Foreign Direct Investment and Structural Transformation in Vietnam

Abstract Over the past few decades, many developing countries have increasingly integrated into the world economy through trade, investment, and participation in global value chains. This process has been accompanied by economic growth and structural transformation—that is, the movement of workers from agriculture to manufacturing and services. This paper examines the relationship between structural transformation and foreign direct investment (FDI) in Vietnam. By analyzing changes in manufacturing employment within foreign-invested enterprises (FIEs) from 2000 to 2020, it finds that employment growth in Vietnam has been primarily driven by FIEs, especially in the electronics sector. Moreover, FIEs are concentrated in emerging economic hubs, benefiting from strong infrastructure and favorable policies. Empirical analysis using fixed effects and system generalized method of moments estimators confirms that higher FDI intensity is associated with a greater share of manufacturing employment. The upshot is that an open trade and investment regime has played a crucial role in accelerating structural transformation.