VIET NAM NATIONAL UNIVERSITY OF HO CHI MINH CITY
UNIVERSITY OF ECONOMICS AND LAW
NGUYỄN TẤN VINH
IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC
STRUCTUAL CHANGE IN HO CHI MINH CITY
Major: Economics
Code: 62.31.03.01
Supervisor: 1. Dr. Nguyễn Tiến Dũng
2. Dr. Lê Tuấn Lộc
DOCTORAL THESIS SUMMARY
Ho Chi Minh City - 2011
INTRODUCTION
1. Problem statement
Industrialization and modernization of the economy and proactive
international economic integration are the pressing issues for countries at low
level of economic development. Raising the level and extent of the resources
and building up a modern and sustained economic structure are of the core
contents. Structural transformation becomes an objective factor of the
development of national economy in the globalization era. FDI has an
important role and through FDI, the host country has an opportunity to
participate in the international division of labor, thereby raising the level of
development, creating a driving force for structural transformation. Vietnam
has always paid a great attention to attracting FDI to supplement the
investment capital for development, promoting economic structural change.
FDI has spillover effects to the economic sectors, and contribute to
modernization of the economy, but FDI does not always have a positive
impact. Therefore, if not analyzing of weaknesses in attracting and using FDI,
we cannot draw possible solutions to promote positive and minimize negative
impacts from to transfer funds ECONOMIC STUCTURAL.
Ho Chi Minh City, a major economic center of the region and the
country, has a dominant role over the capability of the country’s economic

Duc Binh (2009), Journal of Economics and Development, (145), p. 6-9,
"Transparency of the legal system and policies on foreign investment: Current
situation and solutions" by Tran Hoa Hung (2005), Journal of Economics and
Forecasting (3), p. 6-8.
2.4. Summary of the achievements of foreign direct investment in
Vietnam. Some works are: "Foreign Direct Investment in Vietnam:
Achievements and development solutions" of Ho Van Vinh (2003), in Journal
Political Theory, (4), p. 39, "Foreign Direct Investment in Vietnam: 17 years
2
looking back" by Bui Hoai Nam (2005), Journal of Press and Propaganda, (2),
p. 24-27. The article reviews the results of Vietnam's FDI attraction,
indicating the limitations, from which proposing solutions to attract FDI.
2.5. Foreign Direct Investment and the process of industrialization and
modernization in Vietnam, analysis of the experiences of other countries.
Some works include: “Foreign direct investment for industrialization in
Malaysia and experience for Vietnam” (World Publishing, HN, 2000) of
Phung Xuan Nha, “Foreign direct investment with the industrialization and
modernization in Vietnam” by Nguyen Trong Xuan (Social Sciences
Publishing House, Hanoi 2002).
2.6. The studies on FDI, and the structural change in Ho Chi Minh city.
To name some such as: “Final Report on orientation to attract partners for
foreign direct investment in structural transformation in Ho Chi Minh city” by
Nguyen Van Quang (Project leader, 2007), “On the structural transformation
of economic sectors in Ho Chi Minh city in the process of industrialization
and modernization” (Social Sciences Publishing House, Hanoi, 2000) by
Truong Thi Minh Sam. Overall, the scientific work above mentioned point
out problems related to FDI, but they do not study the comprehensive and
quantitative impact of FDI on structural transformation.
3. Objectives and tasks of the dissertation
Thesis aims at unveiling theoretical and practical basis of the impact of

- Methods of analysis and synthesis in order to find the quantitative
relationship between FDI and economic structural change.
- Methods of descriptive statistics to assess the role, and limitations of
FDI in the economic structural change and socio - economic development as
well. The method of multivariate regression analysis is used to examine the
impact of FDI on sectoral change of economic structure.
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5. The contributions of the thesis
- Develop theoretical framework and propose a model to analyze the
impact of FDI on structural change and internal structural change of the
industrial sector.
- Propose fundamental solutions for attracting and using FDI to promote
the structural change in Ho Chi Minh city, provide a basis for modeling and
planning policies to attract FDI.
6. Title and structure of the thesis:
Title of thesis: Impact of Foreign Direct Investment on structural change
in Ho Chi Minh city
The thesis is organized into three chapters:
Chapter 1
THEORIES OF FOREIGN DIRECT INVESTMENT IN
STRUCTURAL CHANGE
1.1. Theories of FDI and structural change
1.1.1. The concept of FDI
In this thesis, the concept of foreign direct investment is as follows:
"Foreign direct investment is the movement of capital, technology or any
other lawful property goes from a country to host country and participate in
the administration, investment management activities aimed at profit"
1.1.2. The Concept of structural change
There are many different concepts of structural change, but in this thesis,
structural change is understood as follows: Structural change is an economic

)
1 - α
(0 <α <1), where A
t
= A
0
e
gt
, g, A
0
is constant,
capital accumulation at time t is K
t
and dK
t
/dt = sY
t
- K
t
, Y
t
is income at time t
and s is the savings rate. Suppose that y and k are the income and capital
accumulation standardized by the number of employees "effective"
(regardless of the time, y = Y/AL và k = K/AL), therefore:
dk/dt = sy - (n + g + δ)k = sk
α
- (n + g + δ)k (1.1)
The solution of equation (1.1) over time, dk/dt → 0, mean: sk
α

0, meaning that the convergence of k and h to the equilibrium value k* and h*
defined: k* = [s
k
1-
β
s
h
β
/(n + g + δ)]
1/(1-
α
-
β
)
và h* = [s
k
α
sh
1-
α
/(n + g + δ)]
1/(1-
α
-
β
)
. Convergence is
determined by the equation: ln(Y
t
/L

for both sides of equation (1.6), we obtaine:
lny
t
- lny
0
=[(1- e
-
λ
t
)][αlns
k
+βlns
h
- (α +β)ln(n+g+δ)]-(1- e
-
λ
t
)lny
0
(1.7)
Rewrite the model in the form of econometric models of economic
growth for the sectors as follows:
lny
it
– lny
i0
= C – (1-e
-
λ
t

- lnY
t
= C – (1-e
-
λ
t
)y
i0
- lnY
t
+ x
it
+ e
it
(1.9)
<=> lny
it
- lnY
t
= C + e
-
λ
t
y
i0
- lnY
t
+ x
it
+ e

USD. In the period 1996 - 2000, the results drawn in the previous period has
set the stage for the capital flowing into Vietnam (the first wave of FDI). In
the period 2001 - 2005, FDI activitied faced many difficulties due to the
impact from the international context and the fact that many countries in the
region improved the investment environment. The period 2006 - 2010 marked
the period of prosperity of FDI inflows, and the year 2008 appeared to start
the "second wave OF fdi " in Vietnam.
Data show that FDI is an important factor promoting the development of
many industries and new products. FDI accounts for 100% in crude oil,
automobiles, washing machines, refrigerators, air conditioning, office
equipment, FDI accounts for 60% of steel, 28% of cement , 33% of power
supplies/electronic, 76% of medical devices, contributing to increased
production capacity of the national economy due to more progressive
economic structure.
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2.1.2. Dynamics of the economic growth of Ho Chi Minh city
Ho Chi Minh city is one of a few big cities in the world having economic
growth at an annual average of 2 numbers (except for the period 1998 to 2001
and from 2008 to 2010 due to the impact of the economic crisis in the world).
The achievement of economic growth of the city not only has important
implications for the city itself, for the Southeastern region but also for the
country. However, the quality of growth and economic efficiency are still low
compared to potentials: growth in width, mainly from increased investment
and production machining and assembly, depending greatly on equipment and
raw materials imported.
2.1.3. Structural change and FDI in Ho Chi Minh city
FDI asserts its position in the economy of Ho Chi Minh city; in 2009 it
contributed to 20% of GDP. As of 31/12/2009, the city also has 3,536 FDI
projects with total investment of 27.4 billion. Industry and construction
accounted for 48.4% and 32.2% of project investment. Services accounted for

Negative effects can be explained by the fact that the city began to have a
comparative advantage in this sector, thus the role of FDI is improved,
(5) regression results confirm the hypothesis that sectoral economic
structure depends positively on the size of sectoral GDP in the previous
year
2.3. The impact of FDI on the intra-sectoral change of structure in
Ho Chi Minh city
2.3.1. Descriptive analysis
FDI creates new industries with advanced technology and a variety
of goods and products of high values. FDI contributed to the intra-
sectoral structural transformation towards the development of key
industries to be prioritized for development in the city, namely:
Mechanical, electrical - electronics, software engineering and chemicals.
2.3.2. Analysis using econometric model
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From the regression results, we draw the following conclusions: (1)
the impact of FDI on the overall economic structure of industrial sub-
sectors appear to be quite consistent with the effects of FDI to the
industrial structure generally found in the previous section. (2) generally,
at industrial level, FDI may have a negatively impact on the labor-
intensive industry. It should be noted that this is also the industry that
the city identified as industries with comparative advantages. (3) for
capital-intensive industries, positive impact of FDI is found in the sectors:
Mining, Publishing, printing, reproduction, Chemicals and chemical
products, mineral products non-metal, radio, television and
communication equipment. (4) negative impact of FDI for the industry:
medical instruments, optical instruments, watches all kinds. These two
industries are classified as the mechanical engineering industry in the
priority directions of development of the City. Regression results do not
show the impact of FDI on the other sectors in engineering due to lack of

3.1.1. Contents of structural transformation in Ho Chi Minh city till
2020
The overall goal
To build Ho Chi Minh city to become a socialist city, a metropolis of
civilization and modernity in Southeast Asia, a center in a number of
areas, with developed urban infrastructure compared with the major
cities of the countries in the region. The city takes services and industries
with high added value as their development platform, leads in developing
high-tech agriculture, and becomes the largest economic center of the
country and the convergence of business. Building Ho Chi Minh city as a
place to attract big corporations and foreign business headquarters.
3.1.2. Orientation activities of FDI to promote structural
transformation
3.1.2.1. General Orientation
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To encourage FDI investment in modern industries, high technology,
the industry with high value added products for export: :
(1) To encourage FDI in the service sector, high-tech industry with
high levels of gray matter and creation of higher value added.
(2) To encourage investors from countries with high potential for
financial and technological resources.
(3) To improve the quality of FDI, FDI projects affecting the
structural change. To limit the labor-intensive projects, the average
backward technology industry.
(4) To promote administrative reform in the industrial zones and
export processing zones to encourage FDI towards the export of oriented
high-tech goods.
3.1.2.2. For FDI seeking markets
For the form of FDI seeking markets, City puts priority on
attracting FDI in the following sectors: Finance - banking, insurance,

projects in the sectors. Do well the predictions of the potential and
market demand in the integration trend, thus, determine the real
capacity development of the sector as a basis for planning development.
To review, adjust, approve and publish the plan on infrastructure in 2020
as a basis to attract the development of infrastructure; priority areas of
water supply and drainage, sanitation; Us inner suburban roads; the
field of post and telecommunications, information technology. There are
links and cooperation with a unified master plan in the area which will
reduce the pressure of competing products industry alike that the city
does not have the strength, the priority sectors for investment in the City
advantages such as high-tech, clean industry, information technology.
3.2.2. Specific solutions
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3.2.2.1. For FDI seeking markets
Vietnam and HCM City build the attraction for international
investors. FDI has created fierce competition between nations. So we
need a more accurate view on this issue, it has directly affected the size
and effectiveness of FDI projects, thus promoting the need for new
market expansion of large corporations. To make this work, the city
should focus on several issues: (1) to diversify the investment promotion
activities. (2) The promotion of investment does not end at the time of
licensing, which operates throughout the project. (3) Proper attention to
the selection of investment partners.
3.2.2.2. For FDI search resources
The objective of the foreign companies is to exploit this kind of
resources, so to promote its role for the structural change, Ho Chi Minh
City needs to have a connection with other localities in the region to
attract and use funds.
3.2.2.3. For FDI seeking efficiency
To attract FDI and to use this form to speed up structural change,

really become a powerful force to impact the process of modernizing the
economy and not commensurate with the potential, (5) The city has no plans
and overall strategy to attract FDI in structural change, (6) FDI focuses on
labor-intensive industry, (7) The scope of project in the field of industry is
small; (8) FDI partners come from countries not with high level of technology
of modern world (9) The advantage in attracting FDI in Vietnam is declining.
This is the contents as a basis for recommendations for the direction and
recommendations to attract and use FDI for structural transformation till
2020.
Third, from reality to attract and use FDI in structural transformation, the
thesis has proposed two measures to attract FDI for structural trsnformation,
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including:
General solutions referred to the contents that need to be implemented to
promote the role of FDI in promoting structural transformation, including
measures to improve the effectiveness of State management and supportation
of structural chaneg; continue to improve the investment environment and
attract FDI associated with the completion of the planning for overall
development of the sector and program of structural change of the economy.
Specific solution is determined based on results of research and
economic characteristics of each of FDI, including three solutions proposed
by FDI: FDI seeking markets; FDI seeking resources and efficiency.
2. Recommendations
2.1. For Ho Chi Minh city
First, review the economic development priorities and the key industrial
sectors, review and adjust planning of industrial development. The
identification of sectors should be more specific, avoiding general.
Strengthening links with the local key economic areas to the South (KEAS),
thereby attracting and using FDI on the basis of promoting the advantages of
the city. Second, based on redefining the industry and such measurement, Ho

6. "Urbanization and sustainable development issues in Vietnam", Review of
Theory, 1 (74) 2006, p. 51.
7. "Economic integration - The question for economic development in Vietnam",
Review of Theory, 4 (77) 2006, p. 3.
8. "Development of services in the process of international economic integration",
Political Science, (4) 2007.
9. "Solutions to promote foreign investment in industry in the city. Ho Chi Minh",
Report, in 2006.
10."The impact of foreign direct investment on economic structural change in Ho Chi
Minh city", Report, in 2009.
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