DOES FOREIGN DIRECT INVESTMENT PROMOTE ECONOMIC GROWTH IN VIETNAM? AN APPROACH FROM A VAR MODEL AND GRANGER CAUSALITY TEST

Abstract

Foreign direct investment (FDI) has the potential to influence economic growth in many countries throughout the world. However, previous studies examining the impact of FDI on economic growth have shown significant diversity in objectives, research scopes, methodologies, and conclusions drawn from empirical evidence. This raises the question: does FDI genuinely stimulate economic growth, particularly in developing nations like Vietnam? Utilizing the Vector Autoregression Model (VAR) and the Granger Causality Test with the most up-to-date time series data spanning from 1990 to 2023, this study identifies a positive impact of FDI inflows on Vietnam’s economic growth. Additionally, no Granger causality relationship from economic growth to FDI inwards is observed. Besides FDI inflows, population growth also emerges as a key contributor to Vietnam’s economic expansion during the observation period. The study concludes by proposing several policy recommendations for Vietnam in the coming times.