Determinants of FDI Inflow from European Union Countries to Vietnam: A Panel Data Analysis

Abstract

This paper explores the determinants of FDI inflows from EU nations to Vietnam, employing a set of panel data from 26 member countries of EU that have been investing in Vietnam over the period 2012-2020. With the panel dataset, the study estimates three models, including pooled Ordinary Least Square (OLS), Fixed Effect Model (FEM), and Random Effect Model (REM), and then uses several formal tests to determine which model is best suited for data analysis. Based on the results of the F-test, Breusch - Pagan's Lagrange Multiplier test, and Hausman test, the Random Effect Model is preferred. According to the empirical findings, FDI from EU economies to Vietnam might be positively affected by GDP, corruption perception level, or the cleanliness of Vietnam's public sector, which is consistent with the theoretical basis. The effect of trade openness and economic freedom is negative, contrary to expectations. The coefficients of the real exchange rate, infrastructure, and COVID pandemic on FDI inflows are not statistically significant. Further studies should be carried out for a better understanding of these determinants.