Foreign direct investment in industrial transition: The experience of Vietnam

Abstract

This paper examines the role of foreign direct investment (FDI) in the process of industrial transition in Vietnam under market-oriented reforms. The findings are consistent with the conventional wisdom that concomitant liberalisation of trade and investment regimes, accompanied by creating a congenial environment for market-based decision making by the private agents, is vital for reaping developmental gains from FDI. During the 1990s growth of employment in firms with foreign capital participation lagged behind output growth, reflecting the capital-intensity bias in domestic-market-oriented production in a partially liberalised economy. This pattern has changed notably in recent years as the product mix gradually became export oriented in response to further liberalisation of trade and investment policy regimes.