How foreign direct investment promote institutional quality: Evidence from Vietnam

Dang, Duc Anh—How foreign direct investment promote institutional quality: Evidence from Vietnam Using a unique dataset from a provincial competitiveness survey and the rising foreign direct investment (FDI) from joining the World Trade Organization (WTO), I find that variations in economic institutions across the provinces of Vietnam are associated with the flow of foreign investment. To overcome endogeneity problems, I use the minimum distance from each province to a main economic centre as an instrument for foreign investment inflows. The instrumental variable approach shows that the direction of influence is from greater foreign investment to better institutions. These results hold after controlling for various additional covariates, and are also robust to various alternative measures of institutions. I also find that foreign direct investment has greater short-term impacts on institutional quality in the northern provinces. Journal of Comparative Economics 41 (4) (2013) 1054–1072. Research School of Economics, College of Business and Economics, Copland Building, Australian National University, ACT 0200, Australia. 2013 Association for Comparative Economic Studies Published by Elsevier Inc. All rights reserved.