Determinants of foreign direct investment in the agricultural sector: Empirical evidence based on economic regional data in Vietnam

Ha Tran Yen Nguyen

Article ID: 2702
Vol 8, Issue 3, 2024

VIEWS - 196 (Abstract) 118 (PDF)

Abstract


Agriculture is an industry that plays an essential role in economic development towards eliminating poverty issues, but foreign direct investment (FDI) inflows to this sector remain modest in Vietnam. This study analyzed the determinants of foreign direct investment in the agricultural sector into the Southern Key Economic Zone (KEZ) of Vietnam, which is considered the foreign direct investment magnet of Vietnam, but its FDI inflows into the agricultural sector have been consistently low, and has shown a downward trend in recent years. The study was based on a sample of 129 foreign investors of a total of 164 multinational enterprises (MNEs) in the agricultural sector, including representatives of the Board of Directors and representatives at the department level. The Partial Least Squares Structural Equation modeling (PLS-SEM) approach was used to test the hypotheses. Findings indicated that FDI attraction policies have the strongest impact on FDI inflows. This was followed by infrastructure, regional agriculture policies, public service quality, natural conditions, and human resources. This study suggests policy recommendations to improve foreign direct investment inflows into the agricultural sector of the Southern Key Economic Zone (KEZ) of Vietnam.


Keywords


foreign direct investment; determinants; agriculture; structural equation modeling; PLS-SEM; Vietnam

Full Text:

PDF


References


Adhana DK (2016). Foreign direct investment in the Indian agricultural sector: Opportunities and Challenges. Kaav International Journal of Economics, Commerce & Business Management 3(2).

Anwar Z, Saeed R, Khan MK, Syedah SEA (2013). Determinants of foreign direct investment (FDI) in Pakistan’s agricultural sector. Scientific Papers Series Management, Economic Engineering in Agriculture and Rural Development 13(1): 13–18.

Becker JM, Ringle CM, Sarstedt M, Völckner F (2014). How collinearity affects mixture regression results. Marketing Letters 26(4): 643–659. doi: 10.1007/s11002-014-9299-9

Blanc-Brude F, Cookson G, Piesse J, Strange R (2014). The FDI location decision: Distance and the effects of spatial dependence. International Business Review 23(4): 797–810. doi: 10.1016/j.ibusrev.2013.12.002

Boermans MA, Roelfsema H, Zhang Y (2011). Regional determinants of FDI in China: A factor-based approach. Journal of Chinese Economic and Business Studies 9(1): 23–42. doi: 10.1080/14765284.2011.542884

Chaudhuri S, Banerjee D (2010). FDI in agricultural land, welfare and unemployment in a developing economy. Research in Economics 64(4): 229–239. doi: 10.1016/j.rie.2010.05.002

Cohen J (1988). Statistical Power Analysis for the Behavioral Sciences, 2nd ed. Routledge.

Cuervo-Cazurra A, Silva-Rêgo B, Figueira A (2022). Financial and fiscal incentives and inward foreign direct investment: When quality institutions substitute incentives. Journal of International Business Policy 5(4): 417–443. doi: 10.1057/s42214-021-00130-9

Dunning JH (1979). Explaining changing patterns of international production: In defence of the eclectic theory. Oxford Bulletin of Economics and Statistics 41(4): 269–295. doi: 10.1111/j.1468-0084.1979.mp41004003.x

Dunning JH (2002). Trade, location of economic activity and the multinational enterprise: A search for an eclectic approach. In: Theories and Paradigms of International Business Activity. Edward Elgar. doi: 10.4337/9781843767053.00007

Dunning JH, Narula R (1996). The investment development path revisited. In: Foreign Direct Investment and Governments. Routledge.

Dolce P, Esposito Vinzi V, Lauro C (2017). Predictive path modeling through PLS and other component-based approaches: Methodological issues and performance evaluation. In: Partial Least Squares Path Modeling. pp. 153–172.

Esposito Vinzi V, Chin WW, Henseler J, Wang H (2010). Handbook of Partial Least Squares: Concepts, Methods and Applications. Springer Berlin Heidelberg. doi: 10.1007/978-3-540-32827-8

Faeth I (2009). Determinants of foreign direct investment—A tale of nine theoretical models. Journal of Economic Surveys 23(1): 165–196. doi: 10.1111/j.1467-6419.2008.00560.x

Farr F (2017). Determinants of Foreign Direct Investment and Foreign Direct Investment in Agriculture in Developing Countries [Master’s thesis]. University of Hohenheim.

Fawaz B (2010). Location Motivations for Foreign Direct Investment in the Petrochemicals Industry:

The Case of Saudi Arabia [PhD thesis]. Brunel University.

Fiedler Y, Iafrate M (2016). Trends in Foreign Direct Investment in Food, Beverages and Tobacco. Food and Agriculture Organization of the United Nations.

Fornell C, Larcker DF (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research 18(1): 39. doi: 10.2307/3151312

Fosu P (2016). Infrastructure and foreign direct investment inflows: Evidence from Ghana. Available online: https://mpra.ub.uni-muenchen.de/100375/1/MPRA_paper_100375.pdf (accessed on 10 November 2023).

Goswami V (2023). Do institutional determinants matter for FDI inflows location choice? Evidence from sub-national panel data in India. International Journal of Emerging Markets ahead-of-print. doi: 10.1108/ijoem-11-2021-1725

Gruber S, Soci A (2010). Agglomeration, agriculture, and the perspective of the periphery. Spatial Economic Analysis 5(1): 43–72. doi: 10.1080/17421770903511353

Hair JF Jr, Hult GTM, Ringle CM, Sarstedt M (2022). A Primer on Partial Least Squares Structural Equation Modeling (PLS-SEM). SAGE.

Hair JF, Risher JJ, Sarstedt M, Ringle CM (2019). When to use and how to report the results of PLS-SEM. European Business Review 31(1): 2–24. doi: 10.1108/ebr-11-2018-0203

Hair JF, Sarstedt M, Pieper TM, Ringle CM (2012). The use of partial least squares structural equation modeling in strategic management research: A review of past practices and recommendations for future applications. Long Range Planning 45(5–6): 320–340. doi: 10.1016/j.lrp.2012.09.008

Henseler J, Ringle CM, Sarstedt M (2015). A new criterion for assessing discriminant validity in variance-based structural equation modeling. Journal of the Academy of Marketing Science 43(1): 115–135. doi: 10.1007/s11747-014-0403-8

Henseler J, Ringle CM, Sinkovics RR (2009). The use of partial least squares path modeling in international marketing. In: Sinkovics RR, Ghauri PN (editors). New Challenges to International Marketing. Emerald Group Publishing Limited. doi: 10.1108/S1474-7979(2009)0000020014

Hoang HH, Bui DH (2015). Determinants of foreign direct investment in ASEAN: A panel approach. Management Science Letters 5(2): 213–222. doi: 10.5267/j.msl.2014.12.015

Hoang HH, Goujon M (2014). Determinants of foreign direct investment in Vietnamese provinces: A spatial econometric analysis. Post-Communist Economies 26(1): 103–121. doi: 10.1080/14631377.2014.874658

Husmann C, Kubik Z (2019). Foreign direct investment in the African food and agriculture sector: Trends, determinants and impacts. SSRN Electronic Journal. doi: 10.2139/ssrn.3370799

International Monetary Fund (IMF) (2003). Foreign Direct Investment in Emerging Market Countries. Capital Markets Consultative Group. Available online: https://www.imf.org/external/np/cmcg/2003/eng/091803.pdf

Jöreskog KG (1971). Statistical analysis of sets of congeneric tests. Psychometrika 36(2): 109–133. doi: 10.1007/bf02291393

Kaliappan SR, Khamis KM, Ismail NW (2015). Determinants of services FDI inflows in ASEAN countries. International Journal of Economics and Management 9(1): 45–69.

Khamphengvong V, Xia E, Srithilat K (2018). Inflow determinants of foreign direct investment. Human Systems Management, 37(1), 57–66. doi:10.3233/HSM-17229.

Kastratović R, Vasiljević Z (2018). Determinants of foreign direct investments in agriculture of Danube region. In: Subic J, Kuzman B, Vasile AJ (editors). Thematic Proceedings “Sustainable Agriculture and Rural Development in Terms of the Republic of Serbia Strategic Goals Realization within the Danube Region—Support Programs for the Improvement of Agricultural and Rural Development”. Institute of Agricultural Economics. pp.511–528.

Krugman P (1991). Increasing returns and economic geography. Journal of Political Economy 99(3): 483–499. doi: 10.1086/261763

Kubik Z (2023). The role of agricultural sector performance in attracting foreign direct investment in the food and beverages sector. Evidence from planned investments in Africa. Agribusiness 39(3): 875–903. doi: 10.1002/agr.21800

Kwaw-Nimeson E, Tian Z (2023). Institutional quality, foreign direct investment, and regional integration: Empirical evidence from CEN-SAD. SAGE Open 13(1): 21582440221. doi: 10.1177/21582440221148389

Liang CL, Plakias ZT (2022). Interdisciplinary system and network perspectives in food and agricultural economics. In: Handbook of Agricultural Economics. Elsevier. pp. 4705–4779. doi: 10.1016/bs.hesagr.2022.03.002

Lv L, Wen S, Xiong Q (2010). Determinants and performance index of foreign direct investment in China’s agriculture. China Agricultural Economic Review 2(1): 36–48. doi: 10.1108/17561371011017487

Musabeh A, Zouaoui M (2020). Policies and variables affecting FDI: A panel data analysis of North African countries. Journal of Economic Policy Researches 7(1): 1–20. doi: 10.26650/jepr635016

Nascimento JR (2011). Analysis of International Investments in the Agricultural Sector of Brazil. Food and Agriculture Organization of the United Nations (FAO).

Ngo HG (2017). Institutional Determinants of FDI in Vietnam [Master’s thesis]. Radboud University Nijmegen School of Management.

Le VT, Nguyen LBD (2017). Analysis of factors affecting FDI of Vietnamese provinces and cities by spatial econometric model (Vietnamese). Journal of Asian Business and Economic Studies (JABES) 28(7): 4–33.

Nguyen Thi Ngoc A (2016). Regional determinants of FDI location in Vietnam. Journal of Economics and Development 18(1): 19–37. doi: 10.33301/2016.18.01.02

Nitzl C (2016). The use of partial least squares structural equation modelling (PLS-SEM) in management accounting research: Directions for future theory development. Journal of Accounting Literature 37(1): 19–35. doi: 10.1016/j.acclit.2016.09.003

North DC (1990). Institutions, Institutional Change and Economic Performance. Cambridge University Press. doi: 10.1017/CBO9780511808678

Pasaribu D, Murwani A, Setiawan I (2021). Foreign direct investment in Indonesia’s agriculture. Center for Indonesian Policy Studies. doi: 10.35497/345257

Pham HT, Gan C, Hu B (2022). Causality between financial development and foreign direct investment in Asian Developing Countries. Journal of Risk and Financial Management 15(5): 195. doi: 10.3390/jrfm15050195

Phung HB (2016). Determinants of FDI into Developing Countries. Summer Research Fund in Economics.

Punthakey JJ (2020). Foreign Direct Investment and Trade in Agro-Food Global Value Chains. OECD Publishing.

Purwanto A, Sudargini Y (2021). Partial least squares structural equation modeling (PLS-SEM) analysis for social and management research: A literature review. Journal of Industrial Engineering & Management Research 2(4): 114–123. doi: 10.7777/jiemar.v2i4.168

Etim RS, Jeremiah MS, Jeremiah OO (2019). Attracting Foreign Direct Investment (FDI) In Nigeria through effective tax policy incentives. International Journal of Applied Economics, Finance and Accounting, 4(2), 36–44. doi:10.33094/8.2017.2019.42.36.44

Rashida IMA, Bakar NA, Razak NAA (2016). Determinants of foreign direct investment (FDI) in agriculture sector based on selected high-income developing economies in OIC countries: An empirical study on the provincial panel data by using stata, 2003–2012. Procedia Economics and Finance 39: 328–334. doi: 10.1016/s2212-5671(16)30331-8

Rigdon EE (2012). Rethinking partial least squares path modeling: In praise of simple methods. Long Range Planning 45(5–6): 341–358. doi: 10.1016/j.lrp.2012.09.010

Rogers CL, Wu C (2012). Employment by foreign firms in the U.S.: Do state incentives matter? Regional Science and Urban Economics 42(4): 664–680. doi: 10.1016/j.regsciurbeco.2012.04.006

Santangelo GD (2018). The impact of FDI in land in agriculture in developing countries on host country food security. Journal of World Business 53(1): 75–84. doi: 10.1016/j.jwb.2017.07.006

Sarstedt M, Cheah JH (2019). Partial least squares structural equation modeling using SmartPLS: A software review. Journal of Marketing Analytics 7(3): 196–202. doi: 10.1057/s41270-019-00058-3

Setiabudi E, Wahyuningsih D, Novialumi A, et al. (2020). Foreign investment analysis of direct agricultural sector in Indonesia. International Journal of Scientific & Technology Research 9(1): 3933–3939.

Shmueli G (2010). To explain or to predict? Statistical Science 25(3): 289–310. doi: 10.1214/10-sts330

Shmueli G, Koppius O (2011). Predictive analytics in information systems research. SSRN Electronic Journal 35(3): 553–572. doi: 10.2139/ssrn.1606674

Shmueli G, Ray S, Velasquez Estrada JM, Chatla SB (2016). The elephant in the room: Predictive performance of PLS models. Journal of Business Research 69(10): 4552–4564. doi: 10.1016/j.jbusres.2016.03.049

Trinh NH (2013). Agglomeration economies and the location of foreign direct investment: Evidence from Vietnam. Asian Economic and Financial Review 3(4): 512–531. doi: 10.1080/00343400902783230

Ullah I, Khan MA (2017). Institutional quality and foreign direct investment inflows: Evidence from Asian countries. Journal of Economic Studies 44(6): 1030–1050. doi: 10.1108/jes-10-2016-0215

Vi Dũng N, BíchThủy ĐT, NgọcThắng N (2018). Economic and non-economic determinants of FDI inflows in Vietnam: A sub-national analysisPost-Communist Economies. Post-Communist Economies 30(5): 693–712. doi: 10.1080/14631377.2018.1458458

Wang Y, Xie L, Zhang Y, et al. (2019). Does FDI promote or inhibit the high-quality development of agriculture in China? An agricultural GTFP perspective. Sustainability 11(17): 4620. doi: 10.3390/su11174620

Yang CH, Chiu CY, Tsou MW (2017). Location choice of multinational and local firms in Vietnam: Birds of a feather flock together? The Japanese Economic Review 68(1): 95–114. doi: 10.1111/jere.12110

Zeytoonnejad Mousavian SR, Mirdamadi SM, Farajallah Hosseini SJ, Omidi NajafAbadi M (2021). Determinants of foreign direct investment inflow to the agricultural sector: A panel-data analysis. Journal of Economic and Administrative Sciences 39(3): 709–729. doi: 10.1108/jeas-11-2020-0196




DOI: https://doi.org/10.24294/jipd.v8i3.2702

Refbacks

  • There are currently no refbacks.


Copyright (c) 2024 Ha Tran Yen Nguyen

License URL: https://creativecommons.org/licenses/by/4.0/

This site is licensed under a Creative Commons Attribution 4.0 International License.