DETERMINING RELATIONSHIP BETWEEN FOREIGN DIRECT INVESTMENT INFLOW AND TRADE BALANCE IN VIETNAM

Abstract

Foreign direct investment (FDI) inflows and trade balance are two important factors in balance of payment. In Vietnam, quite a long time trade account always is deficit and FDI inflows is higher than FDI outflows. Does the success in attracting FDI cause trade balance be deficit? Johansen test for cointegration result confirms the long run moving together between them in Vietnam. From some characteristics of FDI infows, export and import values, we want to find the long run relationship between them by using Johansen test for cointegration and then using vector error-correction model to find the long run and short run causality running from export and import values to FDI inflows. Then we find the causality in short run and long run running from trade balance to FDI.