Harnessing foreign direct investment for economic development and poverty reduction: Lessons from Vietnam

Vietnam has been successful in attracting substantial foreign direct investment (FDI) inflows. The foreign-invested sector is an important engine of economic growth for Vietnam. The first part of the article profiles Vietnam's experience in attracting FDI since the late 1980s, and identifies the factors that lay behind a subsequent contraction in FDI inflows during the latter half of the 1990s. The second part identifies areas where Vietnam might improve its attractiveness to foreign investors, and thereby better harness overseas capital for sustained economic development and poverty reduction. This necessitates moving away from incremental adjustments to the FDI regime itself, and adopting a more holistic approach to the design and implementation of a conducive host country business environment, which benefits both local and overseas investors alike. Many of the lessons learnt by Vietnam are pertinent to other developing and transitional economies seeking to harness FDI for economic development and poverty reduction.