The Sophistication of Vietnamese Exports: Role of FDI Inflows

This paper aims to empirically examine the impact of foreign direct investment (FDI) inflows into Vietnam on the sophistication levels of Vietnamese exports to its FDI source countries. Using Vietnamese FDI data from 2005 to 2022, following the unification of Vietnam’s multiple laws on investment in 2005, which extended non-discriminatory treatment to all investors, this paper computes the sophistication levels of Vietnamese exports and employs Panel Corrected Standard Error (PSCE) models for analysis. The findings reveal a positive impact of FDI inflows on the sophistication of Vietnamese exports. In addition, the paper explores the underlying causes, particularly focusing on free trade agreement (FTA) and regional trade agreement (RTA) partners. The results indicate that the strongest positive impact comes from FDI inflows originating from high-income economies that are FTA or RTA partner countries.