Using the Spatial Econometric Approach to Study Impacts of FDI on Poverty in Vietnam

Abstract

This paper examines the impact of foreign direct investment on provincial poverty in Vietnam. The provincial poverty severity index is calculated based on data from the Vietnam Household Living Standards Survey in 2022. Firm-level foreign direct investment measures are aggregated based on data from the Enterprise Survey in the same year. The Moran’s I statistic and Lagrange multiplier test have shown that there exists a spatial correlation effect, and therefore this study employs the spatial econometric approach to examine the impacts of foreign direct investment on poverty to obtain reliable results. The study has shown a positive impact of foreign direct investment on poverty reduction in Vietnam, that is provinces with a higher share of foreign-owned enterprises’ assets relative to provincial output tend to have lower poverty severity index, and vice versa. In addition, the estimation results also show that better governance quality at the provincial level has positive effects on poverty reduction. Another interesting finding is that provinces with higher levels of inequality tend to experience more severe poverty.