Institutional Quality and Foreign Direct Investment:
The Case of Vietnam
A thesis submitted in fulfilment of the requirements for the degree of
Doctor of Philosophy
Ky Viet Tran
Bachelor of Art, Can Tho University Vietnam
Master of Development Economics, University of Economics of Ho Chi Minh city,
Vietnam
School of Management
College of Business and Law
RMIT University
August 2021
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DECLARATION
I certify that except where due acknowledgement has been made, this research
is that of the author alone; the content of this research submission is the result
of work which has been carried out since the official commencement date of the
approved research program; any editorial work, paid or unpaid, carried out by a
third party is acknowledged; and, ethics procedures and guidelines have been
followed.
In addition, I certify that this submission contains no material previously
submitted for award of any qualification at any other university or institution,
unless approved for a joint-award with another institution, and acknowledge that
no part of this work will, in the future, be used in a submission in my name, for
any other qualification in any university or other tertiary institution without the
prior approval of the University, and where applicable, any partner institution
responsible for the joint-award of this degree.
I acknowledge that copyright of any published works contained within this thesis
resides with the copyright holder(s) of those works.
I give permission for the digital version of my research submission to be made
available on the web, via the University’s digital research repository, unless
permission has been granted by the University to restrict access for a period of
time.
31 August 2021
Viet Ky Tran
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ACKNOWLEDGEMENTS
Over the past few years, there have been so many events—both joyful and depressing—
throughout the journey towards that long-awaited feeling of relief when I wrote the final words
of my thesis. I would like to begin by acknowledging those whose support played an essential
role in the completion of this study.
First and foremost, I would like to express my deepest gratitude to my senior supervisor,
Associate Professor Michael Rafferty. Michael is extremely demanding of his students. Our
regular supervisory discussions were always informative, providing invaluable feedback. His
constructive suggestions were critical in shaping my arguments and writing. I am sincerely
indebted to him for his guidance in finalising this research.
I would also like to express my gratitude to my associate supervisor, Dr Ruth Barton. I
particularly appreciated Dr Barton’s kindness and unwavering support throughout my research
journey. Her knowledge of public policy and public governance helped shape the literature
review underpinning this thesis. At the same time, her knowledge of Asia and Vietnam in
particular, guided my research orientation.
In the College of Business, I would like to thank Associate Professor Ashton De Silva, Director
of the Doctoral Training Centre and Associate Professor Penelope June Weller, Chair of the
Human Ethics Network. In the School of Management, I would like to thank Professor John
Burgess, Associate Professor Sharif As-Saber, Dr Robert Smith, Dr Bernard Mees, Professor
Martin Wood, Dr Cameron Duff, Dr Jillian Cavanagh and Associate Professor Ngan Collins
for their valuable advice and feedback on my research.
I am also grateful for the administrative support I received from Ms Kristina Tousles-Reay, Ms
Sherrin Trautmann, Ms Prue Lamont, Ms Jacqueline Randall and Ms Juliet Yee. I would like
to acknowledge their assistance and thank all the staff at the School of Management for their
support throughout my candidature.
My time in Australia was a valuable opportunity to interact with and learn from all members
of the academic community. It goes without saying that I benefitted enormously from the
professional development experience my candidature afforded me. I would also like to thank
all of my doctoral research colleagues for the times we shared together on our individual
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research journeys. I would especially like to express my deep gratitude to Dr Khalid Hossain
from RMIT, Dr Tran Thi Phuong from the University of South Australia, Dr Earl Catherine
from Federation University and Dr Nguyen Ly from Melbourne University for their feedback
on my research. Without their company, my journey across the academic ocean would have
been harsher and lonelier.
This research would not have been possible without the generosity of my sponsors. I would
like to thank the Government of the Socialist Republic of Vietnam and its authorised
department and the Monitoring Office of Project 165 for the generous scholarship that
supported me throughout my PhD candidature.
Apart from the above academic and financial support, my study would not have come to
fruition without the research participants on my field trip. Field research is always challenging
and I was very fortunate to work with outstanding and generous professionals who spent a huge
amount of time helping me to complete my research. I would like to thank the 34 participants
whose interviews provided the analytical material for this research. I am extremely grateful for
the time they made available in their hectic schedules to enable me to learn from their
considerable experience. I would also like to say thanks to the Elite Editing group for their
precious and professional in editing my thesis as per Standards D and E of the Australian
Standards for Editing Practice.
On a personal note, I would like to express my deepest gratitude to my mother, for sacrificing
the leisure time of her retirement to take care of my children while I studied overseas. I would
also like to offer my most heartfelt apologies to my daughter, my sons and my wife whom I
left behind while I went off to pursue my own academic aspirations. I vow to find the
opportunity to express my gratitude to each of you whom I love the most.
Last, but by no means least, I would like to dedicate this thesis to the memory of my late father.
The political turmoil during his time, poverty and family burdens prevented him from
continuing his study. I would like to offer this thesis as a gift to him for his devotion to the
family.
I am deeply indebted to you all.
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TABLE OF CONTENTS
DECLARATION .................................................................................................................. i
ACKNOWLEDGEMENTS ................................................................................................ ii
LIST OF TABLES ............................................................................................................. ix
LIST OF FIGURES .......................................................................................................... xii
LIST OF ABBREVIATIONS AND ACRONYMS ......................................................... xiii
ABSTRACT......................................................................................................................... 1
Chapter 1: INTRODUCTION ............................................................................................ 3
1.1 Research background ................................................................................................... 3
1.2 Research gaps, justification and scope of the research .................................................. 6
1.3 Research questions ...................................................................................................... 8
1.4 Research propositions .................................................................................................. 8
1.5 Research design ........................................................................................................... 9
1.6 Research contribution ................................................................................................ 11
1.7 Structure of the thesis ................................................................................................ 12
1.8 Chapter summary ...................................................................................................... 14
Chapter 2: LITERATURE REVIEW .............................................................................. 15
2.1 Introduction ............................................................................................................... 15
2.2 Institutions and their role in economics ...................................................................... 16
2.2.1 Old institutional economics: Initial attempts to introduce the institutional
approach to economics ....................................................................................... 16
2.2.2 New institutional economics as complementary to neoclassical economics ......... 21
2.2.3 Northean theories on institutions ......................................................................... 24
2.2.4 What does New Institutional Economics investigate? .......................................... 28
2.2.5 What does New Institutional Economics measure?.............................................. 30
2.2.6 Worldwide Governance Indicators (WGI) ........................................................... 31
2.2.7 Debates on empirical research on institutions and their link with economic
performance ....................................................................................................... 35
2.2.8 Theoretical development of foreign direct investment ......................................... 38
2.2.9 Empirical evidence on location determinants of FDI ........................................... 54
2.3 Towards a conceptual framework for institutional quality and FDI ............................ 64
2.4 Chapter summary ...................................................................................................... 72
Chapter 3: THE RESEARCH CONTEXT ...................................................................... 74
3.1 Introduction ............................................................................................................... 74
3.2 Institutional transition in post-communist countries ................................................... 74
3.3 Vietnam and the transition process ............................................................................ 78
3.3.1 The emergence of the communist state of Vietnam ............................................. 78
3.3.2 Imminent economic collapse in the late 1980s .................................................... 80
3.4 The economic performance in Vietnam since the transition ....................................... 83
3.5 FDI in Vietnam after economic transition .................................................................. 85
3.6 Institutional quality in Vietnam since transition ......................................................... 90
3.7 Comparison on the transition process and the outcomes between Vietnam and other
transition countries ..................................................................................................... 95
3.7.1 Comparison on the transition process and the outcomes between Vietnam and
European transition countries ............................................................................. 95
