Abstract:

Foreign direct investment (FDI) in Vietnam has increased significantly recently. Foreign capital flows can greatly impact the local currency despite different exchange rate mechanisms. Therefore, the Vietnamese government must understand the relationship between the exchange rate (FX) and FDI to issue effective financial policies. This study uses the Vector autoregression (VAR) model to assess the relationship between FX and FDI in Vietnam based on quarterly data from 2013 to 2022. The study results show a meaningful relationship between the exchange rate and FDI in Vietnam. The findings also indicate that foreign direct investment flows into Vietnam are also influenced by its past values. The study also found that trade openness and economic growth were the main control variables affecting the relationship between foreign exchange rates and foreign direct investment. The empirical evidence in the study can provide critical information for policymakers to design and implement appropriate policies to attract foreign investment and stabilize the exchange rate in Vietnam.

Keywords:

Foreign direct investment, foreign exchange rate, exchange rate, Vietnam.

JEL Classification:

F21, F31, G15.

How to Cite:

Chi Dieu Thi Nguyen. The Link between Foreign Exchange Rate and Foreign Direct Investment: Case from Vietnam. [ref]: vol.21.2023. available at: https://refpress.org/ref-vol21-a123/