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The Effect of the COVID-19 Pandemic on Inward FDI in Vietnam

Using monthly inward foreign direct investment (FDI) data for the period from January 2020 to September 2021, our study aims to investigate how the COVID-19 burden (cases and deaths) and policy responses of Vietnam and 40 investment partners affected Vietnam’s FDI attraction. Estimates for the baseline models as well as for different types of income levels show that Vietnam’s COVID-19 burden negatively affects its inward FDI, while no evidence reveals the effect of investment partners’ COVID-19 burden. We find that Vietnam’s COVID-19 cases negatively affect its inward FDI from the European region, while no evidence reveals an effect from the Asian region. When including policy responses in the estimation, we find a disadvantageous impact of investment partners’ COVID-19 cases and deaths as well as Vietnam’s COVID-19 deaths on Vietnam’s inward FDI. In general, the effects of COVID-19 cases are significantly lower than those of COVID-19 deaths. Estimates show that stringent measures in Vietnam and investment partners negatively affect FDI flows into Vietnam, while containment and health measures have a positive effect. The study suggests that efforts should focus on reducing the number of COVID-19 deaths rather than the number of COVID-19 cases, minimizing the application of stringency measures by Vietnam and investment partners, applying health methods, and expanding trade agreements networks.