Institutional quality and foreign direct investment: the case of Vietnam

<p>Over the last several decades, researchers and policy makers alike have come to an agreement that institutions and institutional quality matter to economic performance. However, there is no consensus on what institutions are and what constitutes institutional quality, and even less on the relationship between institutions and economic development. Quantitative empirical research on the relationship have produced mixed and even conflicting results. This thesis develops the proposition that we can understand some of this conceptual ambiguity and empirical inconsistency by identifying the eclectic nature of institutional economics (including new institutional economics (NIE), and the wide analytical uses to which institutional economics is put. NIE is best understood as a broad field of theoretical and empirical research, with some shared characteristics. But it is not a unified discipline with widely agreed concepts and methods. NIE has also been applied by researchers from a range of disciplines, for a range of purposes, and in countries with very different levels of development and political, economic and cultural characteristics. We know that institutions matter, but which ones, for which economic and political actors, and at what stages of the socioeconomic development are still open issues. Institutions matter, but the thesis makes the case that context matters too, and institutional economics needs to pay more attention to context.</p> <p>By using qualitative research and examining the relation between institutional quality and inward foreign direct investment (FDI) in the case study country of Vietnam, a rapidly growing transition economy, this research seeks to combine two ways to engage these issues. The first is to explore the institutional determinants of FDI in Vietnam, and then explore how institutions are perceived by foreign investors and other key stakeholders, with different investment strategies and different exposure to those institutions.</p> <p>The thesis finds that that the heterogeneous outcomes of quantitative studies can be understood in part by the complex and ambiguous definitional dimension of NIE and institutional quality. In part also, it questions assumptions about the homogeneity of the effects of institutions on different actors, in different industries, and in countries at different stages of economic development. Second, it finds that a static conceptual framework cannot be used unproblematically across time. But specifying institutional quality in a model of economic development requires a clear developmental path, that few countries have closely followed. Finally, the thesis suggests that the relation between institutions and FDI depends on the characteristics of host country institutions as well as the types of MNEs, their strategic goals, the industries they invest in, and their modes of entry and operation.</p>