Assessing the Role of Innovation and Human Development in Attracting Foreign Direct Investment: A Panel Analysis in Vietnam

This study contributes to the growing literature on the 17 Sustainable Development Goals by examining how innovation and the Human Development Index influence Foreign Direct Investment in Vietnam. We utilize the Dynamic System Generalized Method of Moments to examine an unbalanced panel of 63 provinces and cities in Vietnam from 2016 to 2023. We apply the Two-Stage Least Squares method to ensure robustness and analyze a subsample of 58 provinces after excluding five centrally governed cities. We further examine whether the main findings remain robust during the COVID-19 pandemic. The results show that the Human Development Index and innovation play a significant role in attracting FDI, which is consistent with the eclectic paradigm and in contrast to the race-to-the-bottom hypothesis. Notably, the results indicate an inverted U-shaped relationship between innovation and FDI, with an optimal level at 22.74. This finding implies that innovation initially fosters FDI inflows, but excessive technological investment may diminish foreign investment beyond an optimal threshold. These findings align with the eclectic paradigm, race-to-the-bottom, and product life cycle theories. The study provides practical implications for governments and policymakers in emerging economies seeking to attract FDI and promote sustainable development.