VIETNAM’S FOREIGN DIRECT INVESTMENT AND EXPORT PERFORMANCE

Opening the economy to foreign direct investment (FDI) and trade has been central to Vietnam’s gradual transition over the past three decades from a Soviet-style centrally planned economy to a market economy. From a hesitant start in the late 1980s, Vietnam has gone a long way in relaxing restrictions on FDI, particularly in export-oriented projects, and equalizing policies governing local and foreign investors, even though the overall incentive structure is still skewed in favour of state-owned enterprises (SOEs) in some key industries. Trade policy reforms have dismantled numerous quantitative import restrictions and significantly reduced tariffs. Thanks to these reforms, the Vietnamese economy has become outward oriented, with FDI and trade playing a pivotal role in growth and structural transformation of the economy. Foreign invested enterprises (FIEs)1 have become instrumental in linking the manufacturing sector to the rapidly evolving East-Asia-centered global production networks. The purpose of this chapter is to survey the development of foreign investment and trade regimes and examine emerging patterns of foreign capital inflows and trade in the economy. A key theme running through the analysis is the role of FDI in outward orientation of the manufacturing sector and linking it to global production networks (GPNs). The chapter begins with an overview of foreign investment and trade policy reform. The next three sections examine in turn changing patterns of FDI, export performance, the role of FDI in the expansion of manufacturing exports and the emerging patterns of Vietnam’s engagement within East Asia–centered GPNs. Key findings and suggestions for further research are summarized in the final section.