The relationship between FDI inflows and private investment in Vietnam: Does institutional environment matter?

The recent literature confirms that foreign direct investment (FDI) can crowd out/in private investment. However, questions concerning the FDI-private investment relationship under different kinds of institutional environment is of great interest. This study examines the role of institutional environment in the FDI-private investment relationship in Vietnam using the two-step GMM Arellano-Bond estimators for a balanced panel data of 52 provinces during the period 2005-2014. More interestingly are the empirical findings. First, both FDI and institutional environment significantly boost private investment. Second, the FDI-private investment relationship completely varies based on the quality of institutional environment. Third, the positive effects of government revenue and government investment remain under different institutional environments. These findings suggest some important implications for governments in developing countries, especially the Vietnam government.