"When Jonathan Moreno's company was looking for a location for a new factory in 2009 to make its medical devices, it ruled out much of the world. Europe and the Americas were too expensive, India was too complex and intellectual property rights in China too patchy. In the end, Vietnam was the one candidate left standing. ...

It is far from alone. Foreign direct investment in Vietnam hit a record in 2015 and has surged again this year. Deals reached $11.3 billion in the first half of 2016, up by 105% ... Big free-trade agreements explain some of the appeal.

... If Vietnam can deliver 7% growth for another decade, its trajectory would be similar to those of China and the Asian tigers. But that is no sure thing. Should growth fall back to 4%, it would end up in the same underwhelming orbit as Thailand and Brazil.

... No other country is closer to the manufacturing heartland of southern China, with connections by land and sea. As Chinese wages rise, that makes Vietnam the obvious substitute for firms moving to lower-cost production hubs...

... Seven in ten Vietnamese live in the countryside, about the same as in Indiaand compared with only 44% in China. The reservoir of rural workers should help dampen wage pressures, giving Vietnam time to build labour-intensive industries, a necessity for a nation of nearly 100m people.

... Trade accounts for roughly 150% of national output, more than any other country at its level of per-person GDP.

And Vietnam's workforce is not just young but skilled. Public spending on education is about 6.3% of GDP, two percentage points more than the average for low- and middle income countries. Although some governments spend even more, Vietnam's expenditures have been well focused, aiming to boost enrolment levels and ensure minimum standards. In global rankings, 15-year-olds in Vietnam beat those in America and Britain in maths and science. That pays dividends in its factories. At Saitex, a highend denim manufacturer, workers must handle complex machineryfrom lasers to nanobubble washersall to produce the worn jeans so popular in the West....

... although Vietnam has benefited from foreign investment, only 36% of its firms are integrated into export industries, compared with nearly 60% in Malaysia and Thailand, according to the Asian Development Bank (ADB). In some cases Vietnam has gone too high-end. Much has been made of Samsung's plans to invest $3 billion in mobile-phone production in Vietnam, but domestic suppliers provide it with little except plastic wrapping. ...(The Economist, Good afternoon, Vietnam, Aug 6th 2016)

6. Using a model introduced in this subject to explain the potential contribution from the reservoir of rural workers. (4 marks)

7. According to the article, explain what happened to Chinese wages and how it affects the FDI in Vietnam. (3 marks)

8. Explain the difference between horizontal and vertical FDI. (3 marks)