The Relationship between Foreign Direct Investment and Local Economic Growth: A Case Study of Binh Dinh Province, Vietnam

This study aims to investigate the relationship between foreign direct investment (FDI) and economic growth at the provincial level by using time-series data in Binh Dinh from 1997 to 2019. We applied the quantitative approaches Vector Autoregression (VAR) and Autoregressive Distributed Lags (ARDL) in the model, which includes economic growth, real foreign direct investment capital, ratio of trained workers, and infrastructure. The results show that all these variables are stationary at the first difference. In ARDL analysis, we found that the economic growth positively affects FDI attraction. However, there is no evidence of the effect of FDI on economic growth in the condition of low capital implemented. Moreover, findings also show that the impact of FDI on economic growth is influenced by two factors: infrastructure and human capital. The lack of human capital, which is trained personnel and infrastructure, is the main barrier hindering and inhibiting FDI's contribution to local economic growth. In order to improve the efficiency of FDI on economic growth in the future, it is suggested that the Binh Dinh government should have proper policies in terms of the infrastructure, the human capital investment. They would allow Binh Dinh to enhance the capital absorptive capacity and capital efficiency.