Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
The Impact of Government Policies on Foreign Direct Investment: The
Vietnamese Services Industry
Thi Lan Anh Nguyen and Phuong Thien Truc Tran
While the institution theory includes the important insight that the company’s investment decisions depend on the
institutional forces that have an influence on it, including government regulations and incentives (Francis,
CongCong & Mukherji 2009), the empirical evidence shows contradictory results. Whereas most of the empirical
studies, for example Pham (2012), have generally viewed government policies as a variable that impacts on
foreign direct investment (FDI) inflow, a few studies, such as Blonigen and Piger (2011) showed that government
policies have a limited impact on FDI inflows.
This paper reexamines the impact of government policies on FDI’s decision. It broadens and refines the analysis
of the impact of government policies by developing the following arguments: Firstly, there is a wide range of
government policies that affect firms' FDI decisions. Secondly, there are numerous dimensions of variability in
government policies that need to be identified in order to understand fully the effects of government policies on
FDI flows.
Using primary data of 288 multinational corporations operating in the services industry in Vietnam, the study
investigates the relationship between government policies and FDI. The Structural Equation Modelling results
reveal that the key determinants of government policies to affect on FDI in the Vietnamese services industry are
FDI policies, trade agreement, tax incentives and infrastructure, all of which have significantly contributed to
attracting foreign direct investment (FDI). The findings are plausible and are in line with the recent economic
reforms which have occurred in Vietnam along with the increased FDI inflows into the country in the last twentyfive years.
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First and last name with Title: Dr. Nguyen, Thi Lan Anh and Ms. Tran, Thien Truc Phuong, University of Economics and Law,
Vietnam National University, Ho Chi Minh City. Mailing address and email address: anhntl@uel.edu.vn Telephone number and fax
number: +84903920989 Name of the track: Finance and Accounting