Thesis Public Defense | VNP30 - Trần Anh Dũng

How Does Government Transparency Affect Foreign Direct Investment and Fiscal Budget: The Case of Vietnam

Student: Trần Anh Dũng, VNP-30

Supervisor: Dr. Zemzem Shuka & Prof.Dr. Nguyễn Trọng Hoài

Abstract:

This paper examines the effect of government transparency on attracting Foreign Direct Investment capital inflows and its transmitted effect on government budget revenue. Grounded in Public Finance Theory, this research addresses a critical question: Can the use of government openness as a meta-public good enhance the capital inflows, which act as a transmission channel to a return in fiscal capacity? Using a provincial-level dataset and employing a dynamic Two-Step System Generalised Method of Moments to address potential endogeneity from reversal causality, the analysis reveals two key findings. Firstly, transparency acts as a significant tool for the realisation of FDI projects, rather than attracting new foreign capital. By reduces the administrative frictions and uncertainty of government due to asymmetric information, transparency releases these constraints on project execution and improve the post-entry stage of cross-border investments. Secondly, the fiscal benefits of transparency are neither statistically significant nor transmitted through foreign investment, but are likely to operate through broader channels and to enhance domestic capacity in the long run. The conclusion is that transparency is an essential meta-public good and crucial to the efficiency of the government’s allocation functions in the short run and stabilisation functions in the longer term. Policymakers can consider this a strategic, cost-effective alternative to traditional incentives to support the implementation of cross-border investment
and promote sustainable economic development in Vietnam. 

Key Concept: Foreign Direct Investment, Government Transparency, Tax Revenue, Provincial Budget, Governance Quality