Direct, indirect and total effect in spatial analysis of provincial FDI in Vietnam

Abstract

This paper investigates the spatial pattern of Foreign Direct Investment (FDI) for all 63 provinces in Vietnam from 2011 to 2014. Empirical studies on locational determinants of FDI typically neglected the spatial interaction among observations which lead to inefficient and biased estimations. Indeed, Moran’s I suggested by Moran, which is used to detect the spatial autocorrelation in data pattern of both dependent and independent variables, give hints of the necessity of spatial econometrics in analyzing the FDI determinants. Through General To Specific approach, the Spatial Durbin Model (SDM) has been chosen as the most appropriate model, compared with other models like Non-spatial model, Spatial- Autoregressive Model (SAR) and Spatial Error Model (SEM). This study finds that the FDI flow into one province negatively spatially affects FDI inflow in remaining provinces. Moreover, by applying SDM, this paper econometrically estimates the impact of host province’s determinants and its neighbor determinants on its FDI inflow.