Do, Quynh Anh e al.
A icle
Spa ial e ec s o o eign di ec in es men on wage
inequali y in Vie nam
Cogen Economics & Finance
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Sugges ed Ci a ion: Do, Quynh Anh e al. (2024) : Spa ial e ec s o o eign di ec in es men on wage
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Spa ial effec s o o eign di ec in es men on
wage inequali y in Vie nam
Quynh Anh Do, Anh Duc Do, Minh Huan Doan, Quoc Hoi Le, Anh Duc Le &
Thi Thanh Duong Nguyen
To ci e his a icle: Quynh Anh Do, Anh Duc Do, Minh Huan Doan, Quoc Hoi Le, Anh
Duc Le & Thi Thanh Duong Nguyen (2024) Spa ial effec s o o eign di ec in es men
on wage inequali y in Vie nam, Cogen Economics & Finance, 12:1, 2293297, DOI:
10.1080/23322039.2023.2293297
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Published online: 11 Dec 2023.
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DEVELOPMENT ECONOMICS | RESEARCH ARTICLE
Spa ial e ec s o o eign di ec in es men on
wage inequali y in Vie nam
Quynh Anh Do
1
, Anh Duc Do
1
*, Minh Huan Doan
2
, Quoc Hoi Le
1
, Anh Duc Le
1
and
Thi Thanh Duong Nguyen
1
Abs ac : This s udy analyzes he e ec s o o eign di ec in es men (FDI) on wage
inequali y in Vie nam by u ilizing panel da a om 63 p o inces o e he pe iod
2010–2018. The spa ial au oco ela ion model is used in he s udy. Empi ical esul s
om he spa ial econome ic model e eal ha FDI ends o inc ease wage
inequali y in locali ies and has di ec and spa ial e ec s. Economic g ow h has led
o a educ ion in he wage inequali y be ween skilled and unskilled labo . The
inc ease in he p opo ion o he skilled labo o ce educes wage inequali y in
p o inces wi h high human capi al and de eloped educa ion sys ems. The s udy
esul s imply ha he policy on a ac ing and u ilizing FDI needs o be aligned wi h
aining and human capi al de elopmen o ensu e sus ainable de elopmen . I is
also necessa y o emphasize p o essional aining o he wo k o ce o a ac FDI.
Subjec s: Ru al De elopmen ; U ban De elopmen ; Economics and De elopmen ;
Sus ainable De elopmen ; U ban Economics
Keywo ds: o eign di ec in es men ; wage inequali y; spa ial econome ics; Vie nam
1. In oduc ion
O e he pas 20 yea s, he issue o Fo eign Di ec In es men (FDI) e sus social equali y has been
mo e p e alen in s udies whe e he esul s indica e ha FDI can b ing many bene i s o he hos
coun y’s economy. Howe e , no all ci izens in ha coun y can bene i om i equally. The issue
o social equali y is o en analyzed in e ms o income inequali y o wage inequali y. The ela ion-
ship be ween he inc ease in FDI in lows and wage inequali y has become a subjec o in e es o
esea che s and policymake s— heo e ically and empi ically—and a ious heo ies ha e been
de eloped o explain he o igin o his dispa i y (Aghion e al., 1998; Feens a & Hanson, 1997;
Figini & Gö g, 1999; Ma kusen & Venables, 1999; Taylo & D i ield, 2005; Te Velde & Mo issey,
2004). These s udies also p o ide he essen ial ounda ion o empi ical esea ch conduc ed
globally. Howe e , he inconsis encies de ec ed in his s udy highligh he u gen need o unde -
ake u he empi ical s udies o d aw a mo e p ecise conclusion.
Empi ical s udies can be di ided in o ou g oups: i s ly, he ela ionship be ween FDI and wage
inequali y, including FDI e ec s o educing wage inequali y in hos coun ies (Bhanda i, 2007;
Jensen & Rosas, 2007; Mugeni, 2015; Nguyen e al., 2019); secondly, he FDI deepening e ec s on
wage inequali y (Bogliaccini & Egan, 2017; Choi, 2006; Gopina h & Chen, 2003; Jaumo e e al.,
2013; Reu eny & Li, 2003; Te Velde & Mo issey, 2004); hi dly, he ac ha FDI has nonlinea
e ec s on wage inequali y (Aghion e al., 1998; Figini & Gö g, 1999; Taylo & D i ield, 2005); and
ou hly, he FDI has he spa ial e ec s on wage inequali y (Wang e al., 2021).
Do e al., Cogen Economics & Finance (2024), 12: 2293297
h ps://doi.o g/10.1080/23322039.2023.2293297
Page 1 o 17
Recei ed: 10 May 2022
Accep ed: 05 Decembe 2023
*Co esponding au ho : Anh Duc Do,
Na ional Economics Uni e si y, Hanoi,
Vie nam
E-mail: [email p o ec ed]
Re iewing edi o :
Goodness Aye, Ag icul u al
Economics, Uni e si y o Ag icul u e,
Maku di Benue S a e, Nige ia
Addi ional in o ma ion is a ailable a
he end o he a icle
© 2023 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup.
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion
License (h p://c ea i ecommons.o g/licenses/by/4.0/), which pe mi s un es ic ed use, dis ibu-
ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. The e ms on
which his a icle has been published allow he pos ing o he Accep ed Manusc ip in
a eposi o y by he au ho (s) o wi h hei consen .
E idence sugges s an inc ease in wage inequali y be ween skilled and unskilled labo in de el-
oped and de eloping coun ies (Johansson & Liu, 2020; Taylo & D i ield, 2005; Te Velde &
Mo issey, 2004). Wages a e he p ima y sou ce o income o mos labo e s, and he e o e he
dis ibu ion o wages has an essen ial impac on income inequali y. In gene al, p e ious s udies
ha e no come o a uni ied conclusion on he impac o FDI on he wage gap be ween skilled and
unskilled labo e s; he p oposed heo e ical amewo ks a e di e se, which leads o di e en
explana ions o his dispa i y. Mo eo e , many empi ical s udies globally ha e es ima ed he
e ec o FDI on he wage gap be ween skilled and unskilled labo e s; howe e , none o hese
s udies has examined he spa ial e ec s o FDI on wage inequali y.
In Vie nam, i is no ewo hy ha al hough he Gini coe icien is no high, he absolu e income
inequali y is inc easing. The pe capi a income o he op 20% o households was 9.2 imes highe
han ha o he lowes 20% o households in 2010. This di e ence inc eased o 9.86 imes in 2018.
Besides, ega ding he wage di e ence be ween skilled and unskilled wo ke s, om 2010–2018,
wage inequali y be ween hese wo g oups inc eased om 1,433 imes in 2010 o 1,874 imes in
2018. Signi ican ly, 2015 and 2016 wi nessed a e y high di e ence o 2,471 imes and 1,928
imes, espec i ely. In he con ex o Vie nam—a de eloping coun y— he FDI sec o is one o he
c i ical g ow h d i e s o he economy and is ha ing an inc easing impac on he socio-economic
s a us o i s ci izens. Ne e heless, s udies on he impac o FDI on wage inequali y a e s ill sca ce,
and none o he esea che s has u ilized he wage gap be ween skilled and unskilled labo e s o
ep esen he wage inequali y issue in Vie nam. In addi ion, he spa ial e ec o FDI on wage
inequali y is a new esea ch app oach adop ed wo ldwide and has no been analyzed in Vie nam.
Mo eo e , i is indica ed ha he gene al conclusions in p io esea ches a e inconsis en , mo i a -
ing his s udy. Las bu no leas , his s udy’s esul s a e likely o apply o o he de eloping
coun ies.
In his s udy, he ocus is on analyzing he impac o FDI on wage inequali y in Vie nam. Fi s ly,
we buil an empi ical model o examine he impac o FDI on wage inequali y, in which he a iable
ep esen ing wage inequali y is he wage gap be ween skilled and unskilled labo e s. Subsequen ly,
we u ilized a spa ial econome ic model wi h panel da a om 63 p o inces in Vie nam o e he
pe iod 2010–2018; o analyze he impac o FDI on wage inequali y. Based on he spa ial econo-
me ic model, he s udy ocused on answe ing he ollowing ques ions: (1) How does FDI a ec
wage inequali y in Vie nam?; and (2) Is he e a spa ial e ec o FDI on wage inequali y in locali ies?
The s udy has a i e-pa s uc u e: (1) In oduc ion; (2) Resea ch o e iew; (3) Resea ch me h-
odology; (4) Resul s; and (5) Conclusions.
2. Li e a u e e iew
The impac o FDI on wage inequali y is a ac ing he a en ion o esea che s a ound he globe.
Howe e , hese s udies ha e no eached a uni ied conclusion on he impac o FDI on wage
inequali y. The heo e ical and empi ical esea ch on he ela ionship be ween FDI and wage
inequali y can be di ided in o ou g oups as ollows:
2.1. FDI has a nonlinea ela ionship wi h wage inequali y
Theo e ically, he endogenous g ow h model o Aghion e al. (1998) sugges s ha echnological
de elopmen was he cause o he income gap be ween unskilled and skilled labo e s. Based on
he said economic model, he au ho s demons a ed wo s ages o de elopmen o impo a new
echnology om mul ina ional en e p ises (MNEs) in o he hos coun y. The demand o skills in
he ea ly s ages led o an inc ease in he demand o skilled labo e s who we e in sho supply; his
led o inc easing wage inequali y du ing his pe iod. A e ha , wage inequali y dec eased as he
supply o necessa y skills imp o ed, and he companies ansi ioned o he new echnological
model. In addi ion, he p e iously unskilled wo ke s had been upg ading hemsel es wi h he
equi ed skills, hus joining he middle-income class socie y; and na u ally educing he p e-
exis ing wage inequali ies. The endogenous g ow h model o Aghion e al. (1998) hypo hesizes
Do e al., Cogen Economics & Finance (2024), 12: 2293297
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Page 2 o 17
he nonlinea ela ionship be ween FDI and wage inequali y. A he same ime, using he Gene al
Pu pose Technology (GPT) model, Aghion e al. (1998) also suppo ed he nonlinea e ec o FDI on
wage inequali y.
Subsequen empi ical s udies by Figini and Gö g (1999, 2011) also showed a nonlinea
ela ionship be ween FDI and wage inequali y. In 1999 hey disco e ed an in e ed U-shaped
ela ionship in he con ex o I eland, while, in ano he s udy conduc ed in 2011 wi h a la ge
sample o mo e han 100 de eloped and de eloping coun ies co e ing he pe iod 1980–2002,
hey also ound a nonlinea e ec o FDI on wage inequali y in de eloping coun ies. In
pa icula , when s udying he e ec s o FDI on wage inequali y in OECD coun ies e sus non-
OECD de eloping coun ies, a clea dis inc ion was made be ween he wo. In he case o non-
OECD de eloping coun ies, he s udy showed ha he impac o FDI on wage inequali y was
nonlinea in an in e ed U-shape. Speci ically, FDI ini ially inc eases wage inequali y, bu
subsequen inc eases in FDI educe wage inequali y in hese coun ies. Howe e , no such
e idence was ound in de eloped coun ies.
2.2. FDI has he e ec o inc easing wage inequali y
The posi i e e ec o FDI on wage inequali y is also heo e ically explained acco ding o he
no he n and sou he n coun y model o Feens a and Hanson (1996). This heo y assumes ha
he coun ies in he no h a e de eloped wi h abundan skilled labo e s, and he coun ies in he
sou h a e less de eloped, wi h mos labo e s being unskilled. Businesses in he no he n coun ies
wi h mainly skilled labo e s would hi e businesses in he sou he n coun ies wi h unskilled labo e s
o p oduce inpu s. The a ailabili y and low labo cos in hese less-de eloped sou he n coun ies
could a ac FDI om he no he n de eloped coun ies, whe e labo is conside ed sca ce and
expensi e. Howe e , om he pe spec i e o no he n coun ies, p oduc ion jobs ans e ed o
sou he n coun ies could be seen as unskilled ones, while in sou he n coun ies, hese jobs could
be seen as skilled ones. This implies ha some jobs may be conside ed ei he low-skilled in one
coun y o high-skilled in ano he . The e o e, his ype o FDI can inc ease he demand and wages
o skilled wo ke s in mo e and less-de eloped coun ies.
Se e al empi ical s udies (Ai ken e al., 1996; Feens a & Hanson, 1996; Gopina h & Chen, 2003;
Lipsey & Sjöholm, 2004; Mah, 2002; McLa en, 2000; Taylo & D i ield, 2005; Te Velde, 2003)
suppo ed he hypo hesis de i ed om he No h—Sou h model, which p oposed ha FDI hu s
wage inequali y by inc easing he demand and wages o skilled wo ke s in he hos coun ies.
These s udies disco e ed ha FDI in lows we e mainly h ough he ac i i ies o MNEs, which o en
ha e a highe demand o skilled labo e s han domes ic en e p ises. This led o wage di e ences
o labo e s in he la e (Le, 2020; Taylo & D i ield, 2005), widening he income gap be ween
skilled and unskilled labo e s. In addi ion, hese s udies e ealed e idence o inequali y in human
capi al, especially in de eloping coun ies. Mo eo e , FDI en e p ises o en se ce ain speci ica ion
s anda ds. The e o e, he oppo uni ies o employmen and income le els o e ed by FDI en e -
p ises we e also unequal among he labo g oups wi h a ied quali ica ions. This u he con ib-
u ed o he inc ease in wage inequali y.
In addi ion, FDI en e p ises c ea ed dispa i ies in labo g oups’ quali ica ions and skill le els
h ough hei aining ac i i ies. As skills aining ac i i ies became mo e equen in FDI en e -
p ises, labo e s’ quali ica ions inc eased. This widened he quali ica ion and income gap be ween
labo g oups in FDI and non-FDI en e p ises (Te Velde, 2003).
Apa om ha , Te Velde (2003) exposed he di e ence in s a us be ween skilled and unskilled
labo e s. The o me o en possessed a highe s a us due o he sho age o his g oup in he labo
ma ke , which pu hem in an ad an ageous posi ion wi h he abili y o nego ia e a highe sala y wi h
hei employe s. In addi ion, FDI en e p ises end o selec a eas ha u ilize skilled labo e s o ca y ou
Do e al., Cogen Economics & Finance (2024), 12: 2293297
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Page 3 o 17
hei in es men ac i i ies (Feens a & Hanson, 1996). Thus, he s a us o he skilled labo g oups was
ela i ely imp o ed, inc easing income inequali y be ween he skilled and unskilled labo g oups.
Te Velde (2003) conduc ed a s udy in he con ex o La in Ame ica, which examined he deg ee
o in luence o FDI on he wage dis ibu ion o skilled and unskilled labo e s. The esul s showed
ha FDI had no e ec on educing wage inequali y in La in Ame ica and e en sugges ed ha FDI
migh inc ease wage inequali y in Boli ia and Chile. FDI could ha e a nega i e e ec on income
dis ibu ion. Fo example, when o eign companies in oduced new skill-demanding echnologies,
such as elec onics companies in Cos a Rica, ha inc eased demand o skilled labo e s and wage
inequali y. Using he same app oach, Gopina h and Chen (2003) selec ed 11 de eloping coun ies
and p o ed ha FDI widened he wage gap be ween skilled and unskilled labo e s.
Johansson and Liu (2020) s udied he impac o FDI on wage inequali y in China and ound a link
be ween FDI and he demand o skilled labo e s. The e was e idence ha wage inequali y is
highe in ci ies ha a ac mo e FDI. In addi ion, h ough analyses a he en e p ise le el, he
s udy e ealed ha FDI no only inc eased he ela i e demand o skilled labo bu also c ea ed
a signi ican wage gap e ec . In pa icula , FDI en e p ises paid highe - han-a e age sala ies o
posi ions equi ing skills. Howe e , FDI had a posi i e wage spa ial e ec on bo h skilled and
unskilled labo e s in s a e-owned en e p ises, bu he le el o he spa ial e ec was much highe
o he o me g oup.
2.3. The posi i e e ec s o FDI
Many neoclassical economis s ha e also shown ha FDI a ec s economic g ow h posi i ely and
educes wage inequali y (Mundell, 1957). They a gued ha FDI no only helped o ill he sho age
o esou ces; bu also c ea ed be e economic g ow h h ough he sp ead o new echnology, he
de elopmen o human capi al, managemen skills, and access o expo ma ke s (Pan-Long,
1995). The end o capi al low om egions wi h abundan esou ces o egions wi h sca ce
esou ces ( o exploi low-income labo esou ces) caused he shi o labo and echnology o hese
a eas. As a esul , he income inequali y in di e en egions had dec eased.
O he s udies also opined ha FDI educed wage inequali y in he hos coun y. The s udy by
Jensen and Rosas (2007) showed ha FDI in Mexico in he pe iod 1990–2000 educed wage
inequali y a he s a e le el. In addi ion, Bhanda i (2006) e ealed ha FDI had a bene icial
dis ibu i e e ec in he Uni ed S a es, wi h signi ican a ia ions ac oss egions o e di e en
pe iods. A simila conclusion was sugges ed by Chin aka n e al. (2012), who a gued ha FDI in
he Uni ed S a es educed wage inequali y, bu he le el o spa ial e ec s a ied ac oss he
egions.
Mugeni (2015) u ilized panel da a om 153 de eloped and de eloping coun ies om 1995–
2010, e ealing ha inwa d FDI, along wi h a deg ee o democ acy, educes wage inequali y. In
addi ion, he esul s we e consis en wi h he assump ion ha FDI educes wage inequali y in
coun ies wi h a highe deg ee o democ acy.
To summa ize, he e ha e been nume ous s udies on he e ec s o FDI on wage inequali y using
la ge da ase s ac oss many coun ies o ac oss a single coun y. Howe e , he conclusions di e
because FDI a ec s hese egions acco ding o he mechanisms applied. The a iances in esea ch
esul s we e caused by he di e ences in capi al abso p ion capaci y and de elopmen s a egy o
each hos coun y. In addi ion, he choice o he p oxies o wage inequali y, he dependen
a iables, he con ol a iables, and he di e en es ima ion echniques also con ibu ed o he
di e ences in he esea ch esul s. The e o e, he ela ionship be ween FDI and wage inequali y
canno be gene alized ac oss all coun ies o egions, necessi a ing u he in es iga ion in he
con ex o Vie nam.
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The e ha e been e y ew s udies on he impac o FDI on wage inequali y in Vie nam, wi h each
yielding a di e en esul . S udies conduc ed by Ho e al. (2020) showed ha FDI had he po en ial
o inc ease wage inequali y. In con as , Nguyen (2016) opined ha FDI helped o educe wage
inequali y in locali ies. This conclusion was de i ed a e analyzing p o incial panel da a o e he
pe iod 2002–2012. Simila conclusions we e ound by Chu and Le (2016), who a gued ha FDI
educed wage inequali y since his sec o had c ea ed a signi ican numbe o jobs o unskilled
labo e s. In addi ion, FDI in lows in o Vie nam we e in luenced by ac o s such as geog aphical
dis ance and ade openness, which o igina ed mainly om Eas Asian coun ies wi h he main
mo i e o seeking low-cos labo .
2.4. The spa ial e ec s o FDI on wage inequali y
Wang e al. (2021) s udied he spa ial e ec o inwa d FDI on u ban- u al wage inequali y in he
sho and long un. Based on a panel da ase co e ing 30 p o inces and ci ies in China om 2000
o 2016, he s udy showed ha wholly o eign-owned en e p ises ha e a nega i e spa ial e ec on
u ban- u al wage inequali y in he sho and long un, while equi y join en u es educe u ban-
u al wage inequali y in he long un only.
Theo e ically, FDI could ha e a spa ial e ec on wage inequali y in a de eloping coun y h ough
wo channels: knowledge spillo e s be ween egions and in e - egional mobili y.
Due o he ad an age o owne ship, FDI c ea ed a posi i e spa ial e ec o knowledge ac oss
egions, con ibu ing o he economic g ow h in o he egions. Fi s ly, by s imula ing labo mig a-
ion be ween egions, FDI helped o sp ead in e - egional knowledge in a posi i e way o boos
economic g ow h in o he egions. In addi ion, employees whom FDI en e p ises ained e u ned
o hei homelands o mig a ed o o he locali ies and ook knowledge om local i ms he e (Du
e al., 2005; Fos u i e al., 2001). Secondly, h ough o wa d and backwa d indus ial linkages wi h
i ms in o he p o inces, FDI o e ed i ms in o he p o inces he oppo uni y o expand hei
p oduc ion scale and imp o e p oduc i i y h ough linkages in he supply chain (Chen e al.,
2013; Kugle , 2006). Thi dly, he inno a ion and esea ch and de elopmen (R&D) ac i i ies o
MNEs c ea ed knowledge spillo e s ac oss egions h ough echnology ans e , which was also
a ac o by which FDI educed wage inequali y (B onzini & Piselli, 2009). Fou hly, om
a mac oeconomic pe spec i e, he inc ease in ma ke demand o p oduc s om o he egions
was caused by he inc ease in wages in FDI sec o s (B un e al., 2002; Pham & Ho, 2021; Zhang &
Felmingham, 2002). In hese cases, FDI had a posi i e spa ial e ec on economic g ow h, which
led o a educ ion in wage inequali y in o he p o inces. Howe e , FDI i ms also compe ed wi h he
local i ms in o he p o inces, o example, by pushing hem ou o he ma ke and compe ing wi h
hem in labo and esou ce ma ke s (Ai ken & Ha ison, 1999; Fu, 2011). Such compe i ion led o
bank up cy among local businesses, causing a educ ion in jobs o unskilled labo e s. Thus, in his
case, FDI had a nega i e spa ial e ec on wage inequali y in o he egions.
Rega ding in e - egional mig a ion and income ans e , FDI p omo ed mig a ion om su plus labo
egions o o he egions wi h sca ce labo . In Vie nam, FDI in lows in o ci ies had a ac ed dozens o
millions o u al mig an wo ke s om o he egions. On he one hand, in e - egional mig a ion o u al
wo ke s om less-de eloped egions caused a loss o income in hose egions, which is he oppo uni y
cos o in e - egional mig a ion. On he o he hand, mig an u al wo ke s om less-de eloped egions
would emi money o hei homeland. The e o e, i he emi ances o u al mig an wo ke s we e
highe han he loss o income in hei homeland, he o e all income o households in he home
coun y would inc ease, he eby educing wage inequali y in such egions and ice- e sa. Howe e , in
addi ion o income ans e , FDI had a spa ial e ec on wage inequali y h ough he mig a ion channel
ia ano he dimension. F om a skills pe spec i e, he labo ans e be ween egions a ac ed skilled
labo e s om o he p o inces and caused mo e sca ci y o such labo g oups in hose locali ies. Hence,
he sho age o skills inc eased wage inequali y in hese locali ies.
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3. Empi ical model and da a
3.1. Empi ical model
Based on he s udies by Te Velde (2003) and Taylo and D i ield (2005), he impac o FDI on wage
inequali y in Vie nam is es ima ed by using he ollowing empi ical model:
In his model:
μi is a ixed e ec ha does no change o e ime, ep esen ing he speci ici y o each locali y,
and εi is an unobse ed andom componen .
The WI is a a iable ep esen ing wage inequali y, he a io calcula ed as he a e age wage o
skilled labo e s compa ed wi h he a e age wage o unskilled labo e s in p o ince i in yea . The
wage di e en ial coe icien be ween skilled and unskilled labo e s is used o assess he impac o
FDI on wage inequali y based on he change in supply and demand o skills. In his s udy, skilled
labo e s ha e been ained a a school o a p o essional aining ins i u ion unde he Na ional
Educa ion Sys em o h ee mon hs o mo e. They ha e g adua ed and been awa ded a deg ee o
ce i ica e p o ing hey a ained a pa icula p o essional o echnical compe ency. On he o he
hand, unskilled labo e e s o hose who does no possess any o mal p o essional o echnical
quali ica ions.
The FDI a iable is he a io o ealized FDI o cu en GDP in p o ince i in yea , and i deno es
he e ec o FDI in lows in o p o ince i in yea .
LnPGDP, HC, TRADE, RSS, and TS a e o he explana o y a iables. Acco ding o he heo y o
supply and demand o skills, i e basic con ol a iables a e included in he equa ion: ade
openness (TRADE); le el o economic de elopmen (LnPGDP); human capi al (HC); skills sca ci y
(RSS); and labo aining cos s incu ed by en e p ises (TS).
Feens a and Hanson (1996) and Blonigen and Slaugh e (2001) showed ha ade openness also
a ec ed wage inequali y. As o whe he ou sou cing ac ually leads o wage inequali y depends on he
skill le els o he ou sou cing- ela ed jobs. Howe e , o de eloping coun ies, he esea che s p e-
dic ed highe usage o unskilled labo compa ed o skilled labo in ou sou ced ac i i ies h ough
in e na ional ade (Wood, 1995). As a esul , ou sou ced ac i i ies would lead o an inc ease in
wage inequali y. Whils examining he ole o expo s in wage inequali y, Be na d and Jensen (1997)
ound ha an inc ease in expo s om he ac o ies in he Uni ed S a es s ongly a ec ed wage
inequali y. Howe e , Machin and Van Reenen (1998) could no ind a ole o ade openness in
explaining he a ia ion in wage inequali y ac oss OECD coun ies. Despi e he lack o empi ical
e idence, i was an icipa ed ha ade openness would posi i ely a ec wage inequali y. In his
s udy, he ade a iable is he pe cen age o o al ade (bo h impo s and expo s) o he GDP o
p o ince i in yea , e lec ing he ade openness om he mac o pe spec i e.
Te Velde (2003) and Taylo and D i ield (2005) u ilized GDP pe capi a o ep esen he le el o
economic de elopmen . This a iable is he mos common p oxy o economic g ow h as i leads o
an inc ease in a coun y’s wage inequali y i i leads o an inc ease in he demand o skills. On he
o he hand, economic g ow h can lead o a educ ion in wage inequali y i he e a e policies aimed
a inc easing he supply o skills o es ablishing an impe ec wage compe i ion mechanism
(minimum wage egula ions, e ec i e wage models, e c.). The PGDP a iable is he GDP pe capi a
o he p o ince i in yea a ixed p ices in 2010.
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The human capi al (HC) a iable used in his model is ep esen ed by he pe cen age o ained labo
o ce o p o ince i in yea . As analyzed ea lie , he supply and demand o skills de e mines he le el o
wage inequali y. The e o e, when he supply o skilled labo inc eases, he wage gap be ween skilled
and unskilled labo e s dec eases and imp o es he wage inequali y. Howe e , high-quali y locali ies
o en a ac FDI en e p ises ha u ilize new echnologies and as such ha e he need o ec ui skilled
labo e s. This in u n inc eases he demand o skilled labo in hose locali ies and widens he wage
inequali y. Thus, i is p oposed ha HC has a mixed e ec on wage inequali y.
Skills sca ci y, as ep esen ed by he RSS a iable, also has an impac on wage inequali y. Te
Velde and Mo issey (2001) compa ed he unemploymen a es o skilled and he unemploymen
a e o unskilled labo e s o measu e he sca ci y o skills. The lowe he a io, he sca ce a e skills,
which may push up wages o skilled wo ke s and ul ima ely widens he wage inequali y gap.
The au ho s added he cos a iable in o he model ha ep esen ed labo aining cos s in
en e p ises. Based on he model o ela i e supply and demand o skilled labo e s by Te Velde
(2003), i was possible ha aining policies in en e p ises could a ec unemploymen inequali y
since high echnology FDI en e p ises and hose in he se ice sec o end o ain mo e wo ke s.
Businesses in es in aining hei employees because ha no only bene i s he employees, bu
also bene i s he en i e business h ough inc eased labo p oduc i i y. Al hough aining can
upg ade labo e s’ skills, i is unce ain whe he hese aining p og ams would be conduc ed o
all wo ke s because hey would aim o ain ei he unskilled o skilled labo e s. In he e en ha
he en e p ises only p o ided addi ional aining o skilled labo e s, wage inequali y would
inc ease. The TS a iable ep esen ing labo aining cos s in en e p ises is calcula ed as
a pe cen age o he o al business expenses in p o ince i in yea .
3.2. Spa ial econome ic model
P e ious s udies on economic g ow h, po e y o income inequali y be ween p o inces wi hin
a coun y (o a numbe o coun ies wi hin he same geog aphical loca ion) o en used panel
da a eg ession me hods. Al hough hey ake in o accoun indi idual cha ac e is ics be ween
coun ies o be ween p o inces wi hin he same coun y, hey igno e he spa ial ela ionship
be ween hem. Toble (1970) opined ha sample da a collec ed om geog aphically close egions
a e no independen bu spa ially co ela ed, which means ha nea by obse a ions will end o be
simila when compa ed o dis an obse a ions. In spa ial econome ics, obse a ions ha a e
geog aphically adjacen o each o he can ha e in e ac ions wi h each o he , esul ing in spa ial
au oco ela ion (LeSage & Pace, 2009).
Ande son and Van Wincoop (2003) also a gued ha locali ies wi hin he same coun y we e
o en closely linked because hey ope a e unde he same policy en o ced by hei go e nmen ; i is
mo e con enien o conduc ade ansac ions wi hin a coun y compa ed o a he egions.
Baumon e al. (2003) opined ha measu ing economic ela ionships by omi ing co ela ion would
lead o un eliable es ima es. The e a e many special ea u es o neighbo ing p o inces ha canno
be obse ed o es ed h ough he model.
Theo e ical models o en ecognize he exis ence o spa ial in luences, which dec eased as he
dis ance be ween uni s inc eased. In expe imen s conduc ed o e he las ew yea s, he panel
da a model has g adually e u ned o being a popula ool o measu ing spa ial e ec s due o he
in e p e a ion o bo h space and ime o such s udies whe e he e is spa ial dependence be ween
obse a ions (Anselin e al., 2004; Elho s , 2017). A spa ial panel da a is he ield cha ac e is ic o
a panel da a in which da a is obse ed h ough wo dimensions: spa ially and empo ally.
The e o e, his s udy u ilized a spa ial economic model o examine he impac o FDI on wage
inequali y o ake in o accoun he spa ial ac o .
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5. Conclusions and implica ions
The main pu pose o his s udy was o analyze he impac o FDI on wage inequali y in Vie nam.
Based on he e iew o heo e ical and empi ical e idence o he ela ionship be ween FDI and
wage inequali y, he s udy u ilized a spa ial econome ic model wi h panel da a om 63 p o inces
in Vie nam o e he pe iod 2010–2018 o answe he ollowing ques ions: (1) How FDI would a ec
wage inequali y in Vie nam; (2) whe he he e was a spa ial e ec o FDI on wage inequali y in
locali ies.
The indings om he spa ial econome ic model yielded he ollowing esul s: Fi s ly, he s udy
showed ha FDI had an impac on inc easing wage inequali y in he p o inces o Vie nam,
including di ec and spa ial e ec s. This s emmed om he ac ha FDI en e p ises o en placed
highe equi emen s on he skills and discipline o labo e s. The spa ial e ec o FDI on wage
inequali y could be explained by he high labo mobili y be ween locali ies. Secondly, he economic
g ow h in Vie nam has led o a educ ion in he wage inequali y be ween skilled and unskilled
labo g oups, as all wo ke s bene i ed om i . Thi dly, locali ies wi h high human capi al, de eloped
educa ion sys ems, and an inc eased p opo ion o skilled labo o ce helped o educe wage
inequali y. Fou hly, when he unemploymen a e o skilled labo e s ela i e o unskilled ones
dec eased, wage inequali y imp o ed. Las ly, he highe he cos o aining, he highe he wage
inequali y, which implied ha en e p ises we e cu en ly aining mainly o he skilled labo
g oups ins ead o ocusing on he unskilled labo e s.
Based on he abo e esea ch esul s, his a icle sugges s some policy implemen a ion o educe he
nega i e impac o FDI on wage inequali y in Vie nam. FDI, combined wi h he s a egy o imp o ing
he quali y o human esou ces, would con ibu e o educing wage inequali y in Vie nam. F om
a heo e ical pe spec i e, FDI en e p ises a e also o en capi al-in ensi e and equi e highe skills
han local en e p ises. As a esul , FDI g ow h leads o an inc easing demand o skilled labo in he
hos coun ies. The nega i e impac o FDI on wage inequali y can only be educed when he local
educa ion sys em p o ides mo e skilled labo e s o FDI en e p ises and enables hem o ob ain highe
sala ies. Howe e , he quali ica ions and skills o Vie namese labo e s we e o low quali y ini ially and
ha e no signi ican ly imp o ed e en wi h FDI in lows in ecen yea s. The e o e, labo ma ke de el-
opmen plays an impo an ole in educing he nega i e in luence o FDI on wage inequali y. The e a e
ou main measu es o a ac FDI combined wi h imp o ing domes ic human esou ces. Fi s ly, he
p o essional and echnical quali ica ions o employees can be imp o ed by alloca ing he s a e budge
o p io i ized educa ion p ojec s and p omo ing socializa ion o a ac non-go e nmen capi al und-
ing o educa ion and aining. Policies should ocus on inc easing in es men in public educa ion and
imp o ing human capi al, o ins ance, supplying a good educa ional basis (a leas seconda y educa-
ion) and an app op ia e echnical educa ion, which no only can educe income inequali y bu also
can a ac mo e FDI in lows. Besides, he go e nmen can encou age aining in MNEs and o he
i ms. When i ms pay o aining, he employees do no cap u e all he bene i s om aining; in
eali y, i ms cap u e some by aising p oduc i i y mo e han wages. Secondly, i is necessa y o
s eng hen he p o essional aining, skills, discipline, and labo cul u e o he wo k o ce; in line wi h
in e na ional s anda ds. In addi ion, he equi emen s o a ac ing FDI should be channeled owa ds
p io i ized indus ies. Thi dly, human esou ces mus be de eloped o suppo indus ies and ocus on
p omo ing and aining skilled labo e s. Las ly, he oca ional educa ion and aining sys em mus be
imp o ed: he p o essional seconda y schools can be expanded o ain middle-le el manage s,
echnicians, and skilled labo e s, so as o inc ease he p opo ion o skilled labo g oups in he
economy. Vie nam has no been success ul in p o iding good quali y and app op ia e educa ion and
aining. Aiming o good quali y human esou ce de elopmen a he lowe end o he labo ma ke
would also ha e a posi i e impac on he way in which FDI a ec s inequali y. The e o e, Vie nam’s
policies o a ac and u ilize FDI should be aligned wi h aining and human capi al de elopmen . In
o de o eimagine he in e ac ions be ween he economy, na u e, and en i onmen and mo e owa d
mo e sus ainable de elopmen , i is essen ial o modi y in es men lows, social and economic equi y,
economic s uc u e, and pa e ns o ene gy esou ces (Khan e al., 2022).
Do e al., Cogen Economics & Finance (2024), 12: 2293297
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Page 14 o 17
Ne e heless, he e a e some limi a ions o his s udy ha should no be o e looked. Fi s ly,
gene alizing he indings o o he se ings mus be unde aken wi h he u mos cau ion because
he s udy ocuses solely on Vie nam. Replica ion and ex ension o o he ansi ional economies is
a di ec ion o u u e esea ch. Secondly, FDI and wage inequali y a e complex phenomena, and
his s udy only examines pa o hei ela ionship. FDI in di e en sec o s can ha e di e en
e ec s on wage inequali y. Howe e , due o he limi a ion o FDI da a disagg ega ed by sec o o
he 63 p o inces in Vie nam, he s udy only uses he da a o o al ealized FDI in low as a p oxy
a iable. The e o e, he use o FDI da a by sec o will be he di ec ion o u u e esea ch. Las bu
no leas , he in e connec edness o he challenges o po e y, inequali y, ene gy ansi ion, and
clima e change mi iga ion is widely accep ed. In he coming decades, hese challenges will a ec
global s abili y. Thus, i would mo i a e u u e esea ch o ackle he c ucial ela ionship be ween
FDI, inequali y, and ene gy consump ion (Khan e al., 2022)
Funding
This wo k was no suppo ed by any unding.
Au ho de ails
Quynh Anh Do
1
Anh Duc Do
1
E-mail: [email p o ec ed]
ORCID ID: h p://o cid.o g/0000-0002-5421-259X
Minh Huan Doan
2
Quoc Hoi Le
1
Anh Duc Le
1
Thi Thanh Duong Nguyen
1
1
Na ional Economics Uni e si y, Hanoi, Vie nam.
2
Ninh Bình P o incial Pa y Commi ee, Ninh Binh,
Vie nam.
Disclosu e s a emen
No po en ial con lic o in e es was epo ed by he
au ho (s).
Ci a ion in o ma ion
Ci e his a icle as: Spa ial e ec s o o eign di ec in es -
men on wage inequali y in Vie nam, Quynh Anh Do, Anh
Duc Do, Minh Huan Doan, Quoc Hoi Le, Anh Duc Le & Thi
Thanh Duong Nguyen, Cogen Economics & Finance
(2024), 12: 2293297.
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