Cities' characteristics that influence industrial park

location: Evidence from Northern cities/provinces in

Vietnam
Chi Pham
(Nov, 2015)
Abstract
The Vietnamese government has been putting a lot of effort into
designing

policies

that

help

industrialize

and

modernize

the

Vietnamese economy. One of the methods to industrialize the economy

is to attract industrial parks to certain key economic areas to further
develop the industry. In order to help guide policymakers into making
effective policies, understanding of local/regional economic conditions
which affect an industrial park location decision should be cultivated.
This research paper will serve the purpose of gaining more knowledge
on this issue.
The paper strives to answer one question: What regional economic
conditions affect the likeliness of an industrial park locating in a certain
area? Using cross sectional and time series data, I investigated the
characteristics of 25 cities and provinces in North Vietnam and the
number of industrial parks in each city/province during the period of
2008-2014.

From

these

empirical

data,

simple

econometrics

regressions are ran to find out if there are relationships between the
probability of locating an industrial park in a city/province and certain
characteristics of that city/province. The paper concludes by giving out
results from the empirical model.

Introduction
It cannot be denied that industrial parks bring benefits to regional
economic development: they help attract capital, create more jobs,
reduce

costs

through

positive

agglomeration

externalities,

etc.

However, studies on the industry development in Vietnam have put

little focus on regional research. Researches on the topic of industrial
park distribution in general are also rare and industrial parks are
usually studied individually. This paper aims to explore general
patterns

of

industrial

park

spatial

distribution

in

Vietnam

by

investigating if certain characteristics of an area affect the probability

of an industrial park locating there.
It is argued that various factors affect industrial location. The major
factors are: capital, government policy, raw material inputs, labor
force, markets and transport. Putting government policy aside and
focusing on other regional factors of the location, an econometric
model is used to explore the relationship between the variables. The
yearly data of 25 cities and provinces and of over 100 industrial parks
in North Vietnam across the time period of 2008-2014 are gathered
mainly from the Vietnam General Statistical Office and the Vietnam
Invest Network Corporation.
Apart from this brief introduction, the paper is organized in the
following way. Section (I) looks at previous literatures that research the
topic of industrial location patterns and gives theoretical background
about the factors that may affect industrial distribution. Section (II)
lays out the estimation strategy and build a model to research the
issue

which

city/province

helps

investigate

characteristics

and

the

relationship

the

probability

between
of

locating

the
an

industrial park in that city. In section (III), the exploratory analysis is

carried out, running regressions with empirical data, and showing the
relationship results. In the last section, some conclusions are drawn.

(I) Background
There has been little research on the topic of industrial park
location patterns in general and in Vietnam specifically. Previous
literatures have looked at the industrial location in general. Two
papers that stood out in this topic are Hildebrandt, A. and J. Worz
(2004) and Hansen, E. R. (1986). Hildebrandts paper looks into the
factors causing concentration tendencies in industrial manufacturing
industries in Central and Eastern European countries and concludes
that local concentration of demand, human capital intensity and labor
intensity

are

the

main

factors

for

regional

concentration

of

manufacturing firms. Hansens paper discusses the location choice of

manufacturing plants in the State of Sao Paulo and finds that local
agglomeration economies have strong influence on location and
transport costs to primary market and access to agglomeration
economies of the metro area matter to firms. On the other hand,
empirical research on factors that affect industrial park location
patterns has not been paid much attention.
Theoretically speaking, according to Badri, M. (2007), critical
factors which can affect industrial location can be divided into two
categories: geographical and non-geographical factors. Geographical
factors include raw materials, utilities, labor, transportation, markets,
industrial site and climate. Non-geographical factors are capital,
government attitude, community, tax structure and economic factors.
Part (II) below breaks down these categories and tries to come up with
an estimation strategy with empirical measures for the factors.
(II)

Estimation Strategy
In order to further determine if the factors of geographical and

non-geographical categories affect the probability of locating an

industrial park in a certain area, a sample of 25 cities/provinces in the
North region of Vietnam across the time span of 2008 to 2014 are
retrieved. Due to the limitation of data source, the paper will only look

at a few factors that are critical to the industry park location patterns.
The probability of locating an industrial park in a certain city is
measured by the ratio of the number of industrial parks in that city to
the total number of industrial parks in the North region. Since the
purpose of the paper is to induce outlook into industrialization policy,
factors regarding to government involvement are not included in the
model. Climate factor also will not be included in the model because
the climate in the Northern region of Vietnam is relatively similar
across cities (a range of 68 to 76 degree Fahrenheit in average
temperature across regions in the North). With regard to raw material,
a dummy for each city is generated where it equals 1 if the city has a
coal or metal mine and equals 0 otherwise. Another dummy variable
which measures if that city has an electricity plant or not will give
insight to the utilities factor. In terms of labor, the data of labor force
of the city/province and the number of skilled labor measured in
thousands of people are retrieved from the Vietnam General Statistical
Office. Transportation factor is measured by three variables: average
distance of the city to a major airport (which is the Noi Bai
International Airport), average distance of a city to a major seaport
(the Hai Phong sea port or the Cai Lan sea port whichever is closer)
and average distance from industrial parks in one province to major
markets (which are cities with the biggest population in the region, in
this case Ha Noi or Hai Phong whichever is closer). Markets factor is
measured by the population of each city and the retail sales in each
city. A dummy variable of the topographic of a city/province is
generated, which equals 1 if it is in a plain and 0 if it is in a mountain.
This variable suggests information about the industrial site factor.
Capital factor is measured by the million dollar amount of foreign
direct investment project licensed in each province (accumulation of
projects having effect as of the end of each year).

Table 1:

Dependent variable and independent variables of the

regression model
Dependent

Description

variable name

prob

The ratio of the number of industrial parks in a

city/province to the total number of industrial parks
in Vietnam (%)

Independent

Description

variables name

mine

Dummy = 1 if there is coal or metal mine in the

elec

city/province, = 0 if otherwise
Dummy = 1 if there is an electricity plant in the

labor
skilled

city/province, =0 if otherwise
Labor force of the city/province (thousand people)
Number of skilled labor in the city/province

dsea

(thousand people)
Average distance of a city/province to a major

dair

seaport (mile)
Average distance of a city/province to a major

dcity
density

airport (mile)
Distance to a major city (mile)
Population
density
of
the

pop
retail
Dplain

(person/mile square)
Population of the province (thousand people)
Total retail sales of the city/province ($million)
Dummy = 1 if the city is in the plains, = 0 if it is in

FDI

the mountains
Foreign Direct Investment (FDI) accumulated in

city/province

the city/town ($million)

The regression equation is:

Probit =a+b 1mines it +b 2elec it +b3labor it +b 4skilledit + b5dseait +b 6dair it +b7dcity it +b 8density it +b
Where i indicates the city/province (i=1.25)
t indicates the year (t=2008.2014)
The hypothesis for this regression is:
H0:

b1=b2=b 3=b 4=b 5=b 6=b7 =b8 =b9 =b10=b 11=b12=0

Ha: H0 is not true

The unit of analysis is the single city/province in North Vietnam.
The type of model used to test the hypotheses is a simple linear
econometrics model, running regression against 175 observations
from 25 cities and provinces in North Vietnam from 2008 until 2014.
(III)

Exploratory analysis
6

Using the econometric software STATA 14 to run a robust

regression, the following results are obtained: There are positive
relations between the dependent variable and mine, elec, labor,
skilled, density, Dplain and fdi variables; there are negative relations
between the dependent variable and dsea, dair, dcity, pop and retail
variables. With a 10% confidence, the parameters of mine, labor, dsea
and pop are not significant (Appendix table 2).
Table 2: Regression result
Varia
ble
mine
elec
labor
skilled
dsea
dair
dcity
densit
y
pop
retail
Dplain
fdi
consta
nt

Coeffici
ent
0.8193
0.6014
0.0053
0.0200
-0.0002
-0.0047
-0.0011

Robust Sts.
Err.
0.2541
0.3433
0.0038
0.0067
0.0030
0.0027
0.0003

pvalue
0.457
0.082
0.166
0.004
0.944
0.067
0.000

0.0057
-0.0033
-0.0021
1.2851
0.4763

0.0018
0.0024
0.0006
0.5126
0.1011

0.002
0.169
0.000
0.013
0.000

1.2467

0.6090

0.042

Going into more detail, the fact that the city has a coal or metal
mine does not have a significant effect on the probability of locating
an industrial park there. Further research on the main products of
firms in the Northern industrial parks is suggested to look at whether
other inputs other than coal or metal have an effect on industrial park
location pattern. On the other hand, we can say that there is a 0.6%
increase in the probability of locating an industrial park in a
city/province

that

has

an

electricity

plant,

this

suggests

the

significance of utility factor in industrial location pattern. For every

1000 people increase in skilled labor of a city, there is an increase of

0.02% in the concerned probability, the labor variable is positively

related to the dependent variable but not significant. This fact
indicates that the labor input does not have a large impact on the
industrial location pattern. A recent phenomenon of firms having labor
from nearby cities to commute to the industrial park by the company
bus everyday could be one of the explanation to this relation. For
every 1 mile increase in the average distance of the city to a major
airport, there is a 0.005% decrease in the probability of locating an
industrial park in that city, the distance to a major seaport is also
negatively related but not significant. This could mean that the major
transportation method from supplier to the industrial park is not by
sea or by air but mainly by roadway or railway. For every 1 mile
increase in the average distance of the city to a major market, there is
a 0.001% decrease in the probability of locating an industrial park in
that city. For every increase of 100 people in a mile square of a city
averagely, there is a 0.57% increase in the probability of locating an
industrial park in that city. By locating near a dense market, firms are
more likely to save transportation cost. Retail sale is negatively
related to the dependent variable which is against normal theory of
market consumption factor in location pattern. Further research on
retail and wholesale should give a deeper understanding of whether
wholesale would be a more appropriate measure for market factor. A
plain region would have 1.285% more chance than a mountain one of
having an industrial park located there. This is understandable since it
is easier for construction and transport activities to take place in plain
regions. For every $1 million increase in the FDI in a city, there is a
0.476% increase in the probability of locating an industrial park in that
city. Capital is an important factor in investing in an industrial park.
Moreover, investors are more likely to invest in a city that has a large
FDI amount because it suggests big investment potential.

(IV)

Conclusion
All in all, it cannot be denied that certain characteristics of a

city/province affect the probability of investors constructing industrial

parks

in

city/province.

Specifically

in

this

research,

both

geographical and non-geographical factors have certain effects on the

industrial park location patterns in the North region of Vietnam. The
major factors that determine the concerned probability are utilities,
industrial site and capital. There is more chance of an industrial park
locating in a plain areas that are near an electricity plant and has
large FDI amount than other areas. Other factors such as labor,
market and transportation need further research on a broader scale
with more accurate measures and data to find whether they have
significant relationships with the industrial park location pattern.

10

Apendix
STATA regression results:
Table 1. Normal OLS regression
Source

SS

df

MS

Model
Residual

1602.01946
285.365772

12
162

133.501622
1.76151711

Total

1887.38523

174

10.8470416

prob

Coef.

mine
elec
labor
skilled
dsea
dair
dcity
density
pop
retail
Dplain
fdi
_cons

.1893396
.6014116
.0053192
.0199537
-.0002117
-.0047425
-.001135
.0057087
-.0033245
-.0021392
1.285212
.4763469
1.246704

Std. Err.
.2898208
.3040495
.0036007
.0051097
.0034772
.0035033
.0003823
.0017732
.0021207
.0004154
.600962
.0848637
.5732894

Number of obs
F(12, 162)
Prob > F
R-squared
Adj R-squared
Root MSE

P>|t|

0.65
1.98
1.48
3.91
-0.06
-1.35
-2.97
3.22
-1.57
-5.15
2.14
5.61
2.17

0.514
0.050
0.142
0.000
0.952
0.178
0.003
0.002
0.119
0.000
0.034
0.000
0.031

=
=
=
=
=
=

175
75.79
0.0000
0.8488
0.8376
1.3272

[95% Conf. Interval]

-.3829741
.0010003
-.0017911
.0098634
-.0070781
-.0116606
-.00189
.0022072
-.0075123
-.0029596
.0984833
.3087652
.1146207

.7616534
1.201823
.0124295
.0300439
.0066548
.0021756
-.0003801
.0092103
.0008632
-.0013189
2.471942
.6439286
2.378788

Heteroskedacity is found in this regression after performing the

Breusch-Pagan test.

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity

Ho: Constant variance
Variables: fitted values of prob
chi2(1)
Prob > chi2

P-value

is

=
=

4.36
0.0367

0.0367<0.05

so

we

reject

the

null

hypothesis

of

homoscedasticity.
Table 2. Linear robust regression

11

Linear regression

Number of obs
F(12, 162)
Prob > F
R-squared
Root MSE

prob

Coef.

mine
elec
labor
skilled
dsea
dair
dcity
density
pop
retail
Dplain
fdi
_cons

.1893396
.6014116
.0053192
.0199537
-.0002117
-.0047425
-.001135
.0057087
-.0033245
-.0021392
1.285212
.4763469
1.246704

Robust
Std. Err.
.2540994
.3432734
.0038257
.0067521
.0030261
.0025676
.0002674
.0017784
.0024062
.0005566
.512622
.1010973
.6089652

t
0.75
1.75
1.39
2.96
-0.07
-1.85
-4.24
3.21
-1.38
-3.84
2.51
4.71
2.05

P>|t|
0.457
0.082
0.166
0.004
0.944
0.067
0.000
0.002
0.169
0.000
0.013
0.000
0.042

=
=
=
=
=

175
209.70
0.0000
0.8488
1.3272

[95% Conf. Interval]

-.3124345
-.0764558
-.0022354
.0066202
-.0061875
-.0098127
-.001663
.0021969
-.0080762
-.0032384
.2729297
.2767085
.0441711

.6911137
1.279279
.0128738
.0332871
.0057641
.0003277
-.000607
.0092206
.0014271
-.00104
2.297495
.6759853
2.449237

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13