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<p>Vietnam receives large amounts of foreign direct investment (FDI), yet these inflows are uneven across provinces. This raises a practical question: under what conditions does FDI increase income inequality within provinces, and when does it help reduce it? Using data for all 63 provinces (2018–2023), we linked the GINI coefficient compiled by Vietnam’s General Statistics Office (GSO) with registered FDI from Vietnam’s Ministry of Planning and Investment (MPI) and estimated fixed-effects models with province-level cluster-robust, heteroskedasticity-consistent Type-1 (MacKinnon-White; HC1) standard errors and Driscoll-Kraay errors, allowed for nonlinearity of log(FDI + 1), included a one-year lag, and implemented Hansen’s panel-threshold test based on the Provincial Competitiveness Index (PCI). We found an inverted-U effect in the contemporaneous relationship: inequality increased with FDI up to a turning region of about USD 41.5–48.5&#xa0;million, after which additional FDI did not increase inequality. Dynamically, a one-log-point increase in last year’s FDI (roughly doubling) was linked to an approximate 0.003 decrease in the GINI, suggesting short-run benefits through employment and supplier linkages. A governance breakpoint near a PCI score of approximately 62.4 separated two regimes: when PCI was below this level, the inverted-U was salient; when PCI was above it, the FDI terms were jointly insignificant, and the average FDI×PCI interaction was negative but imprecise. These findings represent short-run, within-province associations and suggest that provincial policymakers and national ministries should focus on improving governance in low-PCI provinces and emphasize diffusion tools rather than broad concessions in high-PCI provinces.</p>

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Foreign direct investment and income inequality in Vietnam: nonlinear dynamics and the moderating role of local institutions

  • 期刊论文

  • 发表日期：

    2026年1月21日

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  • Nguyen Thi Thanh Mai

摘要

Vietnam receives large amounts of foreign direct investment (FDI), yet these inflows are uneven across provinces. This raises a practical question: under what conditions does FDI increase income inequality within provinces, and when does it help reduce it? Using data for all 63 provinces (2018–2023), we linked the GINI coefficient compiled by Vietnam’s General Statistics Office (GSO) with registered FDI from Vietnam’s Ministry of Planning and Investment (MPI) and estimated fixed-effects models with province-level cluster-robust, heteroskedasticity-consistent Type-1 (MacKinnon-White; HC1) standard errors and Driscoll-Kraay errors, allowed for nonlinearity of log(FDI + 1), included a one-year lag, and implemented Hansen’s panel-threshold test based on the Provincial Competitiveness Index (PCI). We found an inverted-U effect in the contemporaneous relationship: inequality increased with FDI up to a turning region of about USD 41.5–48.5 million, after which additional FDI did not increase inequality. Dynamically, a one-log-point increase in last year’s FDI (roughly doubling) was linked to an approximate 0.003 decrease in the GINI, suggesting short-run benefits through employment and supplier linkages. A governance breakpoint near a PCI score of approximately 62.4 separated two regimes: when PCI was below this level, the inverted-U was salient; when PCI was above it, the FDI terms were jointly insignificant, and the average FDI×PCI interaction was negative but imprecise. These findings represent short-run, within-province associations and suggest that provincial policymakers and national ministries should focus on improving governance in low-PCI provinces and emphasize diffusion tools rather than broad concessions in high-PCI provinces.