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MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS HO CHI MINH CITY

NGUYEN THE KHANG

THE IMPACT OF INVESTMENTS
ON ECONOMIC GROWTH
AND INCOME CONVERGENCE IN VIET NAM
Major: Finance and Banking
Code: 62.31.12.01

SUMMARY OF PHD THESIS
Academic Advisors:
Assoc. Prof. Dr.Nguyen Ngoc Hung

HO CHI MINH CITY, 2016


Dissertation was finished at: University Of Economics Ho Chi Minh City
Academic Advisors: Assoc. Prof. Dr.Nguyen Ngoc Hung
Reveiwer 1 :…………………………………………………………………………….
Reveiwer 2 : ……………………………………………………………………………
Reveiwer 3 : ……………………………………………………………………………
The thesis will be defend in the council at:
…………………………………………………………………………………………..
At……….date …….month……..year………
Research at: Library of University Of Economics Ho Chi Minh City


[1]

SUMMARY

Thesis conduct quantitative analysis of the impact of investment on economic growth
by model of PMG (Pooled Mean Group), to consider the impact of the factors on economic
growth in the short and long term in Viet Nam. Study data includes 63 provinces from 2000
to 2014. Therein, the investments are classified into three categories: public investment,
domestic private investment and foreign direct investment. The results showed that: In short
term, the labor and trade openness negatively impacts on economic growth, other factors
have not statistically significant coefficients. In the long term, public investment negatively
impact on economic growth, factors such as domestic private investment, foreign direct
investment, labor and trade openness have a positive impact on economic growth .
The thesis also examines the issue of convergence of per capita income among the
provinces in Vietnam. The results showed that the phenomenon of convergence in per capita
income among the provinces in Vietnam. All categories of investments impact positively on
the speed of convergence, in which foreign direct investment is the strongest, followed by
public investment and domestic private investment.


[2]

CHAPTER 1
INTRODUCTION

1.1. Research proposal
The impact of investments on economic growth has been studied in worldwide with
lots of space, time and many different research methods. Therefore, there are several
contradictory statements about the impact of investment on economic growth, such as:
Aschauer (1989a, 1989b); Hadjimichael and Ghura (1995); Jwan and James (2014);
Blomström and Persson (1983); Aviral Kumar Tiwari and Mihai Mutascu (2011). In
addition, one important predictor of the growth model of the neoclassical Solow (1956) and

Cass (1965), it is the poorer countries or regions tend to faster economic growth than richer
countries or areas. However, there is very little research in Viet Nam to assess the
contribution of each type of specific investments to economic growth and the process of
convergence of per capita income in the economy. For this reason, the author select and
implement the topic: The impact of investments on economic growth and income
convergence in Vietnam, as his doctoral thesis.
1.2. Research objectives
The primary objective of the thesis is to evaluate the impact of investments on
economic growth and income convergence in Vietnam. To achieve this goal, the thesis
focuses find answers to the following research questions: (1) How is the degree of the
impact of investments on economic growth in Vietnam in the short term and long term? (2).
How is impact of investments on income convergence process in Vietnam?.
1.3. Object and scope of the study
1.3.1. Research subjects:
The mechanism of impact of public investment (si); domestic private investment (di)
and foreign direct investment (fdi) on economic growth (GDP) and income convergence in
Vietnam.


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1.3.2. Research scope:
Research focused on economic growth and the key elements such as public
investment, private investment from domestic and foreign direct investment affecting on
economic growth and income convergence process on the overall scope of Vietnam includes
63 provinces from 2000 to 2014. In addition, model uses control variables belonging to
economic growth theory and former empirical studies.
1.4. Research Methods
Thesis uses quantitative research methods on the basis of Cobb-Douglas expanded
production function including the variables affecting economic growth according to

research by Wei (2008), Nguyen Minh Tien (2014). Since that would assess the impact of
investments on economic growth and income convergence process.
1.5. Thesis’ contributions
1.5.1. Academic contributions
Firstly, the thesis will complement the empirical evidence of the impact of public
investment, domestic private investment and foreign direct investment on economic growth.
Secondly, the thesis contributes more empirical evidence for cases identified in Vietnam by
the neoclassical growth theories of Solow (1956); Cass (1965), it is the poorer countries or
regions tend to faster economic growth than richer countries or areas.
1.5.2. Empirical contributions
It is an significant practical evidence to the policy makers in selecting resources for
economic growth, especially in the allocation of investment in the total investment structure
of the economy. It is the basis for the balance of resources towards ensuring sustainable
economic growth and poverty reduction in society. The study also gives some policy
suggestions and propose a number of specific recommendations to the Goverment in the
implementation of policies to attract investment and use for economic efficiency.
1.6. The structure of the thesis
The thesis consists of 145 pages, is structured into 05 chapters. Chapter 1
Introduction. Chapter 2 Overview of theories and related studies. Chapter 3 Research
Methodology. Chapter 4 Research Results. Chapter 5 Conclusions and Recommendations.


[4]

CHAPTER 2
OVERVIEW OF THEORIES AND RELATED RESEARCH

2.1. The concepts
2.1.1. Investments
According to Sachs and Larrain (1993), general definition of investments as follows:

"Investment is the accumulated output to increase production capacity in the later period of
the economy".
2.1.2. Economic growth
Economic growth was fairly uniformly understood as an increase in actual output of
an economy in a given time period. Common measure is the increase in total gross domestic
product (GDP) in a year or an increase of the per capita GDP in a year. Some countries use
other indicators to determine economic growth: GNP (gross national product); GNI (gross
national income); NNP (net national product) or NNI (net national income).
2.1.3. Income Convergence
Convergence of income (also sometimes called the effect "catch up") is the
hypothesis that the economists as Solow (1956) and Cass (1965) said that per capita income
of poorer countries or provinces will tend to grow faster than the richer countries or
provinces. As a result, all economies converge to same level of per capita income in long
term. The developing countries have the potential to grow at a faster rate than in developed
countries because the characteristics of declining marginal return on capital in the model the
neoclassical growth. Moreover, poor countries can copy the methods of production,
technology, and organizational activities of the developing country for a chance to "catch
up".
However, not all poor countries can achieve a high growth rate, if income is too low,
people will have consume everything they do and thus do not have savings to invest in order
to maintain the level of investment per employee while the population rise and fell into a
trap of poverty. At the same time, countries or richer areas, with conditions for development
of science and technology, from which the marginal return on capital will rise stronger and


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faster the countries or poor areas. This resulted in income divergence across countries or
regions.
2.2. Investment theories

2.2.1. Investment multiplier theory
Theoretical models of Keynes's investment multiplier is stated in the work “The
General Theory of Employment, Interest and Money” in 1936. According to him, to
increase the national income (national output), it must first increase investment. Here, he
has studied the relationship between increasing investment and increasing national
production and introduced the concept of "investment multiplier." Investment multiplier (k)
represents the relationship between the increase in investment and income increased. It tells
us that when there is an additional amount of aggregate investment, the income will increase
by an amount equal to k times of the increase in investment.
2.2.2. Investment Accelerator theory
If the investment multiplier explains the relationship between the increase in
investment to increase production or to increase investments how that affect to production.
Thus, investment appear to be a factor of aggregate demand. According to Keynes (1936),
investments are also considered in view of the total supply, which means that every change
of the output making how the investment alter. It means that the implementation of
investment projects will increase a certain level of output and the output increases, which
increases the volume of capital and the promotion of increased investment.
2.2.3. Harrod – Domar investment theory
If call Y is total output, K is the scale of production capital. Output has relationships
with production capital: k = K / Y (k: ratio of capital - output). Currently, developing
countries still popularly apply this model of growth in planning and mobilizing investment
capital for current growth. Because these countries mainly base on investment in width to
exploit the resources that are not being fully used. Harrod - Dorma has pointed out the role
of capital and capital efficiency in economic growth.
2.2.4. Solow neoclassical theory of investment
According to this theory, the investment is equal to saving (at potential output).
Saving S = s * Y where 0

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rate of labor is equal to the rate of population growth. According to the Cobb - Douglas
production function, the elements of production are capital and labor can be substituted for
each other in the following relationship: 𝑌 = 𝐴. 𝑒 𝑟 𝐾 𝛼 𝐿(1−𝛼)
Where Y is output, 𝐾 𝛼 is the Capital , 𝐿(1−𝛼) is labor and 𝐴. 𝑒 𝑟 is indicative of the
factors of technology.
2.3. Income convergence theory
2.3.1. Hypothesis
Convergence is a hypothesis of economic growth that there is a unique equilibrium
whether the economy started at the beginning of capital. Poor countries have a lower per
capital will grow faster until achieving the rate of increased production and capital in
dynamic equilibrium.
But (Romer, 1986) and (Lucas, 1988) argues that poor countries are not always able
to reach a high growth rate, if income is too low, people will have consume everything they
do and thus no savings to invest in order to maintain the level of capital per worker as the
population increases and falling into a poverty trap. The economy is yielding increasing
with scale can be can not reach steady-state revenue which could increase further as new
investments generate more added value several times . Thus, economic growth will not be
diminished as the Solow hypothesis. Moreover, not sure that poor countries will grow faster
than rich countries, because growth is not necessarily in fact slow down when incomes rise,
so there is no expectation of income convergence.
2.3.2. Methods of assessment of convergence of per capita income
Convergence sigma (σ)
According to Sala-i-Martin (1996a), the concept of convergence σ can be defined as
"a group of economies converge if the dispersion of per capita GDP of the economy tends to
decrease over time ", as measured by the coefficient of variation (CV) is the ratio of
standard deviation mean value:
∑(𝑦𝑖 −𝑦
̅ )2
𝑛

√

𝐶𝑉 =

𝑦̅


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Where 𝑦𝑖 is the per capita income of the province i and 𝑦̅ is the value of the average
per capita income of the country, n is the number of provinces.
Convergence beta (β)
According to Sala-i-Martin (1996b), the definition of absolute β convergence can be
described as follows "we say with absolute β convergence if poor economies tend to grow
faster than wealthy economies ".
𝐿𝑛(𝑦𝑖𝑡 ) − 𝐿𝑛(𝑦𝑖0 ) = 𝛼 + 𝛽𝐿𝑛(𝑦𝑖0 ) + 𝜀𝑖𝑡 và

𝛽 = −(1 − 𝑒 −𝜆𝑡 )

In which, 𝑦𝑖𝑡 , 𝑦𝑖0 respectively denote economic growth for the last period and the
beginning of the study period in the province i, t is the time. When β is negative and
statistically significant, it shows absolute convergence in income. For conditional
convergence, income convergence and catching-up process can only be initiated by the
presence of the control elements, such as investment, population growth, trade openness,
human resources and infrastructure, ...
2.4. The relevant research
2.4.1. Studies on the impact of investments on economic growth
Economists around the world have debated about the impact of investment on
economic growth. However, not until the late 1980s, with the rise of economics growth and

rich source of data on the characteristics of economic, political and social aspects of the
country, many empirical studies on the effects of investment to economic growth recently
initiated a systematic way. However, studies have mixed results on the impact of different
types of investment to economic growth and income convergence. Some studies such as:
Aschauer (1989a), Aschauer (1989b), Barro (1991), Hadjimichael and Ghura (1995), Akinlo
(2004), Jwan and James (2014), Pham The Anh (2008), Su Dinh Thanh (2011a), Su Dinh
Thanh (2013), and Bui Thanh Dang Van Cuong Hoai (2014), ...
2.4.2. Studies of income convergence
The researchs of Barro and Sala-i-Martin (1990), (1991), (1992) are a very important
contributions to the theory of economic convergence. There are also studies such as: Kim
(2001), Wei (2008), Normaz (2008), Pham The Anh (2009), Vojinovic et al (2009),
Jianyang (2011), ...


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From the brief survey of domestic and foreign research on the impact of investment
on economic growth and income convergence, we can conclude a number of issues as
follows:
(i) There are so many mixed opinions on the impact of investment on economic
growth, more research on this issue will add more evidence on the relationship between
investment and economic growth;
(ii) Although, there were some studies on the impact of investment on economic
growth in Vietnam, but only around the impact of FDI without much consideration to the
impact of public investment, private investment economic growth in the panel data and
considered simultaneously in the short term as well as long-term;
(iii) There has not been yet study in which the model of economic growth analying
consists of 03 investments: Public investment; domestic private investment, foreign direct
investment and current expenditure in panel data to explain economic growth in Vietnam;
(iv) The studies of convergence in incomes have mixed opinions different than

convergence theory in the Solow growth model (1956) which specifies the convergence
evaluation model of Barro and Sala -i- Martin (1990), (1991).
(v) The impact of investment on economic growth and income convergence has not
been studied intensively and frequentatively, especially the problem of absolute
convergence and conditional convergence in income impacted by investing, to see clearly
the specific impact of these investments on income convergence in Vietnam.


[9]

CHAPTER 3
RESEARCH METHODS
3.1. Research process
Research process of thesis follow the sequence of steps as follows: First, the author
references strategy theory of economic growth and income convergence. Evaluation of
domestic and foreign research related to the impact of investment on economic growth and
income convergence. Secondly, identify theoretical models. Third, building models for
experimental studies of thesis. Fourth, running empirical model. Fifth, data processing.
Sixth, evaluating the regression parameters, determining the reliability and the validity of
the model. Seventh, identify and discuss the results estimated. The final is to identify the
limitations of the study, suggesting policies and determine the direction of further studies.
3.2. Research models
From the theoretical basis for investment and economic growth from classical to
modern, combined with previous research on the factors affecting economic growth, an
economy achieved an increase based growth factor is composed of capital and labor. In the
model, the thesis conducted decay of economic investments in 03 investment categories is
the investment constitutes state (si); private domestic investment (di); Foreign direct
investment (fdi). The thesis uses the Cobb-Douglas production function framework to
conduct research analysis. Cobb-Douglas production function of the form:
𝑌 = 𝐹(𝑠𝑖𝑖𝑡 , 𝑑𝑖𝑖𝑡 , 𝑓𝑑𝑖𝑖𝑡 , 𝑙𝑖𝑡 , 𝑥𝑖𝑡 )

Where Y is the income of the economy, the indicators used are GDP (Gross
Domestic Product), the total gross domestic product. "L" is labor, "x" are other factors such
as trade openness, regular spending of local governments.
3.2.1. Impact assessment model of investment to economic growth
The authors in the world and Vietnam, namely Wei (2008) and Nguyen Minh Tien
(2014) when modelingexperimental studies with his dialectic has added the explanatory
variables into the model to demonstrate the impact of these factors on economic growth.
Construction thesis conducted empirical research model as follows:


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Model 1: The impact of investments to economic growth
𝑔𝑑𝑝𝑖𝑡 =∝ +𝛽1 𝑠𝑖𝑖𝑡 + 𝛽2 𝑑𝑖𝑖𝑡 + 𝛽3 𝑓𝑑𝑖𝑖𝑡 + 𝛽4 𝑠𝑒𝑖𝑡 + 𝛽5 𝑜𝑝𝑒𝑛𝑖𝑡 + + 𝛽6 𝑙𝑏𝑖𝑡 + 𝑒𝑖𝑡
Where: i: represents 63 provinces of Vietnam and t is years of research from 2000 to
2014. Data in the model are provincial data. In which, GDP is expressed for economic
growth, the thesis uses real value of per capita GDP to reflect economic growth. si is public
investment; di is private investment; fdi is foreign direct investment; se is current
expenditure; open is the total value of imports and exports - the expression of trade
openness; lb is labor.
Table 3.1. The calculation and the expected signs of the variables in the model
Symbol

Expected

Gdp

Name
Economic growth

Calculation
Ln Real GDP per capita

Si

Public Investment

Ln Public Investment / Current GDP

+

Se

Current expenditure

Ln Current expenditure / Current GDP

+

Private investment

Đầu tư tư nhân/ Current GDP

+

Fdi

Foreign direct investment

Ln FDI/ Current GDP

+

Open

Trade openness

Ln value of imports and exports /Current GDP

+

Lb

Labor
Labor/Population
Source: Author compiled based on Eviews 9.0, "Ln" is worth logarithm

Di

+

As mentioned in Chapter 2 of the relevant research, the independent variables in the
model have been previous studies indicate that it may impact the same direction or opposite
to economic growth and convergence income. In this study, the thesis expects the
independent variables in the model have a positive impact (+) to the process of growth and
income convergence in Vietnam, because it fit with some theory of economic growth from
modern to contemporary. It is regarded as the theory in the study of the thesis. However, the
reality in Vietnam like in the past years, we must consider the results of the study are
presented in chapter 4 of the thesis.
3.2.2. Convergence assessment model

Model 2. The model assessment β convergence
Based on the model according to Sala-i-Martin (1996a, b) proposal, Wei (2008)
apply in cases testing the convergence regions in China, the thesis also inherit absolute
convergence assessment models for β as follows:


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Absolute β convergence
𝑔𝑑𝑝𝑖𝑡 − 𝑔𝑑𝑝𝑖0 = 𝛼 + 𝛽𝑔𝑑𝑝𝑖0 + 𝜀𝑖 và

𝛽 = −(1 − 𝑒 −𝜆𝑡 )

β conditional convergence
Thesis consider the type of investment how to impact the income convergence
process in Vietnam. Thesis research approach way of Wei (2008) and Normaz (2008),
modeling thesis assessment is conditional convergence for the case study in Vietnam as
follows:
𝑔𝑑𝑝𝑖𝑡 − 𝑔𝑑𝑝𝑖0 = 𝛼 + 𝛽 (𝑔𝑑𝑝𝑖0 ) + 𝛽1 (𝑠𝑖)𝑖 + 𝛽2 (𝑑𝑖)𝑖 + 𝛽3 (𝑓𝑑𝑖)𝑖 + 𝛽𝑖 𝑋𝑖 + 𝜀𝑖
Where 𝛽 = −(1 − 𝑒 −𝜆𝑡 ); 𝛽 = −1 + 𝑒 −𝜆𝑡 ; 𝛽 + 1 = 𝑒 −𝜆𝑡
In which, Ln (𝛽 + 1) = −𝜆𝑡, and : 𝜆 = −

Ln(𝛽+1)
𝑡

Where gdpit, gdpi0 respectively denote the economic growth of the province
beginning and end of period i, t is the time period (2000 to 2014). Xi are other variables
such as trade openness, regular expenditures and labor. When β is negative and statistically
significant, it shows that there is convergence in income. Means that Vietnam's economy
tends income convergence, if β> 0 is the opposite. The value of λ is the speed of income

convergence (or divergence).
3.3. Research data
The data used is based on a survey of 63 provinces in terms of time from 2000 to
2014. The GDP data is real per capita GDP of each province (million/person), this value is
taken on the basis of GDP current exchange rates for the CPI to eliminate inflation. To
eliminate inflation of the variables in the research model, for the value of public investment,
domestic private investment, foreign direct investment, regular expenditures, trade
openness, thesis will be calculated by the ratio (%) current values of these variables on the
value of GDP at current prices. Labor variable is calculated on the basis of the percentage of
workers with the total population.
3.4. Estimation method
3.4.1. Inspecting the stationary of panel data (Panel unit root test)
The thesis use five different types of experimental tests. There are Levin, Lin and
Chu (2002) also referred to as LLC type; Breitung (2000); Im, Pesaran and Shin (2003),
also known as IPS; ADF-Fisher; Philips Perron (PP). LLC and Breitung test unit test


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common assumptions for all provinces, ie ρi= ρ. Im also, Pesaran and Shin (2003), also
known as IPS; ADF-Fisher; Philips Perron (PP) are presented by Maddala and Wu (1999)
allowing the unit root tests for different province.
In PMG regression methods, to assess the impact of these variables, then the first
thing to do is unit root tests of variables, variables theories would not be in the same level
stationary I(0) or I (1), there are no variables getting stationary at I(2).
3.4.2. Model of experimental study
𝑛

𝑚

𝛥𝑔𝑑𝑝𝑖𝑡 =∝ + ∑ 𝛽𝑖0 𝑔𝑑𝑝𝑖𝑡−𝑘 + ∑ 𝛽𝑖1 𝑋𝑖𝑡−𝑗 + 𝛽2 𝑒𝑥𝑝𝑜𝑖𝑡 + 𝛽3 𝑠𝑒𝑖𝑡 + 𝜑𝑖 [𝑔𝑑𝑝𝑖𝑡−1 − {𝛾0𝑖 + 𝛾0𝑖 𝑋𝑖𝑡−1 }] + 𝑒𝑖𝑡
𝑘=1

𝑗=0

Where: 𝛥𝑔𝑑𝑝𝑖𝑡 is the dependent variable of the model
𝑔𝑑𝑝𝑖𝑡−𝑘 is k lagged variable of the dependent variable levels of GDP
𝑋𝑖𝑡−𝑗 is j lagged variable of the model including public investment (si), private
domestic investment (di), foreign direct investment (fdi) and labor (lb)
𝜑𝑖 component is adjusted to equilibrium balance
For convergence assessment model
Estimating equation 2 convergence models, thesis follow data format for crossVietnam's 63 provinces and cities as the way of Wei (2008). The aim is to find evidence of
convergence or dispersion of income among provinces in Vietnam in the research phase.
The estimate will follow step by step sequence, which takes each turn one of each type of
investment to the right of the model to assess whether certain types of investments have a
strong impact on the process of convergence of per capita income, since there are no
reviews to evaluate public investment efficiency in terms of both economic growth and
income convergence on the basis combined with the results of model 1. in order to ensure
the reliability of the findings, thesis conduct testing variance changes (heteroskedasticity
Test: Breusch-Pagan-Godfrey), test multicollinearity (variance Inflation Factor) to avoid
tampering regression results.


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CHAPTER 4
RESEARCH RESULTS

4.1. The situation of economic growth and investment in Vietnam
4.1.1. The overall view of economic growth in Vietnam.

Opening, integrating, diversifying the types of investment for the economic growth
are strategies which Vietnam has been pursuing during this period. With programs, policies
and social - economic strategies, Vietnam has made great achievements in economic
modification, social changes and improve people's lives towards a modern economy,
efficiency, a developing society, justice and civilization. This result is reflected in the social
economic indicators, legal systems, communities cultural in fast progress.
4.1.2. Investment situation in Vietnam recently.
In recent years, our country's economy operates in the model of growth based mainly
on elements of capital. In the ten years 1991- 2000 total investment of 802.4 trillion,
accounting for 36.5% of GDP, but ten years from 2001 to 2010, the total investment has
amounted to 4336.6 trillion, accounting for 41 , 6% of GDP. However, the period decreased
to 34.6% in 2011-2014. In particular, the investment rate of the state sector fluctuated
around 37-38%, non-state sector in the region of 35% and direct investment abroad at
around 26% while cumulative internal rate of under 30%. During this period, the growth
rate of gross domestic product (GO) at around 11-13% and a growth rate of value added
(VA) ranged from 6-8%.
4.1.3. The relationship between investment and economic growth
Investment capital for the economy increased during the period 2000-2014, although
the crisis in this period also gave rise unstable. During this period, the average annual
growth rate of investment is higher than the GDP growth rate of 1.8 times. In addition, the
average growth rate of investment tends to increase over the years. Investment growth rate
on an annual average in 2001-2005 was 18.3% and 21.2% from 2006 to 2014 period. The
Developments of investment in economic sectors are very different.


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4.1.4. Income convergence in Vietnam
Convergence sigma (σ)
Table 4.1. Vietnam Index CV

Year

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

CV

0.35

0.34

0.32

0.38

0.40

0.38

0.39

0.32

0.32

0.23

0.22

0.26

0.33

0.30

0.28

Overall, the index of Vietnam CV in recent years has seen decreasing per capita
income distance. Demonstrates the Government's efforts in reducing poverty and income
distribution policy, distribution of investment in the economy toward reducing the wealth
gap between regions is gradually effective. However, this trend did not bring stability,
suggesting the economy is subject to many factors that impact the objective, internal forces
are not strong economy, easy to "hurt" when there are external factors impact. At the same
time, Vietnam is a developing country, the Government has been implementing the policy
of key areas, key provinces in economic growth should generate instability in the coefficient
of variation of earnings is easy to understand.
4.2. Research results
4.2.1. The impact of investment on economic growth
4.2.1.1. Functional form of variables in model
Using Eviews 9.0 software to determines the distribution function of the variables.
From the distribution format, select the format of approximately normal distribution
function as a basis for selecting a function of the variable types. All variables expressed as
logarithms has distributed approximately normal distribution. Except variable "id" - the
domestic private investment and the variable "lb" - labor, which is already approximately
normal distribution format before moving into a logarithm.
4.2.1.2. Statistics describing the variables
Datasets used in the thesis is a full balance panel data with observers (provinces) for
15 years from 2000 to 2014.


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Table 4.2. Statistics describing the variables

LNGDP

LNSI

DI

LNFDI

LNSE

LNOPEN

LB

Mean

2.337.462

2.837.439

2.192.208

-0.97057

2.503.980

3.534.071

5.357.029

Median

2.259.333

2.801.367

1.990.799

0.350657

2.473.244

3.545.646

5.368.571

Maximum

5.930.513

5.426.505

7.756.557

5.071.668

4.294.671

7.191.257

6.855.686

Minimum

0.556106

1.071.941

0.731309

-9.210340

-0.06656

-2.700949

3.578.148

Std. Dev.

0.908634

0.709386

1.095.112

3.851.602

0.634285

1.278.931

5.736.881

945

945

945

945

945

945

945

Observations

Source: Author calculations based on data from the General Statistics Office, with the assistance of Eviews 9.0 software.

The value of variables can differ quite large, which suggests resources for economic
growth is unevenly distributed between the provinces, especially in investment, which we
see resulting from the large difference in price of per capita income among regions.
4.2.1.3. The correlation between the variables
Table 4.3. Correlation coefficient of variation
LNGDP

LNSI

DI

LNFDI

LNSE

LNOPEN

LB

LNGDP

1.000000

-0.385956

0.004269

0.368899

-0.438036

0.478982

0.438945

LNSI

-0.385956

1.000000

0.150353

-0.142201

0.603052

-0.382823

-0.180485

DI

0.004269

0.150353

1.000000

0.071882

0.230296

-0.037018

0.209125

LNFDI

0.368899

-0.142201

0.071882

1.000000

-0.324508

0.491238

0.180378

LNSE

-0.438036

0.603052

0.230296

-0.324508

1.000000

-0.609974

0.174317

LNOPEN

0.478982

-0.382823

-0.037018

0.491238

-0.609974

1.000000

0.022387

LB

0.438945

-0.180485

0.209125

0.180378

0.174317

0.022387

1.000000

Source: Author calculations based on data from the General Statistics Office, with the assistance of Eviews 9.0 software.

4.2.1.4. Inspection of stationary (Panel unit root test)
Table 4.4. Results unit root tests in panel data
At Level
lngdp

lnsi

di

lnfdi

lnopen

lnse

lb

LLC

Breitung

IPS

ADF - Fisher

PP - Fisher

-10.1806

6.49571

-3.50669

185.627

286.799

(0.0000)

(1.0000)

( 0.0002)

(0.0004)

(0.0000)

-7.35587

0.79406

-3.19555

193.341

178.950

(0.0000)

( 0.7864)

( 0.0007)

(0.0001)

( 0.0014)

-6.06077

-0.54672

-1.81760

150.756

151.562

(0.0000)

(0.2923)

( 0.0346)

( 0.0656)

(0.0601)

-10.9674

-2.66343

-7.03636

261.496

233.000

(0.0000)

(0.0039)

(0.0000)

(0.0000)

(0.0000)

-6.48460

4.20426

-1.42456

165.206

192.921

(0.0000)

(1.0000)

( 0.0771)

(0.0109)

(0.0001)

-10.8075

-1.64987

-5.51927

225.542

226.006

(0.0000)

(0.0495)

(0.0000)

(0.0000)

(0.0000)

-5.96849
(0.0000)

1.18946
(0.8829)

-2.82891
(0.0023)

169.283

142.558

(0.0061)

(0.1487)


[16]
First difference
lngdp

lnsi

di

lnfdi

lnopen

lnse

lb

LLC

Breitung

IPS

ADF - Fisher

-15.7871

-4.18376

-8.19872

279.612

356.352

(0.0000)

(0.0000)

(0.0000)

(0.0000)

(0.0000)

-20.4342

-8.85122

-12.1502

364.112

502.754

(0.0000)

(0.0000)

(0.0000)

(0.0000)

(0.0000)

-22.2330

-13.9983

-14.5940

417.636

635.666

(0.0000)

(0.0000)

(0.0000)

(0.0000)

(0.0000)

-30.8449

-11.2584

-20.7588

542.147

650.407

(0.0000)

(0.0000)

(0.0000)

(0.0000)

(0.0000)

-23.5486

-7.85594

-15.2950

438.482

654.639

(0.0000)

(0.0000)

(0.0000)

(0.0000)

(0.0000)

-23.5341

-6.62774

-16.7263

473.959

751.826

(0.0000)

(0.0000)

(0.0000)

(0.0000)

(0.0000)

-19.3615

-9.73504

-12.5852

(0.0000)

(0.0000)

(0.0000)

369.679

518.803

(0.0000)

(0.0000)

Notes: Data are taken from the General Statistics Office, processed by Eviews 9.0. The value in () is the level of significance.

With a significance level of 5%, the variable "id", domestic private investment has no
stationary at level but at first differences I(1), the remaining variables have stationary at
level I (0). But it's important that all variables have stationary at first differences. That
means that the panel data is not the same level integration I(1) or I(0). According Pesaran et
al (1996), Hamuda et al (2013), the variables in the model are not the same stationary I(1) or
I(0), so applying the PMG is appropriate procedures for this study.
4.2.1.5. Results for the impact of various factors on economic growth
Table 4.5. Results for PMG, The dependent variable-GDP
Short-term effects
Variables

Coefficient

Public investment

Standard error

P-Value

-0.010755

0.015642

0.4921

Domestic private investment

0.001039

0.002237

0.6427

Foreign direct investment

0.002808

0.009587

0.7698

Trade openness

-0.079888

0.019827

0.0001

Labor

-0.012468

0.004893

0.0112

Current expenditure

-0.056258

0.038381

0.1436

The adjustment coefficient on the long-term balance 𝜑 𝑖

-0.434205

0.038679

0.0000

Long-term effects
Variables
Public investment

Coefficient

Standard error

P-Value

-0.017490

0.005841

0.0029

Domestic private investment

0.002412

0.000462

0.0000

Foreign direct investment

0.009672

0.000575

0.0000

Trade openness

0.019319

0.006265

0.0022

Labor

0.030277

0.000787

0.0000

Source: Author's calculations using Eviews 9.0 based on data from the General Statistics Office


[17]

With PMG methodology, processed by Eviews 9.0, we see the adjustment coefficient
on the long-term balance 𝜑𝑖 = -0.434205 statistically significant p-value = 0.0000 (<5%),
which means variables such as public investment, private domestic investment, foreign
direct investment, trade openness and labor tend to impact on economic growth in the long
term, we conclude as follows:
In the short term, factors such as trade openness and labor may negatively impact on
economic growth with 5% statistically significant. Other variables is not statistically
significant.
In the long term, factors such as public investment, private domestic investment,
foreign direct investment, trade openness and labor has an impact on economic growth with
statistical significance (p-value <5%). We see, in the long term, public investment impact
negatively on economic growth, while the variable domestic private investment, foreign
direct investment, trade openness and labor impact on economic growth positively. In which
the largest contribution is labor then the openness of trade, foreign direct investment and
domestic private investment.
4.2.2. Results of estimating convergence
Absolute β convergence
Based on the formula 2 models with gdpi0 in right to test absolute convergence, the

results table (4.6) as follows:
Table 4.6. Results of absolute convergence
Coefficient

Standard error

P-Value

Constant (𝛼)

2.502412

0.093230

0.0000

𝐿𝑛𝑔𝑑𝑝𝑖0 (𝛽)

-0.186983

0.066080

0.0063

Convergence rate ( 𝜆)

0.0138

Source: Data from the General Department of Statistics and calculations by author

The estimated coefficient β is negative and statistically significant, it means that there
is evidence of absolute convergence in per capita income, which means that in the period of
2000 to 2014 in Vietnam areas with low income in the period initial segment tends to
increase faster than the higher initial income, the rate of convergence is 1.38%.
The initial poor areas can enjoy more preferential policies of the government to have faster
growth rates. The results of this study contrast to Pham The Anh studies (2009), Hoang


[18]

Thuy Yen (2015). However the results were consistent with growth theory of Solow (1956)
is presented in detail in Chapter 2.
Conditional convergence 𝜷
The objective of thesis consider the type investments how to impact the income
convergence process in Vietnam. Thesis tested step by step way that Wei (2008) conducted
research in China. First will give each the right to invest in the pattern 2, and will put each
pair to invest in models and finally put a time on three types of investments. Aim to identify
the best value β from which to comment on the contribution of investment income
convergence process in Vietnam. The results are shown in Table 4.7.
Table 4.7. Results of estimating conditional convergence
Coefficient

Standard error

P-Value

Models with public investment
𝐿𝑛𝑔𝑑𝑝𝑖0 (𝛽)

-0.224480

0.077052

0.0050

Lnsi

-0.064081

0.067571

0.3468

-0.166204

0.070254

0.0212

di

0.003826

0.004331

0.3806

Convergence rate ( 𝜆)

0.012118

-0.275469

0.067059

0.0001

Lnfdi

0.038402

0.011730

0.0018

Convergence rate ( 𝜆)

0.021482

Convergence rate ( 𝜆)

0.016948

Models with domestic private investment
𝐿𝑛𝑔𝑑𝑝𝑖0 (𝛽)

Models with foreign direct investment
𝐿𝑛𝑔𝑑𝑝𝑖0 (𝛽)

Models with private and public investment

stment
𝐿𝑛𝑔𝑑𝑝𝑖0 (𝛽)

-0.205050

0.079604

0.0125

Lnsi

-0.070310

0.067896

0.3046

di

0.004249

0.004348

0.3324

Convergence rate ( 𝜆

0.015298

Models with public investment and FDI

𝐿𝑛𝑔𝑑𝑝𝑖0 (𝛽)

-0.304253

0.075891

0.0002

Lnsi

-0.051547

0.063000

0.4165

Lnfdi

0.037804

0.011785

0.0022

Convergence rate ( 𝜆)

0.024185

-0.267241

0.073178

0.0006

Lnfdi

0.037685

0.012071

0.0028

di

0.001211

0.004132

0.7706

Convergence rate ( 𝜆)

0.020729

Models with private investment and FDI
𝐿𝑛𝑔𝑑𝑝𝑖0 (𝛽)


[19]
Three investment models and control variables

soát
𝐿𝑛𝑔𝑑𝑝𝑖0 (𝛽)

-0.570942

0.120376

0.0000

Lnsi

0.104453

0.089122

0.2462

di

0.000308

0.003943

0.9380

Lnfdi

0.019795

0.013840

0.1583

Lnse

-0.329293

0.140650

0.0229

0.052310

0.044370

0.2435

-0.000653

0.010527

0.9507

Lnopen
lb
Convergence rate ( 𝜆)

0.056411

Source: Author's calculations based on data from the General Statistics Office

All estimated coefficients in the model Lngdpi0 (β) are negative and statistically
significant (P-value <5%), which indicates that all the models have only a single result that
each type investments have a positive impact on the process of convergence of per capita
income among regions in Vietnam, at a convergence rate of approximately 1.2% to 5.6%.
The results of tests of the variance changes and multicollinearity are evaluated that
the convergence model ensure reliability.
4.3. Analysis of results
Firstly, in the long term, the coefficient of the independent variables such as public
investment, private domestic investment, foreign direct investment, labor and trade
openness are statistically significant at the level of significance 5%. In which, public
investment only negatively impact on economic growth. In short, only the variable labor
and trade openness negatively impact on economic growth and statistically significant.
Secondly, public investment over the long term negatively impact on economic
growth. This can be explained by the state of public investment issues in Vietnam.
Third, in the long term, factors such as domestic private investment, foreign direct
investment, labor and trade openness have a positive impact on economic growth. This
conclusion confirms the important role of these factors to economic growth. Among them,
the most powerful level is labor then trade openness, foreign direct investment and domestic
private investment. However, the contribution to the economic growth of foreign direct
investment nearly 2.8 times higher compared to domestic private investors. This is what
represents the internal forces of Vietnam's economy is poor, untapped potential of its
existing.


[20]

Fourth, in the short term, labor and trade openness negatively impact on economic
growth.
Fifth, the provinces in Vietnam tend to converge per capita income, the wealth gap

that is increasingly shrinking, which is consistent with the theory of neoclassical growth
Solow (1956). In which foreign direct investment plays the most active role on the issue of
convergence, then to public investment and private investment in the country.


[21]

CHAPTER 5
CONCLUSIONS AND RECOMMENDATIONS
5.1. Summary of key findings and contributions of the thesis
Investment is a key factor for economic growth of Vietnam in the past decade. With
three kinds of investment in research model is the new contributions in the theory of
investment and economic growth that the previous studies had done. Three types of
investment in research models are showing a positive contribution to economic growth in
the different angles.
Besides, the thesis looked for evidence on the issue of convergence of per capita
income, as well as the role of the investment types to narrow the gap between rich and poor
in Vietnam. Research results confirmed the correctness of the statement that the countries
and poor areas initially higher growth countries, regions with richer initially, leading to the
convergence process in the future outlined in Solow's growth theory (1956).
Table 5.1. Sumary of the results
Hypothesis

Content

H1

Public investment impact on economic growth in

The opposite direction in

the same direction

long term

Domestic private investment impact on

The same direction in long

economic growth in the same direction

term

FDI impact on economic growth in the same

The same direction in long

direction

term

Labor impact on economic growth in the same

The same direction in long

direction

term and opposite direction in

Trade openness impact on economic growth in

short term
The same direction in long

the same direction

term and opposite direction in

H2

H3

H4

H5

H6

Current expenditure impact on economic growth

Results

Test

Accepted

Accepted

Accepted

Accepted

Accepted

short term
No evidence

in the same direction

5.2. The policy implications of investment in Vietnam
5.2.1. Public investment in the economy
Should clearly define investment goals are based on the State's role in economic
development, society, mainly provide services and goods to serve the people. State only


[22]

invest in the fields of defense, security, infrastructure, economic development service of
socio - community (roads, bridges, airports, ports, health facilities, education, ... ). Who
decided to invest in this project are: the Government or the Prime Minister, ministries, local
(provincial or local level). There also needs to clearly define the scope of public investment
and competence, responsibilities of organizations and individuals assigned by the State,
specifically the right decision. That is the basis for ensuring the efficiency of public
investment activities.
Need to narrow the scope of public investment of state-owned enterprises in the
private sector does not invest, and other activities of state-owned enterprises by the
enterprise business freedom and self-responsibility as businesses of all other economic
sectors.
The government needs to consider the characteristics of each region in the
implementation of public investment.

5.2.2. Domestic private investment and FDI in the economy
For FDI, Vietnam should select potential businesses, brands, advanced technology,
environmental friendly products serve not only for the country of Vietnam, but also
participate in the price global value. Government should further encourage investment
projects in remote areas, difficult conditions to gradually step the wealth gap between the
provinces will shrink, creating conditions for stability through development, sustainable and
strong future. For private investment funds in the country to participate in the auxiliary
industry is a very important factor to attract high-quality projects from FDI. Governments
also need to implement measures to stimulate private investment in the country by the
preferential policies on loans, taxes, land ... At the same time, facilitate better infrastructure
for investors in country.
5.2.3. Human resources for economic growth
First: Buuilding the strategic of human resources associated with economic
development strategy - social, industrialization and modernization of the country,
international economic integration.
Second, parallel to the discovery, fostering and meritocracy, human resource
development should go hand in building and improving the system of human values in the


[23]

current era as responsible citizens, the spirit of learning, cultivate knowledge; conscious and
self-employed capacity, and society; life means love, with culture, with the ideal.
Third, human resource development must be linked to improve the quality of
people's health care policies pay - bonuses, ensuring social security, improve the quality and
efficiency of health care, meet bridge of accelerating industrialization and modernization
linked to the knowledge economy in the context of integration, intense competition and
require high labor intensity.
Fourth, improve and enhance information about human resources and broad towards
democracy, to make people see the importance of the issue of human resource development

in our country and around the world and should have the study, summed regular Vietnam in
human resources so that policymakers human resources for each period of the economy.
5.3. Restriction and subsequent research.
The thesis also outlined some of the limitations of this study such as: dataset,
research models ... Also made towards further studies in this specialization like considering
a comprehensive assessment of the impact spread release of public investment to economic
growth, private investment, FDI, exports, human resources ....in order to get further
evidence confirming the role of public investment in the economy.