The Nexus between Inward Foreign Direct Investment and Global Value Chains: Evidence from a Transitional Economy

This study aims to empirically explore the nexus between foreign direct investment (FDI) and other factors for global value chain (GVC) participation (backward and forward) in Vietnam, a transitional economy. The estimation shows that the economic size and market development of Vietnam and its trading partners are the main determinants of the nation’s GVC participation. Inward FDI flows into the country have a positive impact on its GVC participation in both forward and backward linkages. Geographical distance is an impediment to Vietnam’s backward GVC participation, whilst engagement in free trade agreements is advantageous to its GVC participation in both backward and forward linkages. We find that the logistics performance of Vietnam and its trading partners also positively affects the country’s GVC participation. The paper provides policy implications for Vietnam to better use FDI and other factors to enhance its GVC participation, such as by attracting large supplier firms in upstream industries across the multinational enterprises’ (MNEs) value chains, promoting trade liberalization and improving logistical efficiency.