The Impact of Foreign Direct Investment on Income Convergence: Evidence from Provinces of Vietnam

Abstract

The study examines the issues of income convergence across 18 provinces of Vietnam during 2000-2015 period, and the efect of foreign direct investment using data from the General Statistics Ofce. The objectives of this paper are twofold: First, to know whether the provinces of Vietnam are jointly converging in terms of absolute beta, conditional beta as well as sigma coefcients. Second, the role of foreign direct investment in the income convergence process is investigated. Our results show that Vietnam’s provincial incomes appeared to be diverging rather than converging during the period of consideration both in terms of sigma and beta. However, the divergence trend slowed down in 2006-2015, when Vietnam has strongly integrated with the world economy. Foreign direct investment seems to help alleviating the seriousness of the divergence process in Vietnam but the contribution of FDI to the alleviation of income divergence is quite weak.