The moderating effect of foreign direct investment on urbanisation - multidimensional poverty nexus: evidence from Vietnam

This study examines whether foreign direct investment (FDI) conditions the effect of urbanisation on multidimensional poverty in Vietnam. Using balanced panel data for 63 provinces from 2016 to 2023, we estimate fixed-effects models with panel-corrected standard errors (PCSE), feasible generalized least squares (FGLS), and two-step system GMM. The dependent variable is the official provincial multidimensional poverty rate published by the General Statistics Office of Vietnam. The results show that urbanisation significantly reduces multidimensional poverty. However, the interaction between lagged urbanisation and lagged FDI is positive and statistically significant, indicating that higher FDI intensity weakens the poverty-reducing effect of urbanisation. At average FDI levels, urbanisation still lowers multidimensional poverty, but the magnitude of this effect declines as provinces become more dependent on foreign investment. The main findings remain robust across PCSE and FGLS specifications and are qualitatively confirmed by the dynamic system GMM estimates. Overall, the study shows that the welfare gains of urban growth depend not only on the pace of urbanisation but also on how foreign investment is embedded in local development.