Provincial Governance and Foreign Direct Investment in Vietnam

Abstract:     
In this analysis, I have endeavored to show that recent FDI attraction is correlated with economic governance, even if the governance measure itself is derived from domestic private sector perceptions. Because of fundamental problems with the way FDI is measured and because most analyses of FDI are mere snapshots of a long term and dynamic process, it makes more sense to focus on other outcome variables related to FDI. Here, the impact of governance is even more striking. Better governance is strongly associated with FDI implementation rates and the decisions of FIEs to add capital to existing projects.

Different dimensions of economic governance have varying effects on these three outcome variables. Transparency of regulatory information and private sector development services, such as trade fairs and technology training, are strongly associated with investment attraction. Implementation rates, however, are most strongly influenced by the access to and security of property rights as well as the ability to defend those rights in provincial courts. It appears that FIEs are willing to sign large investment projects for a range of different factors, but this initial decision is merely an opportunity to test the waters. Whether they decide to fulfill their investment commitments is strongly influenced by whether they believe their business premises, materials, and contracts will be securely defended into the future. This is a critical finding for Vietnamese policy makers. Systematic legal reform is of utmost importance is
ensuring sustained commitments of FIEs in Vietnam. When it comes to the decision to expand existing projects, property rights remain influential, but investors are also appear to pay careful attention to the demonstrated pro-activity of the

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