Factors affecting foreign direct investment attraction a case study of Thai Nguyen province

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FACTORS AFFECTING FOREIGN DIRECT INVESTMENT ATTRACTION 
A CASE STUDY OF THAI NGUYEN PROVINCE 
Trinh Viet Hung
1*
, Tran Anh Vu, 
Quan Thai Ha, Nguyen Tuan Anh, Đoan Quang Duy2 
1Office of Thai Nguyen Provincial Government, 
 2International School of Thai Nguyen University 
SUMMARY 
The objectives of the study is to analyse the factors affecting FDI attraction to Thai Nguyen 
Province. The study was conducted in August 2013 in Thai Nguyen. The data utilized in the 
research included primary data obtained through a questionnaire survey with 32 FDI investors in 
Thai Nguyen Province in August 2013 and secondary data from statistical yearbook and reports of 
the provincial and central government. The results obtained from exploratory factor analysis and 
multivariate regression analysis showed that factors affecting FDI attraction to Thai Nguyen 
Province included: Policy, Confidence of Investors, Infrastructure. In which, Policy has the highest 
fluence on FDI attraction. 
Key words: FDI, sustainable, Thai Nguyen Province, factors 
Introduction
*
In recent years, a big change in trend of FDI 
inflows with a remarkable growth in FDI to 
developing countries has been witnessed. 
Especially in 2012, developing countries have 
surpassed their developed counterparts in 
attracting FDI with 9 developing countries 
ranked in top 20 FDI attractive countries 
(UNCTAD, 2013). 
As reported by the United Nations 
Conference on Trade and Development 
(UNCTAD, 2012), developing countries in 
Asia are the leadings to attract FDI during the 
period from 2008 to 2012. Despite the 
decrease of 7% in FDI inflows in the whole 
region in 2012, some countries including 
Vietnam were bright spots for labor-intensive 
FDI. Vietnam was also considered one of 
most FDI attractive among low-income host 
countries (together with Combodia, Myanmar 
and Philippines). UNCTAD (2012) forecasted 
that Vietnam would be one of the potential 
attractive hosts for the period 2013-2015. 
Thai Nguyen is the central province of the 
Northern mountainous and midland region of 
Vietnam which includes 16 provinces. Its 
location is 80 kilometers from Hanoi 
northward. Thai Nguyen‟s economy focuses 
*
 Tel: 0912 111223, Email: hungtv@thainguyen.gov.vn 
on mining, manufacturing, tea production and 
agriculture. In recent years, Thai Nguyen did 
not stay beyond the general trend of the 
country in attracting FDI for the economic 
and social development. Thai Nguyen 
province hit the peak of FDI attraction and 
ranked first in the whole country within the 
first ten months of 2013 when the total 
registered FDI was more than USD 3.4 
billion, accounted for 17.7% of total 
registered FDI in Vietnam. This was an 
unprecedented growth ever since Vietnam 
began receiving FDI from foreign investors. 
So what have made this extraordinary growth 
in this province and how to maintain this 
sustainably as well as to retain the investment 
in Thai Nguyen province? There have been a 
number of studies and research on factors 
affecting FDI attraction in the context of 
region and country. This paper aims at the 
analysis of the factors affecting the decision 
making process as perceived by the investors 
in Thai Nguyen Province. 
In more particular, the study will help to 
answer the following questions: 
1. What are factors affecting FDI attraction of 
Thai Nguyen province as perceived by the 
investors and their degree of influence on the 
FDI attraction. 
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2. How to predict the decision of investors 
based on factor assessment. 
In the next section, previous research and 
studies in the world and in Vietnam on factors 
affecting FDI inflows are presented. Section 3 
illustrates data and research methodology. 
Section 4 presents the results of the study and 
finally suggests some recommendation for 
improvements of FDI attraction. 
Literature and study review 
A number of research has been conducted to 
define determinants of FDI. In this section, 
the researcher focused on the publications in 
the context of developing countries, 
especially in Asia as well as publication on 
FDI in Vietnam. Different factors were 
concluded to be significant elements of FDI 
inflows, which can be divided into groups 
as follows: 
Economic and market factors 
Among factors that were found to be 
important in encouraging FDI, products 
seems to be discovered as contribute to FDI 
inflows by most researchers. Marcelo and 
Mário (2004)‟s research on a sample of 33 
developing countries who played the role of 
FDI hosts during the period from 1975 to 
2000 using panel data methodology found 
that the average rate of gross national 
products (GNP) growth over the previous 5 
years had significant influence on FDI 
inflows. Ho ... raction, including change in 
government leadership (Root and Ahmed, 
1979), intracountry political events (Nigh, 
1985), number of political strikes and riots in 
host countries (Schneider and Frey, 1985) and 
other sociopolitical instability. According to 
Justice and Gloria (2012), degree of 
democracy in host countries was also 
important variable for FDI inflows. 
Natural resources and geographical 
conditions 
Natural resources were argued to have great 
influence on FDI attraction (Asiedu and Lien 
(2004), Deichmann et al. (2003), Onyeiwu 
and Shrestha (2004) and Jadhav (2012). Ohlin 
(1933) also concluded that secure sources of 
raw materials are determinant for FDI 
attraction. Campos and Kinoshita (2003) and 
Garibaldi and others (2001) also included 
abundant natural resources in the motivations 
for FDI attraction in transition countries 
during 1990-1998. Natural resources also 
impacted the decision making of investment 
by foreign investors in Vietnam (Loc and 
Tuyet, 2013). 
Social conditions 
Foreign investment is producing outside of 
the home country, firms therefore will have 
less initiatives in employing labor for the 
production process. Labor, at this stage, is a 
heavy burden to foreign investors. As found 
in previous papers, investors would be most 
concerned about years of schooling of labor 
force (Nunnenkamp and Spatz, 2002), level of 
schooling (Marcelo and Mario, 2004), 
cost/wages of labor (Campos and Kinoshita 
(2003), Flamm (1984), Schneider and Frey 
(1985), Lucas (1993), and Wheeler and Mody 
(1992). Human capital was also found to be 
more significant in less developed countries 
than in developed countries (Buckley and 
others, 2002). 
Research questions and hypotheses 
The study aims to seek answers to the 
following questions: 
1. What are factors affecting FDI attraction of 
Thai Nguyen province as perceived by the 
investors in terms of: 
- Economic and market factors; 
- Natural conditions and infrastructure; 
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- Political and policy factors; 
- Social factors; 
- Local government support for investors. 
2. What should be proposed for the 
enhancement of FDI inflows in Thai Nguyen 
Province? 
The study focuses to test the following null 
hypotheses: 
H01: There is no significant linear correlation 
between economic and market factors and 
FDI inflows as perceived by the investors; 
H02: There is no significant linear correlation 
between natural conditions and infrastructure 
and FDI inflows as perceived by the 
investors; 
H03: There is no significant linear correlation 
between political and policy factors and FDI 
inflows as perceived by the investors; 
H04: There is no significant linear correlation 
between social factors and FDI inflows as 
perceived by the investors; 
H05: There is no significant linear correlation 
between local government support to 
investors and FDI inflows as perceived by the 
investors. 
Research methodology 
Research design 
The researcher will conduct a survey using 
the questionnaire technique. The 
questionnaire is designed focusing on the 
factors based on the review of literature and 
studies. The questionnaires includes questions 
on perception of investors on specific factors 
and questions on general assessment. Primary 
data will be collected by distributing the 
questionnaire to target respondents who are 
working in foreign firms in Thai Nguyen 
province. The researcher will enter the raw 
data into Microsoft Excel software and filter 
screen to remove invalid answered 
questionnaire (which was not filled in 
required sections). 
The filtered data will then be treated with 
exploratory factor analysis technique to 
group correlated elements (questions) into 
Factors and to remove questions which do not 
meet the degree of reliability from the 
questionnaire. Factors are subsequently used 
as variables for simple linear correlation 
analysis and multivariate regression analysis 
to test the hypotheses (H01 to H05) and to 
indentify limiting factors and their degree of 
influence on FDI attraction in Thai Nguyen 
Province. 
Data collection 
The research utilizes both primary data and 
secondary data. 
Primary data are collected by doing 
questionnaire survey on FDI investors in Thai 
Nguyen Province at the time of survey. 
Secondary data are collected from state and 
provincial socio-economic reports, Office of 
National Statistics, Vietnam Chamber of 
Commerce and Industry from 2000 to 2013. 
Statistical treatment 
The following statistical treatments are used 
to analyse the obtained data: 
- Exploratory factor analysis with the use of 
Cronbach‟s Alpha test is used to identify the 
factors and the reliability of the found factors. 
- Descriptive statistical analysis is used to 
describe the gathered data. 
- Simple correlation analysis is used to 
compare the FDI inflows and its predictor 
variables. 
- Stepwise regression analysis with backward 
selection is applied to identify the limiting 
variables with the most significant effect on 
FDI inflows in Thai Nguyen as perceived by 
the respondents and as the data appeared from 
2000 to 2013. 
Findings 
Results of primary data analysis 
Regression analysis 
Stepwise regression analysis with backward 
selection was carried out to identify the 
variables with the significant influence on 
FDI attraction as perceived by the investors. 
The proposed regression model is: 
y = x₁, x₂, x₃ ,, xn 
Where: y is dependent variable 
 x₁, x₂, x₃ ,, xn are predictor variables 
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Application of Regression Analysis: 
OAS = POL, ENT, CONF, LAB, PSC, INFR 
Where: 
OAS: Overall Assessment of investors on FDI 
attraction in Thai Nguyen Province 
POL: Policies 
ENT: Natural condition 
CONF: Confidence of investors to the 
government 
LAB: Human resource 
PSC: Political and Socio-Economic Factors 
INFR: Infrastructure 
x₁, x₂, x₃ ,, xn were calculated as described 
in the Table 1. 
Table 2 shows the summary of backward 
selection of stepwise analysis. Policy (POL) 
Confidence of investors (CONF) and 
Infrastructure (INFR) were selected to be the 
factors affecting FDI attraction at the 0.05 
significance level. 
From the regression analysis on SAS, the 
following was the equation where selected 
variables are written in increasing order of 
partial R-square. 
OAS = 0.754 + 0.582 * POL + 0.159 * CONF 
+0.129 * INFR 
OAS: Overall Assessment of investors on FDI 
attraction in Thai Nguyen Province 
POL: Policies 
CONF: Confidence of investors to the 
government 
INFR: Infrastructure 
Three above factors explain 42.2% the 
fluctuation of FDI attraction to Thai Nguyen 
Province, in which Policy has the highest 
influence (0.582), followed by Confidence of 
investors (0.159) and Infrastructure (0.129). 
Table 2: Results of regression analysis 
Variable LAB Removed: R-Square = 0.4243 and C(p) = 1.8935 
Analysis of Variance 
 Source DF Sum of 
Squares 
Mean Square F Value Pr > F 
Model 3 82.70154 27.56718 42.98 <.0001 
Error 175 112.23142 0.64132 
Corrected 
Total 
178 194.93296 
 Parameter Standard 
Variable Estimate Error Type II SS F Value F Value 
Intercept 0.75388 0.31605 3.64889 5.69 0.0181 
POL 0.58177 0.06272 55.18491 86.05 <.0001 
CONF 0.15942 0.08303 2.36438 3.69 0.0565 
INFR 0.12889 0.06371 2.62506 4.09 0.0446 
 Bounds on condition number: 1.2395, 10.457 
Results of secondary data analysis 
Table 4: Simple correlation between FDI and its predictor variables 
 FDI GDP EXP PCI POL INFR INFL URB 
FDI 1 
 GDP 0.59* 1 
 EXP 0.46 0.93** 1 
 PCI -0.06 0.65* 0.803** 1 
 POL 0.709** 0.36* 0.294 0.033 1 
 INFR 0.44 0.94** 0.871** 0.605* 0.226 1 
 INFL -0.05 0.51 0.730** 0.789** -0.043 0.501 1 
 URB 0.55* 0.979** 0.935** 0.690** 0.383 0.925** 0.608* 1 
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Table 5: Results of regression analysis 
Variable POL Entered: R-Square = 0.5023 and C(p) = 55.0189 
Analysis of Variance 
Source DF Sum of 
Squares 
Mean Square F Value Pr > F 
Model 1 2085684 2085684 11.10 0.0067 
 Error 11 2066269 187843 
Corrected 
Total 
12 4151953 
Variable Parameter 
Estimate 
Standard Error Type II SS F Value Pr > F 
Intercept 19.48264 130.67749 4175.30432 0.02 0.8842 
POL 1110.15736 333.16353 2085684 11.10 0.0067 
Simple correlation analysis provided a 
comparison between FDI attraction and its 
predictor variables. The obtained results 
showed several predictor variables have 
significant correlations with deposit 
mobilization. However, the largest correlation 
was obtained for POL (r = 0.71) followed by 
GDP, URB. The poorest correlation was 
obtained for inflation rate INFL (r = -0.05). 
Most of the predictor variables had positive 
correlation with MD while an inverse 
correlation was obtained for provincial 
competitiveness index and inflation. 
Table 2 shows the summary of forward 
selection of stepwise analysis. Policy (POL) 
was selected to be the factors affecting FDI 
attraction at the 0.05 significance level. 
From the regression analysis on SAS, the 
following was the equation where selected 
variables are written in increasing order of 
partial R-square. 
FDI = 19.48 + 1110.16 * POL 
FDI : Registered FDI in Thai Nguyen 
Province year t (Million USD) 
POL : Preferential policies (if yes: 1, if no: 
0) 
Only Policy (POL) was selected among 
predictor variables as significantly affect FDI 
attraction, with R-squared at 50.23%. Policy 
can explain 50.23% the fluctuation of FDI 
attraction to Thai Nguyen province. 
Recommendations 
General orientations 
In order to create a significant step forward in 
attracting FDI in Thai Nguyen Province, Thai 
Nguyen Provincial Government needs to 
select projects with high level of feasibility 
and quality focusing on large and competitive 
investors, encouraging production projects 
and orient suitable FDI inflow by sectors, 
areas and partners distribution 
Strategies to improve policies 
Thai Nguyen Province need to reform the 
“One-way feedback” system, promote 
investment, especially from strategic 
investors, review regulations on preferential 
investment policies and propose amendments 
in preferential investment policies to the 
Government 
Strategies to enhance the confidence of 
investors 
Thai Nguyen Province needs to strictly follow 
the Scheme Directive 19 and the “Enhancing 
provincial competitiveness index” Project and 
raise public awareness and understanding 
about trading and merging between 
businesses. The linkages between FDI 
business and enterprises in the province needs 
also be improved. 
Strategies to improve infrastructure 
The province should support investors to 
deploy infrastructure development, use 
modern and environmentally friendly 
technology, focus on construction and 
development of supporting industry 
Conclusion 
The study has found factors affecting FDI 
attraction to Thai Nguyen province as 
perceived by investors and as statistical 
analysis, in which policy was selected in both 
two models of analysis. This illustrates the 
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significant importance of FDI promotion 
policy in FDI attraction to a region. The other 
factors which also have significant 
influence on FDI are Confidence of 
investors and Infrastructure. Thai Nguyen 
Provincial government should focus on 
improving those factors in order to improve 
its FDI attraction performance. 
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FDI tại Bắc Trung Bộ và Duyên hải miền Trung 
Việt Nam: Mối quan hệ hai chiều với GDP, Sự 
cạnh tranh giữa các tỉnh thành và ảnh hƣởng của 
luật pháp.Tạp chí Khoa học, Đại học Huế, Tập 
72B, Số 3. 47-56 
TÓM TẮT 
CÁC YẾU TỐ ẢNH HƢỞNG ĐẾN THU HÖT VỐN ĐẦU TƢ TRỰC TIẾP 
TỪ NƢỚC NGOÀI – BÀI HỌC TẠI TỈNH THÁI NGUYÊN 
Trịnh Việt Hùng1*, Trần Anh Vũ2, 
Quản Thái Hà2, Nguyễn Tuấn Anh2, Đoàn Quang Duy2 
1Văn phòng Tỉnh ủy Thái Nguyên,2 Khoa Quốc tế - ĐH Thái Nguyên 
Mục tiêu của nghiên cứu là phân tích các nhân tố ảnh hƣởng và xây dựng mô hình dự báo thu hút 
vốn FDI bền vững vào tỉnh Thái Nguyên. Số liệu sử dụng trong nghiên cứu bao gồm số liệu sơ cấp 
đƣợc thu thập từ điều tra chọn mẫu 32 doanh nghiệp đang đầu tƣ tại tỉnh Thái Nguyên tại thời 
điểm tháng 8/2013 và số liệu thứ cấp từ báo cáo và niên giám thống kê từ năm 2000 đến 2013. 
Phƣơng pháp phân tích nhân tố khám phá (EFA) kết hợp phƣơng pháp phân tích hồi quy đa biến 
trên cả hai nguồn số liệu đã chỉ ra các nhân tố ảnh hƣởng đến thu hút vốn FDI tại tỉnh Thái 
Nguyên bao gồm: Môi trƣờng chính sách và hệ thống pháp luật, Lòng tin của nhà đầu tƣ, Cơ sở hạ 
tầng. Trong đó Môi trƣờng chính sách là nhân tố có ảnh hƣởng lớn nhất đến thu hút vốn FDI vào 
tỉnh Thái Nguyên. 
Từ khóa: FDI, mô hình, bền vững, tỉnh Thái Nguyên, nhân tố ảnh hưởng 
Ngày nhận bài:13/3/2014; Ngày phản biện:15/3/2014; Ngày duyệt đăng: 25/3/2014 
Phản biện khoa học: PGS.TS Đỗ Anh Tài – Đại học Thái Nguyên 
*
 Tel: 0912 111223, Email: hungtv@thainguyen.gov.vn