Foreign Direct Investment (FDI) in Vietnam Economy

Foreign Direct Investment has positive impacts on developing economies, however without proper and effective policies in attracting and management of foreign investment, there can be negative impacts as well. This study attempts to provide a picture of foreign investment in Vietnam over the past time. The main research method used in the article is statistics analysis and Input-Output analysis method using data from Vietnam General Statistics Office, along with some contemporary policy discussion. A comprehensive statistical investigation shows that while FDI sector consistently accounts for about 20% of Vietnam GDP since 1995, this sector is becoming dominating in importing and exporting relatively to State and other non-State sectors. Besides, policies exercised by the Government are both showing signs of unfair treatment between FDI and domestic sectors and showing loopholes exploited by FDI firms (such as tax avoidance and price transfer). From the Input-Ouput analysis, we discovered that the sector which needs State investment the most—domestic sector with highest spillover effects to income and lowest to import—is begin neglected in favor of FDI sectors. Consequently, this has created a fragmented domestic economy that is assembly-based and not fully utilising its manufacturing potentials. Some recommendations drawn from the study are: increase effectiveness of policy in attracting and using foreign investments; ensure fairness in treatment between foreign and domestic firms; create incentives to boost domestic manufacturing; priorities foreign capitals which have positive spillover effects and technology transfer.


Introduction
Foreign direct investment (FDI) has a very important meaning both in the start-up phase of the economy, as well as in the depth of development, on the way of industrialization, modernization and development of knowledge economy. This is because foreign direct investment is a very important source of supplementary capital to the total investment capital and contributes to economic growth. Since 1978, when the Law on Foreign Investment of Vietnam [1] was passed, a large amount of foreign capital was attracted, making important contributions to economic development, stimulating exports and improving quality of human resources, technology, and an important premise for Vietnam's economic growth. On the other hand, attracting foreign direct investment is also one of the main objectives in Vietnam's socio-economic development.
Although attracting foreign direct investment is very important to mobilizing and long-term usage of capital, it is necessary to select and make policies suitable to each stage of development. In recent years, FDI enterprises in Vietnam have enjoyed many incentives from tax and land policies which, in turn, have caused many difficulties and disadvantages for domestic enterprises. This article aims to assess the status of the FDI sector's contribution as well as Vietnam expectations for FDI enterprises. Through analysis, some recommendations will be given to domestic businesses and to the state to have appropriate policies that ensure mutual benefits for all kind of business and harmonize with the country's interests.
Vietnam Investment Law [2] stipulates that: Foreign direct investment is when foreign investors bring into Vietnam capital in cash or any assets to invest, investors may be an organization or individual. There are also a number of widely recognized definitions of FDI: Foreign direct investment (FDI) is a foreign-owned capital of assets such as factories, mineral mines and land in countries, but does not include securities. It is also possible to understand that direct investment is a long-term form of investment by an individual or company investing in another country by establishing a business-production facility, in which an individual or foreign company that will take control of this business in the country where the investment is made.
The World Trade Organization (WTO) has also made the following definition of FDI: Foreign direct investment is made when an investor from a country (called the investor country) acquires investment assets in order to invest at another country (the host country that attracts investment) along with the right to manage the property. Direct management is a sign to distinguish FDI from other financial instruments such as securities and credit. Thus, it can be seen that FDI has the following basic characteristics: -There are elements of investment capital from abroad (may be individuals or organizations, businesses); -Use that capital to invest abroad by setting up new assets; Economists have come up with explanations on why FDI exists and the phenomenon of moving capital from one country to another. This is because there is a difference in the productivity of the increase in the marginal productivitythe amount of output that a manufacturer can obtain by using an additional unit of production factor of capital between countries. Therefore, some countries are both foreign capital investor and receiver. A "capital surplus" country in a certain field often has lower marginal productivity when using it in another country, because it has reached "critical" point. A "capital deficit" country often has a higher marginal productivity, due to many untapped potentials. This situation will lead to the movement of capital from surplus to relatively scarce places, in order to maximize profits because the production costs of "excess capital" countries are often higher than those of "capital deficit" and wishing to receive capital.
Growth theories often focus on production factors, typically the notions of The Input-output analysis is also used in this study. There are not many studies using the I/O model to assess the impact of FDI. Some related studies such as Shri Prakas, Shalini Sharma and F. Kasid [9] in IIOA conference at San Paolo presented the approach input output model of impact of FDI on Indian economic growth, Bruno de Souza Lopes et al. [10] used input output approach in order to compared Foreign Direct Investment versus Domestic Investment, Trinh Bui and Pham Le Hoa [11] used also input output approach for comparing structure of Vietnam economy and China economy. Research on Vietnam Economic Structure Change based on input output system also mention Ha et al. [12].
This study indicates that the foreign-invested sector may increase GDP but may also reduce the economy's resources, which can make the gross national income (GNI) smaller and the flow of money going abroad is getting bigger and bigger, while people and host countries hardly get any benefits from FDI enterprises.

Methodology and Data Sources
This study is based on the criteria of the System of National Accounts (SNA), the path from income generation to income distribution and redistribution is ex- + Export and import based on report of Vietnam general statistics office. + Gross capital formation was collected by report of provinces and enterprise survey.
After that the Ras 1 [15] method was used for balancing gross input and gross output.
• Apply input-output system: The standard Leontief (1941) was solving: where: X is an output matrix that is induced by factor of domestic final demand; From (1) we have: With: V is value added matrix and v is their coefficient matrix And: With: M is import vector and m is their coefficient vector Import multipliers: where: ÷ shows scalar division.
The data of these indicators are collected at the General Statistics Office As the data is compiled from the General Statistics Office, this ensures consistency in calculation and definition of figures. However, the data does not show particularly where FDI comes from (i.e. which country, which times). This is a major setback for FDI statistics in particular but also for Vietnam in general. For example, export and import data only became available recently from Ministry of Industry and Trade. In the framework of analyzing data from the General Statistics Office, the analysis in part (3) and policy recommendations in part (4) focus on clarifying the current status of FDI in Vietnam in more than 20 years (not clarifying Vietnam's trade relations). while the export and import growth of the domestic sectors in this period is 11%

Status of Foreign Direct Investment in Vietnam
and 7% annually respectively. The import and export structure also shows that the FDI sector is rapidly gaining market share of exports and imports. In 2005 exports of FDI sector accounted for about 57% of the total export value In 2016 the region's exports sector accounts for 72% of the total export value; similarly, the import structure of the FDI sector also increased from 35% in 2005 to 59% in 2016.
Import and export trends of the FDI sector are also increasingly "dominating", gradually occupying the market share of the domestic economic sector.
The export structure of the domestic economic sector in 1995 accounted for 73%    According to GSO, the export of FDI sector is very large (72.5% in 2017) but the value adding to GDP only accounts for 18% of the total export value ( Figure   3). Even though in the FDI sector's exports which are including exports of resources (coal, oil, etc.), the ratio of intermediate costs is not high, but the proportion of value increases of this area in total GDP is only approximately 20%.
In fact, the contribution of the FDI sector to GDP of 20% is not small while the private sector only contributes about 10%, the contribution of the state economic sector accounts for 32% including State-owned enterprises' contributions to state management and non-business activities (money from recurrent budget), estimated contribution of state-owned enterprises to GDP is about 20% 2 . The largest contribution to GDP is the household sector accounting for 33% of GDP, once again affirming that Vietnam's economy is not only a processing economy but also one that is very fragmented. One country cannot grow if the economy is based on manufacturing and small households. Unfortunately, this proportion has not changed noticeably since 2005 ( Table 2).
The production of the foreign investment sector is mainly for processing and the portion of the export of this sector is only in the processing, the value added is extremely low in the export value. In essence, export from this sector is the export from the owner's country exploiting Vietnamese market's favoring conditions to other third-party countries. If goods are produced by foreign investment sectors but sold in Vietnam, they are in fact exported to Vietnam and have higher profits when they produce in their home countries and then export to Vietnam because they enjoy many advantages and cheap labor. This is partly reflected in the contribution of the FDI sector to GDP although the export value is very large but the value added of this sector in GDP is low (only about 18%).
Based on estimated net foreign ownership payment data in 2018, it shows that net foreign ownership is of more than $20 billion, in which more than $10 2 Currently, economic situation assessments are often tied to targets. GDP in Vietnam today is not only calculated but also recognized in terms of supply side, that is to add all value-added by basic prices of industries in the economy and product tax (in Value added according to the calculation method of Vietnam Statistical Office does not include product tax) on the principle of permanent residence, for example a FDI enterprise operating in the territory of Vietnam for more than one year, the entire value The increase of that enterprise is included in Vietnam's GDP, an FDI enterprise exploiting natural resources in Vietnam is also calculated according to the above principle. Thus, the growth in scale as well as the number of GDP indicators does not really reflect the picture of the economy, such as FDI enterprises specializing in resource exploitation, they will transfer profits to their country but the figures are still reflected in Vietnam's GDP. Theoretical Economics Letters  then businesses in this sector can keep the profit to re-invest and also transfer money to the "mother" country (originating country).

GNI = GDP + property income − property payment
Cash outflow = property income − property payment Thus, although the foreign capital sector adds up significantly to GDP growth, it nevertheless contributes considerably to net foreign cash outflow to be faster than GDP growth rate. The average GDP growth by current price during the pe- government procurement, an increase in government procurement will lead to an increase in GDP but also budget deficit, overspending. Investing in projects such as monumental construction, gates, road digging filling also increases GDP but leads to a higher ratio of savings-to-investment and debt risks increase. This is the reason many experts believe that the higher the GDP growth, the more the country's resources are reduced when growth is based on the foreign capital sector or procurement-driven as above.
Therefore, the growth of the FDI sector can increase GDP but make the economy a shrinking resource through the targets of GNI, NDI and Saving of the economy, while those of the originating country through FDI enterprises increased. One problem is that in addition to the good management and capital source of the FDI sector, Vietnamese policies are too favoring this sector, while domestic non-state enterprises are not entitled to incentives. It is impossible to understand what people think when exempting processing enterprises from taxes (basically FDI are processing firms), if the domestic enterprises also import those goods for domestic production, they are taxed for import and VAT of imported goods but those who do processing are exempted from tax 3 . So, what other incentives to businessmen not to only process? So how can the manufacturing industry of auxiliary products be developed? In addition, FDI enterprises are entitled to corporate income tax incentives "newly established enterprises from investment projects in the economic zone are entitled to the tax rate of 10% for 15 consecutive years from the first year that revenue is generated" and then receives further incentives "In addition, businesses operating in the economic zone will be exempted from corporate income tax for 4 years from the time the business has taxable income and 50% reduction in the next 9 years". It is comparable to say, agricultural emphasis is needed, but agricultural production and   Table 3). Tax policies for export seem to be a mistake when export of host country is actually export of other countries in a machining economy. The priority for export not only brings low value-added but also constrains the non-state economic sector to develop and increases the trade deficit as well as the balance of payments deficit. Table 3 was calculated which was based on Equations (4), (5) and (6) above.

Conclusions and Some Policy Recommendations
Vietnam has signed many multilateral and bilateral trade agreements, in an open  In fact, some experts "complain" about this sector not because they are against it but they see an unjust treatment in implementing policies between different types of businesses since due to foreign investment tax incentives Vietnamese people have to bear additional tax burden. So the first thing to do is to eliminate the achievement-driven motives and tenure culture of the leadership levels, followed by a real just of both policy and policy implementation. In addition, it is not that experts who often write and talk about foreign-invested sector do not have hope in this capital flow, but rather they expect a boost in economic structural change, a promotion in transparency and equality so that domestic enterprises have a motivation to compete healthily with foreign-invested enterprises.
To do so, it is necessary to push back and proceed to eliminate petty corruption, it is the petty corruption that terribly discourages the terrible domestic enterprises, they must compete by bribing, bribing to shake hands with officials.
When attracting foreign capital, "people of authority" need to firstly think about the benefits of the country, of Vietnamese people in the short, medium and long terms. Thus, it is necessary to introduce principles of technology transfer after a certain time. It is necessary to regulate enterprises with foreign capital on labor use in quantity as well as in quality. Priority should be given to attracting foreign investment flows into industries with high spillovers to other sectors, low spillovers to imports, energy and environment. But the important thing is that domestic businesses have to raise themselves; if a domestic enterprise refuses to stand up or cannot stand up, it is not the fault of foreign-invested enterprises. If the situation does not change, the economy will be the economy of foreign businesses. That's okay but sad! It may not be sad because working for anyone is working as a laborer, but working for the righteous people is still better.