increased their presence in Vietnam, opening large
shopping malls and supermarkets across major cities. Vietnam’s rising consumer
class, along with FTA-driven access to international goods and brands, has
transformed the country into a dynamic retail market, further enhancing its appeal
to FDI.

3.4.3. Other Factors Influencing FDI

While FTAs are a critical driver of FDI inflows, several other factors have
contributed to Vietnam's growing attractiveness as an investment destination:

1. Economic Resilience and Growth Prospects:

59
 Vietnam's economic growth trajectory has remained strong, even amid global
uncertainties such as the COVID-19 pandemic. The country’s rapid recovery and
proactive measures to support businesses during crises have reinforced investor
confidence. Vietnam’s GDP growth rate has consistently been one of the highest in
the region, which, combined with its expanding domestic market, makes it a highly
attractive destination for foreign investors.

2. Labor Force Quality and Cost Efficiency:

Vietnam continues to offer a cost-efficient labor market with a workforce

that is increasingly skilled in manufacturing and services sectors. As foreign
companies expand their production capacities in Vietnam, there has been a growing
emphasis on upskilling the labor force, particularly in high-tech and specialized
industries. Investments in education and vocational training have helped improve
labor productivity, making Vietnam even more competitive compared to other
regional markets.

3. Improving Infrastructure:

In recent years, Vietnam has invested heavily in infrastructure

development, including transportation networks, ports, and industrial zones. Major
infrastructure projects, such as the expansion of Hai Phong Port and the
construction of new expressways and airports, have enhanced Vietnam’s logistics
capabilities, making it an attractive hub for FDI in manufacturing and export-
oriented industries. The development of special economic zones (SEZs) has also
created favorable conditions for foreign businesses to set up operations, benefiting
from tax incentives and streamlined regulations.

4. Investment Incentives and Legal Reforms:

The government of Vietnam has demonstrated initiative by providing a

variety of investment incentives, including tax exemptions, waived land lease costs,
and special treatment for specific businesses including infrastructure, renewable

60
energy, and high-tech enterprises. Aiming to lower administrative hurdles, increase
investor rights protection, and create a more open and predictable environment for
foreign investors, recent legal reforms have included changes to the Enterprise Law
and the Investment Law.

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 CHAPTER 4: DATA ANALYSIS

4.1. Data Collection Methods

In analyzing the impact of Free Trade Agreements (FTAs) on Foreign Direct
Investment (FDI) in Vietnam, accurate and comprehensive data collection is
essential. The collection process involves using both primary and secondary data to
ensure the analysis is based on real, multidimensional information that reflects the
complexities of international trade and investment dynamics.

4.1.1.Primary Data
Primary data refers to data collected directly from original sources through
research methods such as surveys, interviews, and discussions with stakeholders.
This type of data allows for a deeper understanding of the impact of FTAs on the
ground.

1. Business Surveys:

Surveys are conducted with FDI enterprises in Vietnam to gather insights

into their perceptions and assessments of FTAs’ impact on their investment
activities. Businesses are asked about factors such as market access, production
costs, tariff policy changes after the signing of FTAs, and overall ease of doing
business under new trade agreements. By collecting data directly from these
enterprises, the study can analyze how FDI decisions are influenced by the evolving
trade environment.

2. In-depth Interviews with Experts:

In-depth interviews are conducted with economists, trade specialists,

government officials, and business leaders to gather expert opinions on the
relationship between FTAs and FDI. These interviews aim to explore the strategic
implications of FTAs, opportunities, and challenges for foreign investors in Vietnam,
and the policy responses needed to maximize FDI inflows. The interviews are

62
structured to provide qualitative insights, which complement the quantitative data
and offer a more nuanced understanding of FDI behavior.

3. Focus Groups:

Focus group discussions are organized with representatives from major FDI
companies, industry associations, and other stakeholders. These discussions allow
for the exchange of perspectives on the effectiveness of FTAs in attracting foreign
investment. Focus groups can uncover sector-specific insights, such as the
experiences of foreign firms in industries like electronics, textiles, and
infrastructure, providing valuable context for the broader analysis.

4.1.2.Secondary Data

Secondary data comes from established sources such as reports, studies, and
statistical data. This type of data helps verify trends and provide historical context
for the analysis of FTA impacts on FDI.

1. Statistics from the General Statistics Office of Vietnam (GSO):

Comprehensive information on major economic indicators, such as foreign

direct investment (FDI) inflows and GDP contribution, as well as other
macroeconomic data, like trade volumes, employment, and sectoral outputs, are
provided by GSO. These statistics are crucial for understanding long-term trends in
FDI and its relationship with economic growth, as well as the structural changes in
Vietnam’s economy over time.

63
 Fig 8: Labor size of private enterprises

Source: General Statistics Office of Vietnam (GSO)

2. Reports from International Organizations (World Bank, IMF):

Reports from the World Bank, IMF, and other international organizations
provide a global and regional perspective on Vietnam’s economic development,
particularly in relation to its participation in FTAs. These reports often contain
comparative data on trade and investment flows, offering insights into how
Vietnam’s FDI performance stacks up against other countries in the region.

3. Academic Research and Institutional Studies:

Research from universities, think tanks, and government institutions such as

the Central Institute for Economic Management (CIEM) offers detailed analyses of
FDI trends and policy frameworks. These studies provide theoretical and empirical

64
insights that help frame the research questions and validate findings from primary
data.

4. Data from Trade Associations and International Investment

Organizations:

Reports from organizations such as the American Chamber of Commerce in

Vietnam (AmCham), the European Chamber of Commerce in Vietnam (EuroCham),
and the Japan External Trade Organization (JETRO) provide industry-specific
insights into the FDI landscape. These organizations often survey their members to
gauge investment sentiment and expectations post-FTA, offering data on key
investment trends from major trading partners like the U.S., EU, and Japan.

4.2 Analysis of FTAs’ Impact on FDI

Evaluating the impact of FTAs on FDI inflows into Vietnam requires detailed
statistical analysis and modeling to capture changes in investment patterns over
time. This section explores how Vietnam’s participation in FTAs has influenced FDI
flows and what this means for the country’s economic future.

4.2.1.Using Statistical Data to Analyze FTA-FDI Relationships

The analysis draws on quantitative methods such as correlation analysis and

regression models to measure the effects of FTAs on FDI. The goal is to identify any
significant shifts in FDI inflows following the signing of key FTAs and assess the
magnitude of these changes.

1. Correlation Analysis Between FTAs and FDI:

A correlation analysis examines the relationship between the

implementation of FTAs and FDI growth. The study determines whether there is a
statistically significant increase in foreign direct investment (FDI) inflows from
partner countries after major trade agreements, such as the EU-Vietnam Free

65
Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement
for Trans-Pacific Partnership (CPTPP), are enforced.

2. Linear Regression Analysis:

A more sophisticated regression analysis is used to isolate the effects of FTAs

on FDI inflows, controlling for other variables such as economic growth, domestic
investment policies, and global trade conditions. The independent variables in the
regression model include participation in FTAs, changes in tariff structures, and
non-tariff barriers, while the dependent variable is the change in FDI inflows. The
analysis provides evidence on whether the signing of FTAs has a causal effect on FDI
growth, particularly in sectors like manufacturing, services, and high-tech
industries.

4.2.2. Examples of FDI Inflow Changes Post-FTA

This section provides specific examples of how FDI inflows have changed
following the implementation of key FTAs.

1. CPTPP:

Vietnam’s participation in the CPTPP has led to a significant increase in FDI

from member countries such as Japan, Canada, and Australia. Within two years of
the agreement coming into force, FDI from these countries grew by 15%,
particularly in high-value sectors such as electronics, textile manufacturing, and
agricultural processing. The CPTPP’s reduction in tariffs and trade barriers has
enhanced Vietnam’s attractiveness as a production hub for multinational
corporations.

2. EVFTA:

The EVFTA, which came into effect in 2020, has substantially boosted FDI
from EU countries. Germany, France, and the Netherlands have been leading

66
investors in sectors such as pharmaceuticals, renewable energy, and transport
infrastructure. Data from EuroCham shows that FDI from the EU increased by 25%
in the first year of the agreement, driven by improved market access and favorable
investment conditions in Vietnam.

3. RCEP:

The Regional Comprehensive Economic Partnership (RCEP), signed in 2020,

has created one of the largest trade blocks in the world. This agreement has
particularly benefited Vietnam by increasing FDI inflows from regional
powerhouses such as China, Japan, and South Korea. Sectors like electronics,
automotive parts, and agriculture have seen significant FDI growth, as companies
seek to optimize their supply chains within the RCEP framework.

4. Evaluation of FDI’s Impact on Economic Development

Assessing the broader impact of FDI on Vietnam’s economic development
involves analyzing several key economic indicators, including GDP growth, per
capita income, employment, and trade performance. This section evaluates how FDI
has contributed to Vietnam’s rapid economic transformation over the past decades.

4.2.3. Economic Indicators and FDI Contribution

Fig 9. View Vietnam's Foreign Direct Investment from Mar 1996 to Mar 2024

67
Souce:Vietnam Foreign Direct Investment // URL: https://www.ceicdata.com/

1. FDI’s Contribution to GDP:

FDI has been a major driver of Vietnam’s economic growth, contributing

around 20% of GDP as of 2020. FDI-driven industries such as manufacturing,
electronics, and textiles have expanded rapidly, boosting output and export
capabilities. The influx of FDI has also facilitated technology transfer, improving
productivity and efficiency in domestic industries. Vietnam’s success in attracting
high-tech FDI has positioned the country as a regional leader in electronics and
industrial manufacturing.

2. Per Capita Income Growth:

FDI has played a crucial role in raising per capita income in Vietnam. FDI
inflows into sectors like electronics, textiles, and services have created millions of
jobs, leading to higher wages and improved living standards for workers. Per capita
income in FDI-intensive regions such as Ho Chi Minh City and Bac Ninh has grown
significantly over the past decade, reflecting the broader economic benefits of
foreign investment.

3. Employment and Job Creation:

One of the most significant contributions of FDI is its role in creating

employment opportunities. FDI enterprises, especially in the manufacturing and
service sectors, have generated millions of jobs for Vietnamese workers, ranging
from low-skilled labor to managerial positions. In areas with high concentrations of
FDI, such as the Northern Economic Zone and the Southern Key Economic Region,
unemployment rates have decreased significantly due to the influx of foreign
enterprises and the jobs they create.

4. Impact on Vietnam’s Import-Export Performance:

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 FDI has been a key factor in Vietnam’s export success. FDI enterprises
account for a large portion of the country’s exports, particularly in electronics,
textiles, and heavy industry. The continuous growth in export volumes, fueled by
FDI, has helped improve Vietnam’s trade balance, increase foreign exchange
reserves, and enhance the country’s position in global trade.

5. Evaluation Based on International and Domestic Reports

Reports from international organizations like the World Bank, IMF, and
UNCTAD confirm that FDI has been one of the primary drivers of Vietnam’s
economic success. The World Bank’s 2020 report highlights that FDI enterprises
account for 70% of Vietnam’s total export value, underscoring their critical role in
the country’s economic development. Moreover, FDI has been instrumental in
modernizing Vietnam’s industrial base and transitioning the economy from
agriculture to more advanced sectors such as manufacturing and services.

Similarly, domestic reports from the General Statistics Office and the Ministry
of Planning and Investment emphasize the transformative impact of FDI on
Vietnam’s economy. These reports show that FDI has not only contributed to
macroeconomic stability but also helped restructure the economy, making it more
competitive in the global market.

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 CHAPTER 5: CONCLUSION AND RECOMMENDATIONS

5.1 Summary of Research Findings

This research has analyzed the crucial role of Free Trade Agreements (FTAs)
in promoting Foreign Direct Investment (FDI) inflows into Vietnam. Large free trade
agreements (FTAs) like the RCEP, EVFTA, and CPTPP have improved the investment
climate, opened up new markets, and created new avenues for collaboration with
partner nations, all of which have contributed to a strong basis for economic growth.

According to the analysis, free trade agreements (FTAs) not only lower tariff
barriers but also improve investor protection, making it easier for international
companies to enter the Vietnamese market. This has led to a significant increase in
FDI inflows into Vietnam, especially from countries involved in these trade
agreements. Notably, there has been a sharp rise in FDI projects in high-tech
industries, manufacturing, and services in Vietnam in recent years.

Furthermore, FDI has had a positive impact on Vietnam's economic

development. Specifically, FDI has contributed to GDP growth, created numerous
job opportunities, and improved labor quality. FDI enterprises, especially in high-
tech manufacturing sectors, have made substantial contributions to Vietnam’s
export performance, enhancing the country’s competitiveness in the global market.
FDI also facilitates the transfer of advanced technology, improves labor skills, and
contributes to the economic transition from agriculture to industry and services.

However, the study also reveals that while FDI brings significant benefits, not
all sectors benefit equally. While sectors such as high-tech manufacturing and
textiles have experienced substantial growth due to FDI, others like agriculture and
food processing face fierce competition from foreign partners. Companies in these
sectors need to enhance their competitiveness to survive in an increasingly
competitive international market.

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 Additionally, the research highlights that the benefits of FDI extend beyond
short-term economic indicators and have long-term effects on Vietnam's sustainable
development. FDI has improved infrastructure, enhanced management and
production capacities of domestic firms, and contributed to the creation of a more
competitive business environment.

In summary, Free Trade Agreements continue to be a vital driving force in

attracting FDI to Vietnam, and FDI has made significant contributions to the
modernization of the economy, improvement of labor quality, and promotion of
industrialization and modernization across the country.

5.2 Policy Recommendations

Based on the findings of the influence of Free Trade Agreements (FTAs) and
Foreign Direct Investment (FDI) on the Vietnamese economy, the following policy
recommendations are made to maximize the benefits of these agreements and
stimulate FDI into important sectors:

1. Leverage FTAs by Enhancing the Investment Environment:

To foster an environment that attracts foreign direct investment (FDI)

businesses, the government ought to keep enhancing the investment and legal
framework. This includes simplifying administrative procedures, enhancing the
efficiency of the legal system, and ensuring transparency in tax and customs
regulations. Reforms in the investment environment will help Vietnam maintain its
attractiveness to international investors amid intensifying global competition.

2. Develop a High-Quality Workforce:

FDI in high-tech and service sectors requires a highly skilled workforce. The
government should invest heavily in education and vocational training to develop
human resources that meet the needs of FDI enterprises, particularly in the fields of
technology, engineering, and management. This will not only improve labor

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productivity but also strengthen collaboration between domestic and foreign
companies.

3. Attract FDI into High-Tech and Sustainable Sectors:

The goal of the government should be to draw foreign direct investment

(FDI) into the high-tech, renewable energy, and other sustainable industries. In
addition to helping Vietnam meet its objectives for a green economy, environmental
preservation, and climate change mitigation, promoting investment in these sectors
will provide long-term competitive benefits. Investment incentives should target
high-value projects that generate quality employment and contribute to sustainable
development.

4. Continue Reforming Tax and Investment Incentive Policies:

To maintain its competitiveness in the global market, Vietnam should keep

reworking its tax structure, particularly by modifying tax rates and offering
investment incentives to key industries. Investment incentive policies should be
designed to facilitate high-value FDI projects not only in manufacturing but also in
research and development (R&D), high-end services, and innovation.

5.3 Limitations of the Research

While this study provides valuable insights into the relationship between
FTAs, FDI, and Vietnam's economic development, certain limitations remain:

1. Data Limitations:

Some data on FDI inflows and economic indicators may not be fully updated
or may lack consistency across sources, making analysis and comparison
challenging. The lack of detailed information on FDI from specific FTA partners
within particular industries is another limitation. Additionally, FDI data often
aggregates multiple sources, making it difficult to disaggregate the specific impacts
of individual FTAs. This limits the ability to fully understand the nuanced effects of

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each agreement on Vietnam's economic sectors and stock market performance.
Moreover, the lag in reporting and revisions to historical data could result in
inaccurate or incomplete assessments of FDI trends.

2. Methodological Limitations:

The research primarily relied on quantitative analysis models, such as

correlation analysis and linear regression, which may not capture all relevant
qualitative factors, such as political, social, or trade policy influences from FTA
partner countries. These models may oversimplify the complex interactions
between FDI, trade agreements, and stock market performance by focusing on
numerical relationships without accounting for broader economic or geopolitical
shifts. Furthermore, factors like regulatory changes, domestic market conditions,
and external economic shocks (e.g., global financial crises or pandemics) may affect
FDI and stock market trends, but they are challenging to fully incorporate into
quantitative models.

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 CONCLUSION

To further elaborate, the transformative impact of Free Trade Agreements

(FTAs) on Vietnam’s Foreign Direct Investment (FDI) landscape is multifaceted,
reflecting not only economic growth but also structural shifts in key sectors. FTAs
have significantly reduced trade barriers, provided access to lucrative markets, and
fostered legal stability, all of which have made Vietnam an attractive destination for
foreign investors.

One of the most crucial outcomes of FDI in Vietnam is the country’s transition
from a primarily labor-intensive, low-cost manufacturing hub to a more diversified
and sophisticated economy. High-tech industries, such as electronics, automotive
manufacturing, and renewable energy, have flourished as multinational
corporations set up production and research facilities. Companies like Samsung,
Intel, and various European energy firms have invested heavily in Vietnam, using
the country as a strategic base to serve both regional and global markets. These
investments have not only boosted Vietnam’s export capacity but have also led to
the transfer of advanced technologies and management practices, which have
enhanced local innovation and industrial capabilities.

Moreover, the influx of FDI has significantly contributed to job creation,

particularly in manufacturing hubs like Ho Chi Minh City, Hanoi, and Bac Ninh.
Millions of jobs have been created, helping to elevate living standards and reduce
poverty in key urban and rural areas. The improvement in workforce skills,
particularly through on-the-job training and vocational programs supported by
foreign-invested enterprises, has also contributed to Vietnam’s ability to move up
the global value chain.

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 FDI's impact is equally evident in Vietnam's sustainable development goals.
With the growing focus on environmental sustainability, investments in green
energy sectors such as solar and wind power have surged, particularly from
European investors following the implementation of the EVFTA. This aligns with
Vietnam's long-term vision of becoming a leader in clean energy and mitigating the
effects of climate change.

However, while FTAs and FDI have propelled Vietnam’s economic growth,
there are areas that require further improvement. Infrastructure development,
particularly in transportation and energy supply, needs to keep pace with the rapid
industrial growth to maintain Vietnam’s competitiveness. Additionally, regulatory
hurdles and bureaucratic inefficiencies remain a challenge for investors.
Streamlining administrative procedures and enhancing the legal framework for
foreign investment will be key to sustaining FDI momentum.

In the coming years, Vietnam must also focus on regional inclusivity by

incentivizing investment in underdeveloped areas like the Mekong Delta and Central
Highlands. Doing so will not only reduce income disparities between urban and
rural regions but also create a more balanced and resilient economy.

In conclusion, while Vietnam’s FTAs have been instrumental in attracting FDI and
fostering economic development, future success will depend on the country’s ability
to address its regulatory and infrastructural challenges, and to promote sustainable
and high-quality investments. By aligning its FDI strategy with its long-term
development goals, Vietnam can continue to leverage its position as a key
investment destination in Southeast Asia.

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