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MACROECONOMICS 1 (ECON 1192/1192D) Group Assessment 1 Problem Set

Foreign direct investment and exports have been major drivers of Vietnam's economic growth in recent years. For example, Samsung has invested $14.8 billion in Vietnam since 1996, creating around 110,000 jobs. Samsung's production in Vietnam has shifted from mobile phones and parts to also including smart TVs and refrigerators. This influx of foreign investment has transformed Vietnam's economy and exports, moving from a focus on agriculture to manufacturing, with electronics now one of Vietnam's largest industries and a top export.

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94 views3 pages

MACROECONOMICS 1 (ECON 1192/1192D) Group Assessment 1 Problem Set

Foreign direct investment and exports have been major drivers of Vietnam's economic growth in recent years. For example, Samsung has invested $14.8 billion in Vietnam since 1996, creating around 110,000 jobs. Samsung's production in Vietnam has shifted from mobile phones and parts to also including smart TVs and refrigerators. This influx of foreign investment has transformed Vietnam's economy and exports, moving from a focus on agriculture to manufacturing, with electronics now one of Vietnam's largest industries and a top export.

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Chip choi
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© © All Rights Reserved
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MACROECONOMICS 1 (ECON 1192/1192D)

GROUP ASSESSMENT 1 PROBLEM SET


SUBMISSION DEADLINE: 25 NOVEMBER 2016 (FRIDAY) 5:00PM FOR BOTH
TURNITIN AND HARD COPY SUBMISSIONS.

1. Based on the GDP reading, answer the following questions:


a.

According to the article, VN’s economy was boosted by two important


factors: foreign investments and exports. Investigate on this, making sure
to cite an example for each, presenting recent data (not older than 2014)
to demonstrate the increase in these variables. Additional data and
information is required to adequately answer this question. (3 marks)

Foreign investments and exports have been major contributors to Vietnam


economic growth. This paper will analyze trends in recent years of these two factors
and point out the effects of foreign investments and exports on the economy.

The first factor that contributes to Vietnam economic growth is foreign direct
investment (FDI). In 2014, Vietnam attracts 21.92 billion US dollars in FDI, with
South Korea leading the source – 7.7 billion USD (Vietnamnews, 2014). As at 31st
December 2015, FDI grows to 22.76 billion USD (an increase of 3% compared to the
same period of 2014), with South Korea is still the main source of FDI for Vietnam
(Vietnamnews, 2015). The continuous growth of FDI in recent years has helped
boost Vietnam economy. FDI can influence economy both directly, by increase
human capital and indirectly, by transferring advanced technology (Anwar &
Nguyen, 2011). FDI directly increases human capital. With more skilled labors,
firms’ productivity will increase, and therefore, the economy will grow. FDI also
helps the transfer of advanced technology. With better technology and equipment, it
is highly likely that firms can raise their level of output. As a result, it will be a boost
to the whole economy.

The second factor that plays a major role in the growth of Vietnam economy is
exports. According to Vietnam customs, exports in 2014 is 150.19 billion USD. In
2015, there is a rise in export to 162.11 billion USD. One reason for export to boost
the economy is that it can increase firms’ productivity (U.S. Department of
Commerce, 2014). In order to gain access to the international markets, where
competitive are very high, firms need to increase its productivity and efficiency to
compete with others. By increasing productivity, the level of output will rise, and
therefore, the whole economy grow. Another reason for the growth of the economy
is that exports help increase aggregate demand (AD), and AD contributes to the
country’s GDP. The growth of an economy is also the growth of GDP of that
economy, and as a result, the growth of GDP also means that of an economic growth.
b.

Citing from the article: “Vietnam’s economy has benefited in the past five
years from companies such as Samsung Electronics Co. setting up plants
in the country, transforming it into a manufacturing hub for electronics
goods, including smartphones.”

Collect data for the following:


b.1. value of Samsung’s investment in Vietnam - $14.8 billion

b.2. number of employees of Samsung in Vietnam – around 110,000


employees

b.3. the development of Samsung’s production in Vietnam for the past five
years, emphasizing on what was produced in the past and present.

Based on the collected data, link this to the importance of FDI in a


country’s development. Other firms may be used as an example to further
strengthen your points. Compare and contrast Vietnam’s production in
the past (1990’s-2000) and present (2014 and above), making sure to
highlight the differences in the top ten manufactured goods. (5 marks)

In recent years, there has been a shift in Vietnam economic structure. With large
amount of FDI being invested into the country, some industries see rapid growth
and become leading in production, especially electronics goods. This report will
analyze the case Samsung investment and its effects on Vietnam economy as well as
compare Vietnam production in 1990s and the current trend.

FDI plays a major role in Vietnam development and structural change. One of the
largest FDI contributors in Vietnam is Samsung. Samsung made its debut in Vietnam
in 1996. Since then, Samsung has invested in Vietnam a total amount of $14.8 billion
USD. Samsung has also created more than 110,000 jobs for Vietnamese people
(Vietnamnews, 2015). In the past years, Samsung production in Vietnam is mainly
mobile phones, tablets and phones’ parts, however, with their new plan, Samsung
will expand its production to smart televisions and refrigerators (Nguyen, 2015).
The example of Samsung shows the effects of FDI on a country’s development. The
influx of FDI creates more jobs, raises human capital as well as bringing advanced
technology that makes firms more productive. Hence, the increase in productivity
will boost the country’s development.

Samsung example also points out the shift in Vietnam economic structure. Until the
2000s, Vietnam still relied heavily on agricultural products, such as rice. McCaig and
Pavcnik (2013) state that in 1986 agriculture contributes 34% of GDP. In 2009,
however, agriculture only accounts for 17% of GDP. With the inflow of FDI, the
structure has been changed. In 1986, manufacturing only contributes 17% to GDP,
however, it has climbed to 25% in 2009 (McCaig & Pavcnik, 2013). In addition, there
are large investments of high-tech giants into Vietnam in the period post-2010.
Firms such as Samsung, LG or Panasonic build their main production line in the
north of Vietnam. Electronics industry grows rapidly. In only several years, it turns
into one of the largest industry in Vietnam. According to Vietnam customs, as at
April 2014, mobile phones production has contributed the most to export. Although
garment and textile still hold the largest segment of production, it is believed that
electronics industry will become the largest industry in Vietnam in next several
years.

References

Anwar, S, and Nguyen, L, 2011, “Foreign direct investment and export spillovers:
Evidence from Vietnam”, International Business Review, 20(2), pp.177-193.

McCaig, B, and Pavcnik, N, 2013, “Moving out of agriculture: structural change in


Vietnam”

Nguyen, M, 2016, “Samsung ups investment in southern Vietnam project to $2 billion”.


Available at: http://www.reuters.com/article/us-samsung-vietnam-
idUSKBN0UC0XX20151229

U.S. Department of Commerce, 2014, “The Role of Exports in the United States
Economy”, International Trade Administration

vietnamnews.vn, 2016, “FDI reaches $23 billion in 2015”. Available at:


http://vietnamnews.vn/economy/280482/fdi-reaches-23-billion-in-
2015.html#vFbs64fSyTqAiurg.97

vietnamnews.vn, 2016, “FDI boosts VN economic growth”. Available at:


http://vietnamnews.vn/economy/268847/fdi-boosts-vn-economic-
growth.html#rrPGrbUFhb6jy95z.97

vietnamnews.vn, 2016, “Samsung ups investment in hi-tech park”. Available at:


http://vietnamnews.vn/economy/280516/samsung-ups-investment-in-hi-tech-
park.html#dCwrXb534yjippXY.97

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