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Mối quan hệ nhân quả giữa FDI, độ mở thương mại và tăng trưởng kinh tế ở Việt Nam bằng phương pháp ARDL kiểm định đường bao

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Bài nghiên cứu chỉ ra được tác động tích cực và có ý nghĩa về mặt thống kê của FDI và lao động đối với tăng trưởng kinh tế của Việt Nam trong dài hạn. Nghiên cứu ủng hộ giả thuyết tăng trưởng dựa vào FDI đối với Việt Nam và dòng vốn FDI đã những tác động tích cực cho tăng trưởng kinh tế của Việt Nam. Mời các bạn cùng tham khảo!

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Nội dung Text: Mối quan hệ nhân quả giữa FDI, độ mở thương mại và tăng trưởng kinh tế ở Việt Nam bằng phương pháp ARDL kiểm định đường bao

  1. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 CAUSALITY INTERACTIONS BETWEEN FDI, TRADE OPENNESS AND ECONOMIC GROWTH IN VIETNAM. EVIDENCE FROM ARDL BOUNDS TESTS MỐI QUAN HỆ NHÂN QUẢ GIỮA FDI, ĐỘ MỞ THƯƠNG MẠI VÀ TĂNG TRƯỞNG KINH TẾ Ở VIỆT NAM BẰNG PHƯƠNG PHÁP ARDL KIỂM ĐỊNH ĐƯỜNG BAO Nguyen Hai Yen, MA University of Economics, Hue University nhyen@hce.edu.vn Abstract This paper examines the dynamic relationship between FDI, trade openness and economic growth in Vietnam during the period of 1990-2017. This paper tests two fundamental questions including whether FDI and trade openness indeed enhance economic growth and whether FDI- led growth model is valid for Vietnam. Unlike existing studies in Vietnam which demonstrated some limitations in terms of methodologies and presented ambiguous results in this field, this paper applies the appropriate cointegration methodology to investigate the long-run relationship between the variables using the autoregressive distributed lags (ARDL) bounds tests approach. The paper then can indicate the directional causality through test for Granger dynamic causality in the short-run. The findings of this empirical study are that there exists a long- run relationship from economic growth to FDI, trade openness, physical capital and labour force. In the long- run, FDI and labour force have a significant and positive impact on economic growth. The short- run dynamics further show that the Vietnamese economy convergency from a shock is relatively quickly. The paper supports the FDI-led growth hypothesis and that Vietnam has directly benefited from foreign trade investment inflows. The results of the Granger causality test show that there is bi-directional causality from FDI to economic growth and trade openness to economic growth. The paper, however, fails to confirm the direction of causality from FDI to labour force and trade openness to labour force as the widespread belief that FDI generates significant and positive productivity externalities for a host country. The insights of this empirical study strengthen the case for further focus on sustainable development in policy-making. Key words: ARDL bounds tests, economic growth, FDI, trade openness, Vietnam Tóm tắt Nghiên cứu về mối quan hệ nhân quả giữa FDI, độ mở thương mại và tăng trưởng kinh tế ở Việt Nam trong giai đoạn 1990-2017 được phân tích bằng cách áp dụng phương pháp phan phối trễ tự hồi quy (Autoregressive Distributed Lag ARDL) và phuong pháp kiểm định đuờng bao (bounds tests). Hai câu hỏi được đặt ra là có hay không FDI và độ mở thương mại thực sự thúc đẩy tăng trưởng kinh tế Việt Nam và giả thuyết mô hình tăng trưởng dựa vào FDI có đúng với trường hợp ở Việt Nam hay không. Phương pháp đồng liên kết được sử dụng để phân tích 245
  2. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 mối quan hệ trong dài hạn và kiểm định Granger được dùng để phân tích mối quan hệ nhân quả trong ngắn hạn giữa các biến trong mô hình. Kết quả nghiên cứu chỉ ra rằng, trong dài hạn, có mối quan hệ giữa FDI, độ mở thương mại, vốn là lao động đối với tăng trưởng kinh tế. Nghiên cứu chỉ ra được tác động tích cực và có ý nghĩa về mặt thống kê của FDI và lao động đối với tăng trưởng kinh tế của Việt Nam trong dài hạn. Nghiên cứu ủng hộ giả thuyết tăng trưởng dựa vào FDI đối với Việt Nam và dòng vốn FDI đã những tác động tích cực cho tăng trưởng kinh tế của Việt Nam. Từ khóa: ARDL kiểm định đường bao, tăng trưởng kinh tế, FDI, độ mở thương mại, Việt Nam 1. Introduction Trade openness and foreign direct investment (FDI) have been well known as vital factors in stimulating the process of economic growth. Trade openness is defined as a ratio of exports and imports to gross domestic product (GDP). Increasing imports of final goods tend to promote competition in a local market by forcing domestic companies to adopt technological innovation and enhance product quality to compete with imported products. For exporting companies, com- petition in international marketplaces encourages businesses to upgrade their competitive capa- bilities via innovation and adoption of advanced technologies. Therefore, an increase in trade openness positively and significantly affects economic growth process via two mechanisms, in- cluding enhancing technology transfer and increasing competition in the domestic market. FDI plays an important role and has a positive impact on economic growth. It is determined to boost economic growth via the two mechanisms, including spurring competition and technol- ogy transfer. Firstly, the presence of multinational corporations as a form of FDI supports eco- nomic growth by promoting competition in the domestic market. The foreign firms have technological advantages while domestic firms have comparative advantages by using existing resources, local branches must effectively use the resources and adopt the new technology (De Mello, 1997, 1999; Wang & Blomström, 1992). FDI brings the transfer of technology and knowledge to a host country. The positive spillovers of FDI on a domestic country occur in the form of the mobility of well-trained labour force. FDI can positively affect on economic growth by the enhancement of efficiency. Over the last four decades, Vietnam has witnessed rapid economic growth accompanied by significant structural change and attainment of country status from a low- to middle-income country. Despite having some advantages such as the young population, low-cost labour and rapid economic growth, Vietnam continues struggling to overcome the middle-income trap (OECD, 2016). Spence (2011) found that many middle-income countries have remained in this status for long periods and World Bank (2012) estimated that only 13 out of over one hundred middle-in- come countries have overcome the status and become high-income economies since 1961. There- fore, this challenge raises a priority target for sustainable growth. Among the crucial engines that led to the Vietnam economic success, FDI and trade openness would be essential factors that contribute to overcoming the middle-income trap and ensure sustainable development. 246
  3. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Despite numerous empirical studies analyzing the long-run and short-run relationship be- tween trade openness, foreign direct investment and economic growth in emerging market economies and developing countries, few studies focus on specific analysis in Vietnam. Most prior empirical studies in Vietnam focused on the effect of either FDI or trade openness on eco- nomic growth (Pham, 2008; Pham & Nguyen, 2013). All the empirical studies came to a similar conclusion that FDI positively impacts on Vietnam’s economic growth. However, the previous studies have not provided the causality direction between the variables in Vietnam (Pham, 2008; Vu, 2008) and suffered distinct drawbacks (Pham & Nguyen, 2013; Trinh & Nguyen, 2015). The first is that despite a large volume of empirical research in analysis between FDI, trade openness and economic growth, there are not enough studies on the fundamental questions of causality re- lationship between them and determinants of economic growth in Vietnam. The second is that these papers employed either the cointegration method developed by Engle and Granger (1987) or the maximum likelihood test developed by Johansen (1988) and Johansen and Juselius (1990). According to Odhiambo (2009), the techniques, however, are not good enough with a small sam- ple size, and the appropriate method, in this case, should be bounds tests for the cointegration approach based on Pesaran, Shin, and Smith (2001). The current study contributes to the existing empirical literature with research findings based on applying the cointegration methodology to examine the relationship between FDI, trade openness and economic growth to enhance or complement those in earlier studies. Moreover, the current study provides new insights into the non-existence causality from FDI to labour force. That is why Vietnam should encourage FDI and strengthens the quality of labour force in a co- ordinated way to achieve middle-income trap through an increase in productivity and economic growth. In addition, the study is applying to Vietnam that represents an interesting case study for other middle-income countries, which implement incentive policies to attract FDI and reach high- income status. The study examines the dynamic linkage between trade openness, FDI and economic growth in Vietnam by employing effective methodology ARDL-bounds tests to investigate coin- tegration. Trade openness is expressed as a ratio of imports and exports to GDP, while real GDP per capita is used as a proxy of economic growth. Labour force and physical capital are control variables in this study. The Granger causality test is applied to test the causality direction within the Vector Error Correction Model (VECM). The content of the paper is organized as follows: Section 2 presents the theoretical and em- pirical literature review on the relationship between foreign direct investment, trade openness, and economic growth. Section 3 provides data used in the paper. Section 4 is a methodology with a model specification that will be employed in the paper. Section 5 describes a discussion of em- pirical results. Sections 6 concludes the paper. 2. Literature review The relationship between FDI and economic growth was developed by two economic the- ories, namely the neoclassical theory and the new growth theory. From the neoclassical theory perspective, FDI as driven technological progress only affects the long-run growth of the output level with an increasing amount capital and income per capita, not on the growth rate as dimin- 247
  4. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 ishing returns law for the marginal product limit the growth rate in the long run (Solow, 1956, 1957). The neoclassical model then implied that the influence of FDI on the long-run growth rate is only through exogenous variables considered as technological progress or growth rate of labour force. Although the neoclassical theories emphasized the effect of technological progress on eco- nomic growth, the determinants of technological progress were left as a black box. The challenges of the new growth theories framework were to assess the determinants of technological progress. Therefore, the new growth theories developed the contribution of FDI on economic growth through the analysis in the crucial engine of growth including innovation creation. The primary consideration of FDI’s influence on economic growth is due to the high volume of physical capital and the level of technology. However, the main channel to contribute to economic growth of FDI is a rising level of technology rather than an accumulation of physical capital in a host country (Borensztein, De Gregorio, & Lee, 1998). Moreover, the transfer of technology in the form of FDI is another mechanism to stimulate economic growth due to technology diffusion in the ex- istence of other sources such as accumulation of human capital, knowledge transfers and modern knowledge. In fact, a function of technology is the main difference between the neoclassical theory and new growth theories. The former considered technology progress as an exogenous variable, the latter explained the role of FDI on growth as the investment spill-over coming from a variety of sources such as human capital, development and research. On the other hand, international trade was not considered as an engine of economic growth during the twentieth century due to a dominance of protectionist theories in this period, at least during the time of Adam Smith. The theoretical framework of the neoclassical analysis fails to provide the impact of trade openness, measured as the ratio of net exports to GDP, on the growth of economic progress. The linkage between trade and economic growth, however, has remained an important subject of debate in research and policy implications. The positive effect of trade openness on economic growth was supported by the new growth theories (Lucas, 1988; Romer, 1986). Trade openness enhances economic growth based on two mechanisms as technological progress and a rise in competition in a local market. Firstly, tech- nological change is a key driver of improvements in the way to access international markets and gain efficiencies from economies of scale through a higher level of trade openness. It is more likely that the economy is growing faster with the adoption of more efficient techniques (Barro & Sala-i-Martin, 1995; Romer, 1986). Another way trade openness positively spreads across a domestic market is to promote competition for local businesses. Under an open trade policy, do- mestic branches should be pushed to be more innovative and creative to compete with imported products in the local market. The advocates of the export-led growth point out that exports are one of the determinants of economic growth because local firms face competition from foreign firms. The local branches, therefore, enhance efficiency via learning by doing or emulation of international competitors (Ben-David & Loewy, 1998; Bonelli, 1992). The empirical framework analysing the influence of FDI and trade openness on economic growth has been a subject of many economists. However, the interrelationship between these 248
  5. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 variables is still debated with contrasting results based on different methodologies and different data sets. By using two stage least squared regression structural analysis in seven Mediterranean countries including Algeria, Egypt, Jordan, Morocco, Syria, Tunisia and Turkey over the period 1982- 2009, Marc (2011) found that human capital and exports are the main factors to stimulate economic growth in these countries but FDI inflows have a significantly negative effect on eco- nomic growth. Applying bounds testing ARDL approach to cointegraiton, Belloumi (2014) in- vestigated the dynamic causality between FDI, trade and economic growth in Tunisia from 1970 to 2008. The author found that although FDI and trade promote economic growth in the long run, there is a lack of significant Granger causality from FDI and trade to economic and from economic growth to FDI and trade in the short run. In line with the cointegration test of ARDL bounds tests, Maha and Zghidi (2017) indicated the long run relationship between FDI, international trade and economic growth for 15 selected Middle Eastern and North African countries. The authors, how- ever, failed to confirm the granger cause of FDI to economic growth and provided the important role of positive spill-over externality of FDI. By applying an ARDL model for cointegration, Alalaya (2010) studied FDI, trade openness and economic growth for Jordan over the period of 1990-2008. The author found that there was unidirectional causal effect between trade and FDI to economic growth. Rahman (2009) applied the cointegration technique to test the influence of FDI, exports, remittances on real GDP of selected Asian countries including Bangladesh, India, Pakistan and Sri Lanka over the period of 1976-2006. The author found the cointegration relationship among the variables of these countries. Using a new endogenous growth model and Granger causality test among trade openness and economic growth in India, Hye and Lau (2015) found that trade openness negatively impacts on economic growth while capital formation and human capital positively effect on real GDP in the long-run. In the short run, trade openness has a positive sign. The Granger causality test con- firmed both hypotheses including openness-led growth and human capital-led growth in short and long run. The positive relationship between FDI and real GDP also was confirmed in some case studies in Asia such as in Thailand (Roy & Mandal, 2012), Pakistan (Rahman & Shahbaz, 2013), Indonesia (Suyanto, Bloch, & Salim, 2012). Regarding Vietnam, much work has been done on the analysis of either relationship be- tween FDI and economic growth or trade and economic growth. Indeed, the results are inconclu- sive and have been under debate. Varamini and Vu (2007) examined the linkage between FDI and economic growth of Vietnam during 1989-2005 by applying the ordinary least square method, and the authors found the positive impact of FDI inflows on Vietnam’s economic growth. Vu (2008) employed the impact of FDI inflows on Vietnam’s economic growth through the seven economic sectors and the results showed positive effects of FDI inflows on economic growth and labour productivity; however, the distribution of FDI influences across seven sectors is dif- ferent. By investigating the relationship between FDI, exports and economic growth in Vietnam using annual time series data from 1986 to 2015 based on ARDL and error correction model, 249
  6. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Nguyen (2017) demonstrated the positive and negative impact of FDI and exports on economic growth in the long run respectively. Pham and Nguyen (2013) examined the linkage between FDI and economic growth from 1991 to 2012 and found that there existed a long run relationship of bidirectional causality between the two variables. Pham (2008) examined the investment-led growth and export-led growth hypotheses by using two VAR models from 1986 to 2007. The au- thor found investment to be the main driver of Vietnam economic growth while the influence of exports on economic growth is very small. Sothan (2016) found that both FDI and exports-led growth in Vietnam economics by ap- plying panel cointegration for 21 Asian countries. While Trinh and Nguyen (2015) found the pos- itive impact of FDI and trade openness on Vietnam economic growth based on cointegration methodology over the period from 1990 to 2013. Based on the analysis of the literature above, it is no doubt our study will fill the gap and contribute to the empirical framework by investigating the relationship between FDI, trade open- ness, economic growth, physical capital and labour in Vietnam with the ARDL bounds tests methodology. 3. Data sources and description of variables In this study, we employed time series data on GDP, FDI, trade openness, physical capital, and labour force from 1990 to 2017. These data come from different sources, including the World Bank Indicators (WBI) and Penn World Table 9.1. The data of labour, FDI, import, export, and physical capital are sourced from WBI and the rest is obtained from the Penn World Table 9.1. Economic growth is the rise of the productions and services of a country that is measured by real GDP at a constant 2010 US dollar. The variable real GDP per capita is designated as Y while the value of real gross foreign direct investment inflows, denoted as FDI, is measured as net inflows (BoP, current US$). Trade openness (TO) is captured by the ratio of net exports to GDP. Physical capital is measured as gross capital formation and it is expressed in constant 2010 US dollar. Labour denoted by L is measured the volume of labour force. The descriptive statistics are given in Table 1. For all five distributions, the Jarque-Bera statistics do not allow to formally reject the hypothesis of normality and show that the time series data is normally distributed. Table 1. Descriptive Statistics Variables lnY lnFDI lnTO lnK lnL Mean 12.334 21.722 12.681 23.615 17.61 Median 12.320 21.457 12.88 23.739 17.625 Maxium 13.233 23.369 13.562 24.8 17.848 Minimum 11.252 19.008 11.63 21.64 17.31 Std.dev. 0.614 1.152 0.571 0.905 0.169 Skewness -0.102 -0.345 -0.452 -0.665 -0.212 Kurtosis 1.753 2.43 2.009 2.5 1.791 Jarque-Bera 1.864 0.935 2.1 2.356 1.915 Probability 0.394 0.627 0.35 0.308 0.384 Observation 28 28 28 28 28 250
  7. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 4. Econometric Methodology This paper is to empirically test the dynamic causal relationship between FDI, trade open- ness and economic growth of Vietnam with two stages. Firstly, by implementing the efficient ARDL bounds test approach of cointegration, we examine the existence of the long-run relation- ship between these variables. Secondly, the Granger causality test is applied to investigate the short-run causality direction within the vector error correction model (VECM). The paper also considers the role of capital formation and labour force in the economic growth model as other determinants of economic growth to avoid omitted variables. A general model of economic growth, trade openness and foreign direct investment can be presented as follows: Yt = f(FDIt,TOt,Kt,Lt) (1) The equation can be expressed as follows: lnYt = α+β1lnFDIt + β1lnTOt + β3 lnKt + β4lnLt + μt (2) Where lnY, lnFDI, lnTO, lnK and lnL stand for the natural log of economic growth, the natural log of trade openness, the natural log of foreign direct investment, the natural log of capital information and the natural log of labour force respectively. The variables all are taken into natural logs due to two reasons. First, based on the natural logs of all variables, the coeffi- cients of the cointegration models can be interpreted as elasticities. Second, with the natural logs of variables, the first difference of all variables can be interpreted as growth rates. 4.1. Unit root test The first step is to test whether the variables are stationary or non-stationary to examine the long-run relationship and conduct causality tests between these variables. Three tests of unit root including Augmented Dickey-Fuller (ADF) by Said and Dickey (1984), Phillips- Perron (PP) unit root test by Perron and Phillips (1988) and the Dickey-Fuller Generalised Least Squares (DF-GLS) by Elliott, Rothenberg, and Stock (1996) are used in this study. The drawback of ADF and PP unit root tests is that it has low power if the variables are stationary but with a root close to the non-stationary boundary. Compared to the above unit root tests, DF-GLS unit root test gains power in the presence of GLS detrended data and size, DF-GLS then has the best perform- ance (Elliott et al., 1996). 4.2. ARDL bounds test for cointegration This study empirically analyzes the long-run relationship and the short-run dynamic causal- ity among the variables (economic growth, FDI, trade openness, physical capital and labour force) based on the autoregressive distributed lag (ARDL) technique. The model of ARDL was devel- oped by Pesaran and Shin (1998) and Pesaran et al. (2001). The ARDL model is chosen to conduct an empirical analysis about the long-run relationship and dynamic causality interactions between the variables because the ARDL model has three ad- vantages in comparison with the previous cointegration procedure of Johansen (1988) and Jo- hansen and Juselius (1990). Firstly, the ARDL model has a flexible order of integration that means the same order integration of the variables as the past technique is not necessary. The order inte- gration of the variables could be I(0) or I(1). The second advantage of the ARDL model is that 251
  8. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 the model can be applied efficiently in a small sample size with some ARDL tests. Lastly, unbi- ased regressors can be estimated in the long-run model in the presence of ARDL methodology (Harris & Sollis, 2003). Based on the ARDL approach, the models of this study are as follows: 252
  9. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Where all variables are defined previously and formed as natural log, D is the first differ- ence and is the error terms. The coefficients such as , are the long-run multipliers while the short-run multipliers are presented in the coefficients of difference terms. The approach of the ARDL bounds methodology has some steps. Firstly, based on the ordinary least square (OLS) method, the above five equations ((3) - (7)) are to estimate to test the long- run relationship be- tween the variables. The hypothesis testing of the presence of the long-run relationship is a procedure in the bounds test based on a joint F test with the null hypothesis of no cointegration against the alternative hypothesis. Critical values are given in two sets as follows: the first level is an upper critical bound value based on the assumption of the ARDL model that is inte- grated of order one while the second one is a lower critical bound value with the assumptions of integration of order zero of the ARDL model. The null hypothesis of no long-run relation- ship is rejected if the value of F test statistics exceeds the upper critical bounds value, while Ho cannot be rejected when the calculated F falls below the lower bounds values. Otherwise, the test is inconclusive. 4.3. Granger causality Once the long-run cointegration relationship existed, the short-run and long-run Granger causality among the variables is the next step. The main idea of Granger causality test is that a time series Xt Granger-causes another time series Yt if the information of time series Xt can be used for the prediction of future values of time series Yt better than the already existing informa- tion in the past of Yt series (Friston, Moran, & Seth, 2013). The Granger causality test has been applied in this paper due to the advantages of this method over other alternative methods. The long-run conditional ARDL model can be presented as the following: Where all the variables are defined previously. The last step of ARDL model is to estimate the VECM model to investigate the short-run relationship in the presence of the long-run rela- tionship found previously. 253
  10. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Where is the coefficient of the error correction term (ECT) and it represents the conver- gence speed of the model into the equilibrium. 5. Findings of the study 5.1. Unit root tests To conduct the causality and long-run test with time series analysis, a stationary test for all variables is essential. The order of cointegration of the variables must be identified based on the unit root tests to satisfy the assumption of the ARDL bounds test that the variables are cointegrated at the order I(0) or I(1). In fact, if the variable is I(2), the F-test would be spurious because two critical values of bounds tests are computed by Pesaran et al. (2001) with variable assumptions of I(0) or I(1). The stationary results are shown in Table 2. This study applies three methods of unit roots tests, including ADF, the Phillips-Peron test and AF-GLS test. The results provide that all variables are non-stationary at the level and become stationary in their first difference. Table 2: Unit roots tests on level and first difference of log levels of variables Variables Levels First difference Integration ADF PP DFGLS ADF PP DF-GLS lnY -1.5 -1.5003 -1.66 -4.88*** -4.87*** -5.02*** I(1) lnFDI -2.487 -2.69 -2.32 -3.74** -3.72** -3.65** I(1) lnTO -2.44 -2.44 -2.21 -3.6** -3.66** -3.29** I(1) lnK -2.48 -2.4364 -1.57 -3.81** -4** -3.7*** I(1) lnL -2.45 -2.45 -0.69 -3.3* -3.3* -3.46** I(1) Note: (***), (**), and (*) denotes 1%, 5% and 10% level of statistical significance 5.2. Cointegration In this section, ARDL bounds test is a procedure used to examine the long run relation- ship between the variables. The first step, the maximum order of lags on the first difference in Eq.(3)-(7) is chosen by using Akaike Information Criterion (AIC) and Schwartz Bayesian Criterion (SBC) The analysis for ARDL bound testing is illustrated in Table 3. The bounds tests show that F-statistics of ARDL test are higher than upper critical bounds. The F statistics are significant at the 1% level as economic growth, FDI, trade openness, physical capital and labour are dependent variables respectively. This means that the null hypothesis of no cointegration among the variables in Eq.(3)-(7) is rejected. The results support the existence of long run relationship between vari- ables over the period of 1990-2017. 254
  11. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Table 3: Results from bounds tests Dependent variable AIC lags F-statistic Decision FlnY (lnY/ lnFDI,lnTO,lnK,lnL) 1 5.09*** Cointegration Critical values Significant level Lower bounds I(0) Upper bounds I(1) 1% 3.74 5.06 5% 2.86 4.01 Note: (***), (**), and (*) denotes 1%, 5% and 10% level of statistical significance, respecti- vely. The optimal lag is determined by AIC. Lower and upper-bounds critical values are obtai- ned from Pesaran et al. (2001) The maximum lag order is chosen for two in the ARDL model based on the Akaike infor- mation criteria (AIC). The consideration of each variable as dependent variables and the estimated F-statistics values were represented in Table 3 that presents the long run relationship among the variable based on the ARDL technique. From the results in Table 3 , there is no long run relationship when GDP is a dependent variable, the calculated F- statistics is less than the lower critical bounds value at the 5% level of significance. The rest of variables, on the other hand, are cointegrated as capital, trade openness and foreign direct investment are considered as dependent variables due to higher value of F - statistics than upper bounds at the 5% level. This implies that there is long run relationship amongst the variables. Once a long run relationship as cointegration is established, equation (8) is estimated using the following the ARDL (1,0,0,0,0) specification for GDP, FDI, TO, K and L respectively as the order of the ARDL model selected by using AIC (see Table 4). The results indicate that the estimated coefficients of the long-run relationship are signifi- cant for foreign direct investment and labour. Foreign direct investment positively impacts eco- nomic growth in the long run. A 1% increase in foreign direct investment boosts economic growth by 0.076% keeping others constant. Similarly, labour force has a positive (3.42) and significant impact on economic growth. Considering the effect of trade openness and physical capital, the two variables are insignificant at the 5% level. The model failed to indicate any long run rela- tionship between degree of trade opennes, physical capital and economic growth. The degree of trade openness does not stimulate economic growth. 255
  12. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Table 4: Estimated Long Run Coefficients using the ARDL Approach- ARDL(1,0,0,0,0) Variable Coefficient t-Statistic Probability C -48.06*** -4.23 0.0004 Ln(FDI) 0.076*** 3.016 0.0066 Ln(TO) -0.103 -1.44 0.1638 Ln(K) -0.063 -1.11 0.279 Ln(L) 3.42*** 4.24 0.0004 R-squared 0.998 - - F-statistic 2433.05 - 0.0 DW-statistic 1.344 - - Having estimated the long-run model, the next step is to determine the short-run dynamic parameters by estimating error correction model associated with the long- run ARDL estimates. The results of short-run dynamic are obtained from Eq.(9) and given in Table 5. In the short run, the impact of trade openness on economic growth is significant but nega- tive. Foreign direct investment positively and significantly effects on economic growth. The estimate of the lagged error correction term is significant at the 5% level and negative as expected, which confirms the long-run relationship between the variables. The significance and negative sign of the estimated error-correction term reveals the speed of adjustment from the short-run towards the long-run equilibrium. The speed of adjustment towards long run equilibrium is high with its values at -0.775 showing that any short-run shock in economic growth in the pre- vious year converges back to the long-run equilibrium path by approximately 77.5% in the current year. In the long run, FDI, trade openness, capital formation and labour force significantly impact economic growth in the Granger sense. The finding implies that the dynamic causality runs through the error correction term from FDI, trade openness, capital and labour force to economic growth. Table 5: Short Run Results Variable Coefficient t-Statistic Probability C 0.014 0.57 0.5763 D(Ln(FDI)) 0.094*** 3.61 0.0019 D(Ln(TO)) -0.22** -2.27 0.039 D(Ln(K)) -0.054 -0.65 0.5247 D(Ln(L)) 2.84** 2.46 0.0236 ECT(-1) -0.775** 0.0222 R-squared 0.628 - - F-statistic 5.354 - 0.0022 DW-statistic 1.769 - - 256
  13. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 The stability of the long run coefficient is essential and detected by the short-run dynamics. Though based on estimated model of ECM in Eq(9), the cumulative sum of recursive residuals (CUSUM) and the CUSUM of square (CUSUMSQ) tests are obtained to detect the stability of parameters (Pesaran & Pesaran, 1999). The results for CUSUM and CUSUMSQ tests are illus- trated in Figure 1 and Figure 2. The results indicate the presence of stable coefficients because graphs of CUSUM and CUSUMSQ statistic are within critical bounds at the 95% confidence in- terval of parameter stability. Figure 1: Plot of Cumulative Sum of Rescursive Residuals Figure 2: Plot of Cumulative Sum of Squares of Recursive Residuals 257
  14. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 The diagnostic tests can be obtained from Table 6. The problem of non-normality of residual term does not exist in the results. The results show no problem of autoregressive conditional het- eroskadasticity and the serial correlation was not found. Besides, from the results of residual di- agnostic, there is no evidence of white heteroskedasticity. Table 6: Results of diagnostic tests statistic χ2 statistic Probability Breusch-Godfrey serial correlation test 1.035 0.399 White Heteroskedsticity test 4.75 0.31 Jarque-Bera test 3.5 0.176 The outcomes of the short- run Granger causality tests are given in Table 7. Based on the F-statistics of the explanatory variables, the short-run causality results show bidirectional causality between FDI and economic growth, between trade openness and economic growth, between phys- ical capital and FDI. In short-run, there is bi-directional Granger causality between trade openness and economic growth. That means the positive and significant impact of trade liberalization on growth. Indeed, the effect is not only contributed from degree of trade, but also justified from the capital move- ment in the type of FDI due to the existence Granger causality from FDI to trade openness. These seems to confirms the existence of trade openness and economic growth nexus. The hypothesis of FDI-led growth also is confirmed in the finding. This means that local businesses got benefit from multinational corporations through spillover effect mechanism. The unidirectional Granger causality runs from FDI and labour to trade openness and from economic growth and trade openness to physical capital. It is interesting that there is no significant Granger causality from FDI and trade openness to labour force. Table 7: Granger short run and long run causality tests F statistics Dependent Direction varibale D(lnY) D(lnFDI) D(lnTO) D(lnK) D(lnL) of causality D(lnY) —- 6.61** 6.22** 0.009 4.66** FDI”Y; TO”Y; L”Y D(lnFDI) 4.69** ——- 0.73 11.8*** 0.97 Y”FDI; K”FDI D(lnTO) 11.23*** 5.06** ——- 0.024 3.64** Y”TO; FDI”TO; L”TO D(lnK) 7.99*** 14.9*** 2.72* ——- 0.93 Y”K; FDI”K; TO”K D(lnL) 2.09 0.81 0.518 0.22 ——— 258
  15. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 The non-existence of causality from FDI to labour force in the empirical study fail to con- firm the widespread belief that FDI can generate positive productivity externalities for a host country. Instead of generating positive spillovers in case of the mobility of well-trained labour channel, foreign-owned firms skim trained labour force provided by domestic firms and free ride the good labour force provided by domestic firms at least in the short run. 6. Conclusion This study examines the causal dynamic relationship between FDI, trade openness, physical capital, labour and economic growth in Vietnam for a period of 1990-2017. This paper focuses on a fundament question whether FDI and trade openness spurs economic growth and whether FDI-led growth hypothesis is supported by time series data in Vietnam. The paper employs ARDL bounds tests to analyze the existence of the long-run interaction between the above variables and the Granger causality within VECM to test causality direction among the variables. Evidence of cointegration in the paper implies that the long-run relationship between the variables as economic growth is the dependent variable. Overall, the empirical results of this study show that FDI and trade openness spur economic growth in Vietnam. REFERENCES Alalaya, M. (2010). ARDL models applied for Jordan trade, FDI and GDP series. European Journal of Social Sciences, 13(4), 605-616. Barro, R. J., & Sala-i-Martin, X. (1995). Economic growth New York: New York : McGraw Hill. Belloumi, M. (2014). The relationship between trade, FDI and economic growth in Tunisia: An application of the autoregressive distributed lag model. Economic Systems, 38(2), 269-287. Ben-David, D., & Loewy, M. (1998). Free Trade, Growth, and Convergence. Journal of Economic Growth, 3(2), 143-170. Bonelli, R. (1992). Growth and productivity in Brazilian industries: Impacts of trade ori- entation. Journal of development economics, 39(1), 85-109. Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115-135. De Mello, L. R. (1997). Foreign direct investment in developing countries and growth: A selective survey. The Journal of Development Studies, 34(1), 1-34. doi:10.1080/00220389708422501 De Mello, L. R. (1999). Foreign direct investment-led growth: evidence from time series and panel data. Oxford Economic Papers, 51(1), 133-151. Elliott, G., Rothenberg, T., & Stock, J. (1996). Efficient tests for an autoregressive unit root. Econometrica, 64(4), 813. 259
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