How Foreign Direct Investment Impacts Domestic Productivity: The Case of Vietnam
by Minh Phuong Nguyen Hoang
Abstract
Foreign direct investment (FDI) has long been known as a vital driver of economic growth in many developing countries by providing capital boosts, generating employment, and introducing advanced technology. This paper focuses on a more long-term economic impact of FDI — the productivity spillover effect — in the specific case of Vietnam. Using firm-level data from the Vietnam’s Enterprise Survey from 2013 to 2022, I conduct a regional analysis to investigate 1) how foreign presence affects the productivity of firms in the region, and 2) how engagement in international activity further boosts firms’ productivity. Findings indicate that both domestic and foreign firms experience a statistically significant productivity boost as the level of foreign presence in the province increases, with domestic firms seeing a more substantial positive impact. Overall, my study aims to present a comprehensive picture of the dynamic between FDI and domestic productivity, thereby offering insights into how foreign investment can shape Vietnam’s economic landscape. This research can help inform Vietnam’s strategic FDI policies to foster technological advancement and strengthen its global economic integration, which has become a critical priority as the country navigates an unprecedented influx of high-tech foreign investment spurred by the ongoing US-China trade war.
Professor Michelle Connolly, Faculty Advisor
Professor Edmund Malesky, Faculty Advisor
JEL Codes: F21; F43; O30; O33
Keywords: FDI, Productivity, Knowledge Spillover, Vietnam, Economic Development
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The Impact of a Fixed Exchange Rate Regime on Growth and Volatility in an Oil-‐‑dependent Economy
By Shihab Osman Malik and Faisal Bandar Alsaadi
This study examines the relationship between the fixed exchange rate regime, economic growth, and output volatility in oil-‐‑producing Saudi Arabia over the post-‐‑Bretton Woods period (1973–2016). We assess the implications of the current exchange rate regime on macroeconomic and growth performance, and evaluate its sustainability in the context of oil-‐‑dependency and market dynamics. We develop and employ a theoretical framework and empirical specification based on previous literature to find that for Saudi Arabia, the fix is associated with faster growth and lower output volatility. We believe the result is primarily driven by the credibility of the fix in terms of establishing a strong nominal anchor and monetary policy framework.
Advisor: Lori Leachman | JEL Codes: E42, F31, F36, F41, O53
Monetary Unions and Long-Run Growth
By Levi Crews
This paper develops two complementary models of monetary unions and long-run growth. The key result is that a reduction in foreign exchange costs via monetary unication provides a positive growth effect for member nations. This growth effect may come through increased knowledge spillovers in the deterministic model or through the migration of funds to higher-yield investments in the stochastic model. Empirical evidence is presented that generally supports both of these channels of growth.
Advisor: Pietro Peretto | JEL Codes: F43; F45; O42.
The Investment Cost of Currency Crises in Emerging Markets: An Empirical Treatment from 1994-2015
By Eric Ramoutar
Currency crises – large and sudden depreciations in the value of a country’s currency – have been an unfortunate by-product of increased financial openness over the last half century. This study extends the already vast literature on the impact of currency crises by estimating how currency crises affect domestic investment in emerging markets. Specifically, the study uses panel data with fixed effects and various robust standard errors as well as a generalized method of moments estimator to investigate the impact of currency crises on domestic investment in a sample of 14 countries that experienced currency crises between 1994 and 2015 and 10 that did not. The results of the analysis initially indicate that, after controlling for a host of macroeconomic fundamentals, currency crises contribute significantly to dampened domestic investment. Ultimately, after controlling for banking crises, the study concludes that relatively severe, but not all, currency crises have a significant depressing effect on investment. The results further indicate that all currency crises should not be treated equally; those involving exceptionally large depreciations lead to an even greater decline in domestic investment.
Advisor: Cosmin Ilut, Kent Kimbrough, Lori Leachman | JEL Codes: E4, F3, F4, E42, F31, F32, F41, G01
Increased Foreign Revenue Shares in the United States Film Industry: 2000 – 2014
By Victoria Lim
The American film industry, which has historically been driven by the domestic market, now receives an increasing proportion of its revenue from abroad (foreign share). To determine the factors influencing this trend, this paper analyzed data from 11 countries of 2,337 American films released during 2000 – 2014. Both film and country attributes were analyzed to determine each attribute’s effect on foreign share, whether its effect size has changed over time and whether each attribute has changed in frequency amongst films released. The results identified six attributes, star actors, sequels, releases in top markets, release time lag, GDP growth and a match in language, that contributed to the increase in foreign share over this period.
Advisor: James Roberts, Kent Kimbrough | JEL Codes: F40, L82, Z11 | Tagged: Foreign Share, International Box Office Revenue, Motion Picture Industry
Proposing an Alternative to the European Central Bank’s Fiscal Convergence Criteria
By Junaid Arefeen
The recent onset of the sovereign debt crisis in the Eurozone has brought the viabil-ity of the Eurozone as a currency area into question. The unsustainable debt and deficit balances accumulated by several Eurozone nations since the adoption of the common currency in 1999, and the consequent incidence of high levels of sovereign default risk in the euro-area, indicate that the fiscal convergence criteria employed by the European Central Bank to monitor the fiscal discipline and sustainability of its members have been largely ine↵ectual. This paper draws upon the theory of optimum currency areas, and proposes a set of business cycle convergence criteria that can be employed as an alternate means to minimize the risk of fiscal imbalances and sovereign default. Economic theory suggests that a currency union with convergent business cycles will be insulated from asymmetric shocks, removing the need for countries to rely wholly on their fiscal policies when dealing with negative shocks (as would be the case in a currency union with non-synchronous countries su↵ering from negative asymmetric shocks). Therefore, as the risk of fiscal imbalances is minimized, a currency union with synchronous business cycles is expected to have low incidences of sovereign default risk. This paper tests this economic intuition empirically, and employs a multivariable panel regression model to determine the relationship between business cycle convergence and sovereign default risk (proxied using sovereign yield spreads). The regressions reveal that the degree of business cycle convergence is one of the main determinants of yield di↵erentials, and the relationship between the two is negative (as expected). The consistency of the results to numerous robustness checks provide a strong case for substituting the current fiscal convergence criteria with measures that assess the degree of business cycle convergence.
Advisors: Andrea Lanteri, Cosmin Ilut, Kent Kimbrough | JEL Codes: E32, E43, F34, F44, F45 | Tagged: Cycle Convergence, Optimum Currency Area, Sovereign Default Risk
