Labor Force and Foreign Direct Investment: Empirical Evidence from Vietnam

The labor force plays an important role in attracting foreign direct investment (FDI) both in developed and developing countries. In countries where there are appropriate policies for training human resources and maintaining the health of human resources, such countries have a competitive advantage and can attract FDI inflows, besides having a workforce to meet the needs of foreign investors. The purpose of this paper is to analyze the effect of the labor force and several other factors on FDI attraction in Vietnam. The empirical model is employed to perform regression and correlation on the impact of the labor force, real gross domestic product, inflation, index of business freedom, and index of investment freedom on Vietnam’s FDI attraction by using a secondary time series data set during the period 1995-2018. The empirical results found that both labor force and inflation have a positive influence on FDI at a 5% significance level; index of business freedom has a positive impact on FDI at a 10% significance level, and real gross domestic product and index of investment freedom have a positive impact on FDI at a 1% significance level. From these results, this study proposes several important policy implications for Vietnam in attracting FDI in the future.