Foreign Direct Investment, Absorptive Capacity, and Multidimensional Poverty Convergence in Vietnam

Abstract

Purpose: This study examines the impact of foreign direct investment (FDI) on multidimensional poverty (MDP) in Vietnam within a dynamic panel framework, explicitly accounting for the conditional effects of FDI through the roles of income, labor quality, and initial poverty levels at the provincial level.
Design/methodology/approach: The study employs provincial panel data for 59 provinces and cities over the period 2016–2022 and applies the System Generalized Method of Moments (System GMM) estimator to capture the persistence and adjustment dynamics of multidimensional poverty, while addressing endogeneity concerns and unobserved heterogeneity across provinces. The empirical framework is specified as a dynamic panel data model incorporating interaction terms, complemented by quantile-based marginal effect analysis to account for heterogeneity across poverty levels.
Findings: The empirical results provide evidence of conditional beta convergence in multidimensional poverty, albeit at a slow rate, reflecting the structural and persistent nature of poverty. FDI is found to exert a poverty-reducing effect; however, this effect varies substantially across provinces, indicating the presence of absorptive constraints and poverty traps. Quantile analysis further shows that the poverty-reduction impact of FDI is more pronounced in provinces with lower poverty levels and weakens significantly in deeply poor regions.
Originality/Value: This study contributes new empirical evidence on the conditional and heterogeneous effects of FDI on multidimensional poverty within a dynamic modeling framework. The findings underscore that FDI should not be regarded as an automatic instrument for poverty reduction in the absence of adequate local absorptive capacities.