Impact of the Institution on Foreign Direct Investment in Economic Transition

Foreign direct investment plays an important role in the economic development of developing countries. One of the factors that investors consider when deciding to invest in a country is the institutional factor. Therefore, this study is conducted to determine the relationship between institutions and foreign direct investment in Vietnam. Research data is panel data from 63 provinces/cities of Vietnam for 2012-2015 used to test the hypothesis. The fixed impact assessment model (F.E.M.) and IV-GMM allowed the exact causal relationship of these factors to be determined. The results show a positive impact from institutional factors on FDI attraction in Vietnam. Research results also show that R&D research also helps increase FDI attraction into Vietnam significantly, and the accountability factor is the most important factor for investment decisions of FDI owners. In addition, the study also examines in detail the institutional distribution indicators that affect FDI. The study shows a significant relationship between institutions and FDI attraction to Vietnam. From this result, some policy implications are also given to improve the ability to attract FDI based on institutional policy. © 2022 WITPress. All rights reserved.