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

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
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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). ... s 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.
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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
Table 4: Estimated Long Run Coefficients using the ARDL Approach- ARDL(1,0,0,0,0)
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
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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 - -
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 - -
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
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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
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
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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
Dependent
varibale
F statistics
Direction 
of causalityD(lnY) D(lnFDI) D(lnTO) D(lnK) D(lnL)
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 ———
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. 
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