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Abstract
This research examines the influence of institutional distance, both overall and in terms of specific institutional components, on foreign direct investment in Vietnam from 2005 to 2023. The Feasible Generalized Least Squares (FGLS) method is the optimal approach for panel data analysis. The results show that geographical distance has a negative impact, foreign enterprises prioritize investing in nearby countries. The findings indicate that geographical distance negatively influences investment decisions, as foreign enterprises tend to prioritize investing in neighboring countries. GDP and the per capita GDP gap have a positive impact, reflecting a large consumer market. A young and rapidly growing workforce is a competitive advantage in attracting FDI. The presence of a young and rapidly expanding workforce provides a competitive advantage in attracting foreign direct investment. Inflation, on the other hand, has a minimal impact. The impact of institutional quality in the model ranges from negative to positive, indicating that institutional reform directions vary based on the specific type of component index. To ensure continued FDI attraction beyond the lifespan of its current market, labor, and institutional advantages, Vietnam must prioritize developing a comprehensive long-term plan.
Keywords: Institutional distance; Foreign direct investment; FGLS; Gravity model.