Int Econ Term Paper - Essay Example

The paper attempts to examine how far the economic growth in Vietnam and the Czech Republic in recent years is attributed to a large scale FDI received by them. The paper also explores about the impact created by FDI on exports from these countries. Impact of FDI in Vietnam Vietnam moved to market economy in 1986. Since then Vietnam has been able to witness exponential growth in gross domestic product (GDP) and per capita income. Vietnam's average growth rate between 1986 and 1990 is estimated at 4.

4 percent that went up dramatically to 8.18 percent during 1991-95. This resulted into almost threefold increase in per capita income between 1988 and 1995; however, Asian financial Crises in 1997-98 acted as a dampener and the GDP growth rate slumped to 4.8 percent in year 1999. During the five-year plan of 2001-05, economy of Vietnam grew at the average rate of 7.48 percent doubling per capita income at US $639 when compared with 1997 level. And all this is attributed to the huge FDI that Vietnam received during the period.

Between 1988 and 2006, total 8,266 FDI projects were registered with capital outlay of over US$ 78 billion. In 2006 alone, Vietnam attracted FDI to the tune of almost US$ 12 billion (Hoang and Tubtimtong, 2010). Varamini and Vu emphasize, "There is a statistically significant relationship between FDI and the rate of economic growth in Vietnam" (137). They strongly recommend that Vietnam should further revise their economic policies. If the Vietnamese government forays reforms in banking and financial sectors then huge portfolio investment may flow in Vietnam supporting FDI inflows.

It is important to note that all in all 76 countries have provided FDI inflows in Vietnam in past two decades. Singapore, Taiwan, Japan and South Korea form a largest group of countries having invested in Vietnam comprising over 46 percent of the total FDI (Varamini & Vu). Anwar and Nguyen argue that substantial economic reforms and trade liberalization policies has caused massive inflow of FDI resulting into substantial economic growth in Vietnam. Their findings reveal that a relationship does exist between imports and FDI and exports and FDI in Vietnam for the period between 1990 and 2007; however, the impact of FDI on exports is significant during the post-Asian crisis period rather than pre-Asian crisis period.

Not only exports but also imports surged during the period with the rising FDI. Foreign-invested enterprises (FIEs) in Vietnam have played a significant role in increasing export base. While counting for FIEs share in total manufacturing goods export, it has gone up from only 20 percent to over 50 percent during the same period (Athukorala and Tien, 2012). Weakness in having global distribution networks, lack of brands and economies of scale are principal reasons restricting the growth of exports in developing economies.

The crux lies in export-oriented manufacturing activity. That is why export-oriented FDI has done miracles in Vietnam; the Vietnam’s case reveals that transitional economies can serve as a strong export platform for MNCs. Authors emphasize that cheap labor and an improved legal environment has made Vietnam a potential place for multinational companies. It is estimated that a 1 percent rise in FDI inflows is expected to increase Vietnamese exports by 0.13 percent (Xuan and Xing). Impact of FDI in the Czech