1.

Explain the trends of FDI inflow in Vietnam in the forms of Joint-venture and 100%
foreign owned enterprise in 1988 - 2018.
FDI in Vietnam mainly takes the forms of 100% foreign owned enterprise, joint-
venture, Business cooperation contract (BCC), Build-Operation-Transfer (BOT), out of
which 100% foreign owned enterprise and Joint-venture account for over 90% of total FDI
since 1988. Lately M&A (Merger and Acquisition) emerged as a new and potential form of
FDI in Vietnam.
In the first stage, Vietnam's investment law accepted the forms of 100% foreign-
owned enterprise and joint-venture and was quite open to surrounding countries, but the
form of joint venture was more incentives than the form of 100% foreign-owned enterprise.
Before October 1993: Vietnam mainly received Official Development Assistance
(ODA) from countries under the Mutual Economic Assistance Council - SEV, but after the
dissolution of SEV, Vietnam faced difficulties due to a lack of capital.
Since October 1993: Vietnam has established a relationship between the
International Monetary Fund (IMF), the World Bank (WB) and the Asian Development
Bank (ADB), so it has continued to receive ODA.
Before July 1995: the US embargoed Vietnam.
Since July 1995: The US government decided to lift the embargo on Vietnam. This
helped investors to operate in Vietnam and export goods to other countries and Vietnam has
officially joined ASEAN.
1990 – 1995: Vietnam's Investment law made adjustments, creating more favorable
conditions for investors. The oil and gas field is required to be a joint venture, and cannot
receive investment in the form of 100% foreign-owned enterprise.
By 1996, about 70% of FDI was in Joint-venture, because it takes time to get a
license, and the investment environment is still new to foreign investors.
Since 1996, over 70% of FDI is in the form of 100% foreign-owned enterprises,
because of a further open, transparent investment environment for foreign investors.
In recent times, 100% foreign-owned investment accounts for 61% of the licensed
projects and 32.8% of the committed capital, while Joint-ventures account for only 34.2%
of the licensed projects and 53% of the committed capital.

2) Suppose the inward FDI creates both direct and indirect positive impacts on the
host economy. Which is more important to the host country? Explain?
- Direct positive impacts:
+ Directly increases social investment, contributes to GDP and improves the balance of
payment.
 + Acquiring technology and management know-how through technology transfer.
+ Increase the number of jobs and trained workers.
+ Industry linkages: Backward and Forward linkages.

- Indirect positive impact:

+ Spreading advanced technology to the domestic economic sector.
+ Creating conditions for domestic enterprises to participate in the global value chain.
+ Increasing integration, diversifying goods and expanding export markets.
+ Industries linkages: Development of the service sector and supporting industries.

Supposedly both direct and indirect impacts are positive, the observed effects of the
domestic sector makes this sector stronger and likewise strengthen the economy sustainably
even when FDI is driven out. If the domestic sector does not capture positive impacts from
the FDI sector, the stronger the FDI sector, the riskier the economy may face when FDI is
withdrawn from the economy.
The positive impact of FDI directly affects the productivity growth of an industry through
the infusion of new capital into that industry (when capital is poured into an industry, there
is no longer capital leading to collapse).
The positive effect of indirect FDI on the productivity of domestic firms is due to
competitive pressures eventually forcing domestic firms to become more efficient (when
domestic firms improve will be effective in the long run).
=> Therefore, the indirect positive impact is more important to the host country.

4) FDI may cause a crowding-in effect to the host country. Explain and give examples to
illustrate.
✔ Crowding-in may take place when the presence of a FDI firm calls in other foreign
or domestic firms in the same area.
✔ Crowding in foreign firms has a direct impact while crowding-in domestic firms has
indirect impacts.
✔ Inflow of FDI leads to an increase of the host country’s total capital formation
including foreign and domestic savings.

For examples:
Indonesia, Malaysia, Thailand: FDI sometimes indirectly affects the formation of
domestic investment. TNCs have invested in new host country industries such as
electronics, toys or other export consumer goods. Without TNCs, these investments are not
made. However foreign companies mainly invest in assembly, with little links to other
sectors of the economy. Over time, service providers and input materials will form.
7) FDI may cause both direct and indirect impacts on the host country’s capital
formation? Explain.
Direct impacts on the host country’s capital formation: Direct impacts refer to the
direct investments made by foreign firms in the host country, which increases the stock of
physical and financial capital such as international investment inflow, repatriation, and local
loan. First, it is considered FDI as a financial flow contributing to capital stock
accumulation, by adding up to domestic investment + pay taxes. Second, profits gained
from the operation of MNCs in the host country will be repatriated. This leads to huge
capital outflows out of the host country. This leads to the creation of new jobs, improved
infrastructure, and increased technology transfer, which can drive economic growth and
development.

Indirect impacts on the host country’s capital formation: Indirect impacts refer to the
spillover effects of FDI on the host country's economy. FDI can increase the profitability of
domestic investment. Also, FDI increases household and government saving, efficient
investment, and increases reinvestment, export oriented investment. For example, increased
competition from foreign firms can lead to increased efficiency and productivity of
domestic firms, which can improve the overall competitiveness of the host country. FDI can
also lead to the development of new industries and the expansion of existing ones, which
can further stimulate economic growth and capital formation.

8) Please explain why in certain cases, the host country worries about FDI in the form
of cross border M&A?
The host country may have worries about Foreign Direct Investment (FDI) in the
form of cross-border mergers and acquisitions (M&A) due to several reasons:
- Loss of Control: When a foreign company acquires a domestic company through
M&A, the host country may worry about losing control over important sectors of its
economy: Decision-making authority, intellectual property, and proprietary
technologies may be transferred abroad, potentially reducing the host country's ability
to shape its economic and maintain its competitive.
- Technology Drain: In some cases, the host country may be concerned that the
transfer of advanced technologies, research, and development capabilities to foreign
firms through M&A could lead to a "technology drain." This may hinder the host
country's ability to build and sustain its technological capabilities and innovation
potential.
- Transfer pricing: Host countries worry about transfer pricing practices as it can
erode their tax base and hinder their ability to collect taxes that would have otherwise
been generated from the corporate control.
- Dependence on foreign investors: This dependence can make the host country's
economy vulnerable to changes in foreign investor strategies, market conditions in the
investor's home country. Additionally, sudden withdrawal or disinvestment by foreign
investors can lead to economic instability and job losses in the host country.
- Job losses: The acquisition of domestic firms by foreign companies may lead to
restructuring, resulting in job losses in the host country. This can create economic
 challenges, higher unemployment rates, prompting calls for government intervention
to protect local jobs.
- Cultural homogenization: M&As with foreign companies can bring about the
prioritization of the acquirer's corporate culture. This may erode cultural diversity and
identity, raising concerns about preserving local traditions and heritage.

3) Figure below denotes MacDougall-Kemp model, it is supposed that there are two
nations (I, II) in the world, that possessing OO’ capital of which Nation I owns OA
capital, Nation II owns O’A capital, (OA>O’A); Nation I confronts FF’ curve being
the curve of value of marginal product of capital (VMPK1), and Nation II does with
JJ’ curve (VMPK2); VMPK2 is higher than VMPK1. Please identify:
a. GDP of each Nation before and after the movement of AB capital from Nation 1 to Nation
2. Change of each Nation's GDP after the movement of AB capital from Nation I to Nation II
(Please clearly identify by which area GDP increases or decreases).
b. Volume of loss / gain of Nation II’s owners of capital / owners of other production factors
after the movement of AB capital from Nation I to Nation II. Capital owner losses THMR;
Owner of other production factors gains HMET.
Figure . MacDougall-Kemp Model

Nation 1 Nation 2
Change Change
Before After Before After
(+/-) (+/-)
Unchange Unchange
K OA OA O’A O’A
d d
VMPK OC ON + CN O’H O’T - HT
K-owner OCGA ONRA + CNRG O’HMA O’TRA - THMR
Labor
CFG NFE - CNEG HJM TJE + THME
income
GNP OFGA OFERA + ERG O’JMA O’JERA + EMR
GDP OFGA OFEB - BEGA O’JMA O’JEB + AMEB
 + EMG
World Before: OFGMJO’
After: OFEJO

5) Figure below illustrates the model of Firm’s Decision , Horizontal axis denotes
market size and Vertical axis denotes price /cost in a host country, Please explain

Fig. 1. Model of Firm’s Decision

a. What do C, ACd, ACf curves and M1M1 denote (biểu thị) ?

C is transaction cost curve faced by the foreign firm in the host country;
ACd is average cost curve faced by domestic firms in the host country;
ACf is the average cost curve faced by foreign firm (ACf= ACd+C) when investing in the
host country;
M1M1 is market price (including import tax) accepted by consumers in the host country.

b. Supposed the host market size is larger than OA and smaller than OC, which mode
of entry will foreign firm choose? Do you think foreign company like this mode of
doing business? Explain. Supposed the host country increase import tax, the market
price M1M1 (comprising import tax) shifts to M2M2. Which mode of entry will the
foreign company choose if the host country’s market size is OC? Explain.
If the demand for the product (market size - MS) is less than OA (Ms < OA foreign
company will exploit the technology advantage to produce in home country and exports =>
Exporting.
If the MS is greater than OA and less than OC (OA < MS < OC), the foreign company will
lease the technology to the host company => Licensing.
If the MS is greater than OC (OC < MS), the foreign company will directly exploit the
technology advantage and produce the product in the host country => FDI.
 So when the host market size is larger than OA and smaller than OC, foreign firms will
choose the "Licensing" model.
With Licensing, foreign firm will not need to incur the costs of producing, promoting,
packing or selling your product, but they will likely lose control over their product.
For example: Some Chinese phone companies such as Letv, Blackview and Goophone
produce a number of phone models with the same designs as Apple's iPhone products and
they sell them at prices many times cheaper than the iPhone
=> So whether businesses like this model or not depends on the goals and markets they
target. The most popular model today is exporting because the business has to bear the
lowest level of risk.

c. Supposed the host country increases import tax, the market price M1M1 (comprising
import tax) shifts to M2M2. Which mode of entry will the foreign company choose if
the host country’s market size is OC? Explain.
If the market price increases from M1 to M2:

● If the MS is OC (OC '< OC), the foreign company will directly exploit the technology
and produce the product in the host country => FDI .
Foreign investors only need to have a larger market scale than OC' to choose Foreign
Direct Investment.

6) It is argued that FDI brings about positive and negative impacts on the host
country’s environment protection? Give evidence and explain.
NEGATIVE IMPACTS:
● Environmental pollution
As investors search the world for the best potential profits, they are frequently drawn to
areas rich in natural resources but lacking in robust environmental legislation to regulate
their discoveries. foreign investors may engage in economic activities that are detrimental to
the communities in which they operate.
Example: Timber corporations may remove forests to make place for building. Given the
importance of vegetative cover for the hydrological cycle, such operations have a
detrimental impact on the ecosystem. FDI also encourages western-syle consumerism by
increasing automobile ownership and paper consumption. This has a detrimental impact on
the natural world, the earth’s climatic stability, and food security.
FDI is both an opportunity for technology transfer, but sometimes it turns FDI - receiving
countries into technology dumps where outdated technologies are consumed that no longer
meet national standards.
Example: In Vietnam many serious environmental pollution cases of FDI projects have
caused bad consequences for the ecosystem and reduced sustainability of economic growth.
For example, the Project Formosa in Ha Tinh caused marine environmental incidents
in 2016; Vedan Vietnam was found causing "death" of Thi Vai river; Vietnam Miwon was
sanctioned for over discharging wastewater allowable technical regulations, etc.

POSITIVE IMPACTS
FDI has a positive impact on the environment through the introduction of new energy-
saving products, reducing dependence on traditional raw materials or energy sources, and
solutions to improve production efficiency, or good experience in environmental protection.
Currently, FDI along with the reduction of environmental pollution is an inevitable
investment trend, and at the same time, investment recipient countries are increasingly
focusing on strengthening environmental protection policies, so when a Countries that
receive clean FDI projects have the opportunity to receive modern, environmentally friendly
treatment technologies. Both economic benefits and environmental protection are increased.
Among FDI projects, there are still a few “clean” projects that not only bring economic
efficiency but are environmentally friendly and operate in the direction of environmental
protection of the land and country.