Does the indexx of country similarity in size induce FDI inflows into Vietnam?

Abstract

International investment includes two main types: foreign direct investment (FDI) and portfolio investment or foreign indirect investment (FII). The International Monetary Fund (IMF) defines foreign direct investment as “cross border investment” in which an investor that is “resident in one country has control or a significant degree of influence on the management of an enterprise that is resident in another economy”. Foreign direct investment is also considered as “a form of international capital flows”. Nowadays, the issue of FDI is being paid more attention at both national and international levels. This is probably due to its growing economic importance for both countries of origin and host countries. FDI has become a significant source of funds for developing countries like Vietnam. On one hand, it generates new financial and managerial; and technological resources. On the other hand, it increases employment and exports. Moreover, FDI may also have the linkage effect of transferring know-how, managerial skill, and advanced technology to domestic firms, and promote the efficiency of the economy.