Applying Vector Error Correction Model to analyze the bi-directional linkage between FDI and pillars of sustainable development in Vietnam

Cao Thi Hong Vinh

Abstract

FDI and sustainable development are considered as two topics of interests of such developing countries as Vietnam. In the current circumstance, they are not independent but closely linked to each other. Despite this fact, there seems to be little researches, especially quantitative ones, which have clarried this bi-directional relationship between FDI and sustainable development as a system of three pillars (economic growth, society and environment). Applying Vector Error Correction Model (VECM), regarded as an efficient model to look into this linkage in both short and long-term, the paper provided the specific evidence to prove for the existence of the impact of FDI on particular pillars of sustainable development and vice versa. 

JEL classification: F21, F63, F64

Keywords: Foreign direct investment, Sustainable development, Economic growth, Society, Environment