Câu 1: Explain the trends of FDI inflow in Vietnam in the forms of Joint-venture

and 100% foreign owned enterprise in 1988 - 2022.

From 1988 to 2022, Vietnam has undergone significant economic reforms, transforming
from a centrally planned economy to a market-oriented economy. During this period, the
country has experienced substantial growth in FDI inflows, and there have been notable
trends in the forms of FDI, particularly in joint-venture and 100% foreign-owned
enterprise.
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 emerges as a new and potential form of FDI in Vietnam.
During the early stages of Vietnam's economic opening in the late 1980s and 1990s,
joint-ventures were a popular form of FDI. This approach allowed foreign investors to
leverage the local company's knowledge of the Vietnamese market, regulations, and
distribution networks, while also benefiting from the lower costs and labor availability in
Vietnam. By 1996, about 70% of FDI is in Joint-venture, because its takes time to get a
license, investment environment is still new to foreign investors.
As Vietnam's economy continued to grow and its investment climate improved, there was
a shift towards more 100% foreign-owned enterprises. In the late 1990s and early 2000s,
Vietnam implemented various legal reforms and policies to attract more foreign
investment, including allowing foreign companies to establish wholly-owned subsidiaries
without the need for local partners. This change encouraged more foreign companies to
invest in Vietnam without the constraints of a joint-venture. Since 1996, over 70% FDI is
in the form of 100% foreign owned enterprise, because further open, tranparent
investment environment to foreign investors. Until 2022, 100% foreign owned enterprise
still account for a high percentage.
Overall, Vietnam's FDI trends from 1988 to 2022 demonstrated a steady increase in
foreign investment, with a transition from joint-ventures towards more 100% foreign-
owned enterprises.
Câu 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?
Both direct and indirect positive impacts of inward FDI are important to the host country,
as they contribute to the overall economic development and growth.
Direct impact means what FDI enterprises directly influence on the host country such as
directly recruit workers, contribute to GDP, transfer technology in the FDI sector. They
can directly address unemployment, boost industrial capabilities, and modernize sectors.
Indirect impact means what FDI presence brings about to the domestic sector. They can
lead to more sustainable and widespread benefits, fostering a culture of innovation and
competitiveness in the domestic market.
Supposed both direct and indirect impacts are positive, the domestics sector’s observed
impacts 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 on FDI sector, the stronger the
FDI sector , the riskier the economic may face when FDI is withdrawn from the
economy. Therefore, the indirect positive impact is more important to the host country.
Câu 3) Figure below denotes Mac Dougall-Kempt 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 Nations’ GDP after the movement of AB capital from Nation I
to Nation II.(Please clearly identify by which area GDP increase or decrease) (10 points)
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
Câu 4: FDI may cause crowding-in effect to the host country. Explain and give
examples to illuatrate.
*Definition
- The crowding-in effects imply relatively lower output by FDI-firms compared to
domestically-owned firms.
- An industry-level crowding-in effect as the share of foreign-owned firms in
turnover is lower when the industry-level of foreign capital intensity increases.
- This crowding in effect was mainly attributed to the complementarity of activities
from FDI with established local ones
- When MNEs enter the host-country market, their advanced technologies and
know-how may attract demand away from domestic enterprises, particularly in
the short-run
Analyze:
FDI can indeed lead to a crowding-in effect in the host country's economy. Inflow of FDI
leads to increase of host country’s total capital formation including foreign and domestic
saving. Crowding-in may takes place when the presence of a FDI firm calls in other
foreign or domestic firms in the same area. This effect results from increased investor
confidence, improved infrastructure, and enhanced economic prospects, which, in turn,
stimulate further investments. Crowding in foreign firms is direct impact while crowding-
in domestic firms is indirect impacts.
Examples:
An example about China's Manufacturing Sector. China's economic growth owes much
to the inflow of FDI in its manufacturing sector. In the late 1970s, China adopted an
open-door policy and offered special economic zones to attract foreign investors. As a
result, multinational companies set up production facilities in China to take advantage of
the low labor costs and access to a vast consumer market. This initial FDI wave paved the
way for subsequent investments and contributed to the rapid growth of China's
manufacturing and export-oriented industries.
Overall, the crowding-in effect demonstrates how foreign direct investment can act as a
catalyst for economic development and attract further investments to create a virtuous
cycle of growth in the host country. However, to fully realize the benefits, the host
country must also maintain a conducive and stable business environment, invest in
human capital development, and continue to attract productive investments.
Câu 5: Figure below illustrates the model of Firm’s Decision , Horizontal axis denotes
market size andVertical axis denotes price /cost in a host country, Please explain
a. What do C, ACd, ACf curves and M1M1 denote?
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.
Fig. 1. Model of Firm’s Decision
Câu 6: It is argued that FDI brings about positive and negative impacts on the host
country’s environment protection? Give evidence and explain

Effect on environment
● Negative impacts

- As investors search the world for the best potential profits, they are frequently
drawn to areas rich in natural resources but lacking robust environmental
legislation to regulate their discoveries
- Foreign investors may engage in economic activities that are detrimental to the
communities in which they operate.

For example:
Timber corporations may remove forests to make a place for buildings.
-> Given the importance of vegetative cover for the hydrological cycle, such
operations have a detrimental impact on the ecosystem.

- FDI also encourages western-style 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 a technology dump where outdated technologies are
consumed that no longer meet national standards.
- 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 causes 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
+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

- 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 operated in the direction
of environmental protection of the land and country.
Example:
+ There are more and more large projects such as the tire production project of
Kumho Asiana Group (Korea) with a total investment of 360 million USA
+ The project of a factory to manufacture sphygmomanometer accessories of Key
Plastics Vietnam Co., Ltd. To serve medical equipment manufacturers, electronics,
focus on high-tech, environmentally-friendly values.

Câu 7: FDI may cause both direct and indirect impacts on the host country’s
capital formation? Explain.

FDI plays a crucial role in financing development, both directly, as an external source
ofcapital, and indirectly through its impact on domestic 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. This leads to the creation of
new jobs, improved infrastructure, and increased technology transfer, which can drive
economic growth and development.
Indirect impacts refer to the spillover effects of FDI on the host country's economy. 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.

In conclusion, Foreign Direct Investment can have a significant impact on the host
country's capital formation. It directly contributes to the creation of physical and human
capital, while also indirectly stimulating domestic investment and fostering an
environment for more efficient allocation of resources. However, the extent of these
impacts depends on various factors, including the host country's policies, business
environment, and the nature of the FDI inflows.
Câu 8: Please explain why in certain case, the host country worries about FDI in the form of
crossborder M&A?

In certain cases, the host country may worry about Foreign Direct Investment (FDI) in
the form of cross-border mergers and acquisitions (M&As) for several reasons:
- Loss of Control: Cross-border M&As may result in foreign companies gaining
dominance over domestic firms. This could lead to a loss of control or influence
over economic decisions and policies within the host country.
- Job Losses: Foreign investors may restructure acquired companies to optimize
efficiency, which could result in job cuts or changes in labor conditions. This
raises concerns about unemployment and its social impact on the local workforce.
- Cultural Homogenization: Cross-border M&As can lead to the predominance of
foreign culture and business practices in the host country, potentially eroding local
culture and national identity. This may affect traditional values and customs,
which some perceive as negative for the country's heritage.
- Transfer Pricing: Some multinational corporations involved in cross-border M&As
may engage in transfer pricing, which includes adjusting the prices of goods,
services, or intellectual property transferred between related entities within the
same corporate group. This can be done to minimize tax liabilities in the host
 country and reduce taxable profits, leading to revenue losses for the host country's
government.
- Dependence on Foreign Investors: Overreliance on foreign investors for FDI can
make the host country economically vulnerable. If a significant part of the
economy is controlled by foreign entities, any adverse economic changes in the
investors' home countries could have a significant impact on the host country's
economy.
Each of these concerns highlights the importance of managing and regulating cross-
border M&A activities carefully to ensure that the host country can benefit from FDI
while safeguarding its national interests, economic stability, and cultural identity.
Governments often employ various policies, regulations, and oversight mechanisms to
strike a balance between attracting foreign investment and protecting their country's
economic and cultural integrity.
Câu 9: Host countries impose tax incentives to lure FDI inflow. Thus fiscal
incentives may be an effective measure to attract FDI. Give your opinion and
examples to illustrate
- What kind of tax conccession
- How effectiveness.
- Provide examples

● TAX INCENTIVES

* Definition

Tax incentives are instruments for compensating for negative factors in a country’s
investment climate.

Example:
-From 1985 - 1994 FDI grew more than fivefold in tax havens in the Caribbean
and South Pacific.

- Ireland’s tax incentives have been recognized askey in attracting international

investors over the past two decades

- In developing countries, a popular tax incentive is a reduction in the corporate

income tax rate, through tax holidays or temporary rebates for certain types of
investment or companies

- China offers foreign-invested firms a tax refund of 40 % on profits that are

reinvested to increase the capital of the firm or launch another firm.

● FISCAL INCENTIVES

Category of fiscal incentives

⮚ Reduced direct corporate tax ratio

� General measures aimed at easing the corporate tax burden.

Example

+ Reduced rates of corporate income tax.

+ Tax holidays: "newly- established firms" are not required to pay corporate
income tax for a specified time period

⮚ Incentives for capital formation:

 � Policies of tying lower taxation to corporate investment are used by many

jurisdictions as a way of conjointly attracting foreign enterprises

Example:

+ Special investment allowances: Firms are provided with faster or more generous
write-offs for qualifying capital costs;
+ Investment tax credits: Earned as a percentage of qualifying expenditures and
offset against taxes otherwise payable;
+ Reinvested profits: Some governments offer deductions or tax credits against
profits that are reinvested in the host economy.

⮚ Reduced impediments to cross-border operation.

� Companies are attracted to locations where the fiscal system imposes minimal

costs on the cross border transfer of funds, goods and services

Example

+ Withholding tax: offer foreign-owned enterprises reduced rates of withholding

tax on remittances to their home countries;
+ Taxation of foreign trade: Reduced import taxes and customs duties are
sometimes used as FDI incentives;
+ Taxation of employees: Lower personal income tax or social security for
expatriate executives and employees

*Effectiveness
- The effectiveness of tax incentives is likely to vary depending on a firm’s activity
and its motivations for investing abroad.

- Tax incentives are likely to reduce fiscal revenue and create frequent
opportunities for illicit behavior by companies and tax administrators.

=> These issues have become crucial in developing countries, which face more
severe budgetary constraints and corruption than do industrial countries

- Tax incentives can distort the allocation of resources. And they can attract
investors looking exclusively for short term profits, especially in countries where
the basic fundamentals