Summary of doctoral thesis impacts of public investment on private investment the case of key economic regions in vietnam

MINISTRY OF EDUCATION FOREIGN TRADE SUMMARY AND TRAINING UNNIVERSITY OF DOCTORAL THESIS IMPACTS OF PUBLIC INVESTMENT ON PRIVATE INVESTMENT: THE CASE OF KEY ECONOMIC IN VIETNAM Major: International Economics Code: 9310106 HO THI HOAI THUONG HA NOI - 2023 REGIONS The thesis is completed at Foreign Trade university Science Instructor: Assoc Prof Dr Nguyen Thi Thuy Vinh Reviewer |: Reviewer 2: Reviewer 3: The thesis will be defended in front of the thesis committee at University level at Foreign Trade university At hour date month year 2023 The thesis can be consulted at the National Library and Library of Foreign Trade University INTRODUCTION Rationale of the research In the context of international economic integration, public investment has a great role in promoting economic development, especially in building socio-economic infrastructure, creating a favorable environment for business, and thereby improving the competitiveness of the private sector In addition, increasing public investment in socio-economic infrastructure is also one of the important factors attracting foreign direct investment (FDI) and increasing the country's development resources In Vietnam, the rapidly increasing scale of public investment has contributed to Vietnam's high growth for a long time Public investment is often referred to as “priming investment” to attract and lead private investment, create impetus for socio-economic development in localities and economic regions of the country In addition, Vietnam is integrating more deeply into the world economy by implementing a roadmap to reduce tariffs according to commitments At that time, to ensure growth, the Government needs to increase public investment in economic infrastructure (roads, bridges, ports ) and social infrastructure (schools, hospitals ) to improve the investment environment and business environment Currently, Vietnam has four key economic regions, including the Northern Key Economic Region, the Central Key Economic Region, the Southern Key Economic Region and the Mekong Delta Key Economic Region with a total of 24 provinces and cities The Government has identified these as the driving force behind the development of other regions across the country These are also key areas for public investment, private investment and contribute much to the country's economic growth Although playing a leading role in creating an infrastructure foundation to attract private investment in the region and the whole country, over the years, the role of public investment in key economic regions has been considered as weak (Tran Du Lich, 2021) In fact, public investment in infrastructure of key economic projects has made many achievements in creating a stimulus to attract private investment, especially in economic zones and industrial parks (Nguyen Thi Chinh, 2020; Nguyen Thi Thanh Huyen et al., 2022) However, in many cases, the attraction is not effective and has not created the motivation to attract private investment Specifically, the infrastructure of transport, seaports, railways and urban areas has not been synchronized due to lack of regulation and regional planning, so it has not been able to promote its advantages, efficiency and create guidance for the private sector (Tran Duy Dong, 2022) In addition, public investment puts great pressure on the state budget because the same key economic regions need a large resource to serve regional linkage investment projects, thereby creating a debt burden on the loan capital market and negatively affecting private investment (Do Thi Thanh Huyen et al., 2021) Therefore, whether public investment has a crowding - out or crowding — in effect on private investment in Key Economic Regions is still a controversial issue In addition, from the perspective of research, the impact of public investment on private investment is a topic of interest to many scientists, but the mechanism and results of the impact are controversial Many studies show that public investment has a crowding-in effect on private investment Specifically, adequate public investment in infrastructure improves market access, reduces production costs, and increases private investment (ASchauer,1989a; Saidjada et al., 2016; Makuyana, 2016 and Ouedraogo & associates, 2019) In addition, government investment in human capital (such as education and health), spending on research and development contribute to the formation of human capital, improve labor productivity and promote private investment (Lall, 2007; Daniele, 2009; Flores-Chamba & associates, 2019; Jena & Barua, 2020) However, other research suggests that public investment can have a crowding-out effect on private investment when large demand for government development investment may cause rising interest rates on the loan market to reduce private sector access to capital (Friedman, 1978; Ganelli, 2003; Kustepeli, 2005; Cavallo & Daude, 2011) In addition, raising taxes or borrowing to finance government spending also makes it difficult for the private sector to access the scarce financial resources of the economy (Pereira & Andraz, 2004; Drezgié, 2011; Rodriguez-Pose & et al., 2012; Solihin & associates, 2021) The impact of public investment on private investment is controversial in the short term and in the long term, as well as when considering the impact of components of public investment on the components of private investment (Pereira et al., 2001; Castillo & et al., 2005; Ngeendepi et al., 2021; Babu et al., 2022) Thus, in terms of research, the impact of public investment on private investment is one of the issues that causes a lot of debate and it is necessary to study this issue systematically and comprehensively Meanwhile, it can be seen that there are many studies on public investment and public investment efficiency in Vietnam (Nguyen Hong Thang, 2009; Hoang The Anh, 2014; Diep Gia Luat, 2015; Tran Vu Phong, 2018; Dao Thi Ho Huong, 2021; Pham Thi Thanh Binh, 2023) However, there is a lack of in-depth studies on the impact of public investment on private investment, especially empirical studies testing the crowding-out and crowding-in effects of public investment on investment in both the short and long term, or studies of the impact of public investment on specific components of private investment On the other hand, to the knowledge of the researcher, no research has been conducted in terms of qualitative and quantitative aspects for 24 provinces/cities in key economic regions Based on the theoretical and practical gaps mentioned above, the author selected “Impacts of public investment on private investment: The case of Key Economic Regions in Vietnam” as a research topic for the thesis Research objects and tasks 2.1 Research objects The research objective of the thesis is to analyze the impact of public investment on private investment in key economic regions in Vietnam In particular, the author proposes solutions to implement public investment to promote private investment in Vietnam’s key economic regions 2.2 Research tasks To achieve the above basic research objectives, following specific theoretical and experimental tasks the thesis will perform the First, provide the theoretical basis for public investment, private investment, channels of impact of public investment on private investment and the theory of key economic regions Second, analyze the actual impact of public investment on private investment in key economic regions In addition, test the impact ofpublic investment on private investment in Vietnam’s key economic regions during the research period is based on quantitative analytical models Third, propose solutions to implement public investment to promote private investment in Vietnam’s key economic regions 2.3 Research questions The thesis aims to answer the following main research questions: First, is the impact of public investment crowding out or crowding in private investment, the components of private investment in key economic regions in Vietnam and whether this impact changes in the short term and long term? Second, how does public investment in infrastructure affect private investment in key economic regions in Vietnam? Third, how should public investment policies in key economic regions be implemented to promote private investment towards 2030? Object and scope of research 3.1 Research object The thesis studies the impact of public investment on private investment in key economic regions in Vietnam 3.2 Research scope Scope of content: The thesis studies the impact of public investment on private investment from the perspective of total public investment affecting the components of domestic private investment (investment in the household and private sectors) in Vietnam’s key economic regions Scope of time: The study uses the data covering the period from 2010 to 2021 Scope of space: The thesis studies the impact of public investment on private investment in key economic regions in Vietnam with 24 provinces/cities Research methods Qualitative research methods: the author employs the meta-analysis and descriptive statistics to synthesize previous research, complete framework and serve as a basis for proposing policies in the thesis the theoretical Quantitative research methods: the author uses Pool Mean Group estimator (PMG) to analyze the impact of public investment on private investment in key economic regions regarding the short run and the long run In addition, the author uses the noncausality test proposed by Juodis et al (2021) for panel data to examine the impact of public investment in infrastructure on investment for each region New contributions of the thesis 5.1 Theoretical contributions First, the thesis has synthesized and clarified theoretical issues about regions, economic regions and key economic regions At the same time, through the theoretical basis and previous empirical studies, the thesis has clearly indicated the impact channel of public investment on private investment Since then, the study has built a framework to analyze the impact of public investment on private investment Second, the thesis uses appropriate econometric models to assess the impact of public investment on investment private sector in key economic regions 5.2 Practical contributions First, through quantitative analysis, the thesis has shown the impact of public investment on private investment, private investment in the enterprise sector, and private investment in the household sector in the regions Second, from the analysis of quantitative results, the thesis proposes a policy of using public investment to promote private investment from the overall perspective of key economic regions At the same time, the thesis also proposes solutions for each key economic region, which are appropriate to the economic development situation, structure of public investment, private investment and orientation of public investment policy towards 2030 Structure of the thesis In addition to the introduction and conclusion, the thesis consists of chapters Chapter 1: OVERVIEW OF RESEARCH Chapter 2: THEORETICAL SITUATION BACKGROUND FOR THE IMPACT OF PUBLIC INVESTMENT ON PRIVATE INVESTMENT AND KEY ECONOMIC REGIONS Chapter 3: RESEARCH METHOD Chapter VIETNAM Chapter 4: SITUATION OF PUBLIC AND PRIVATE INVESTMENT IN ‘S KEY ECONOMIC REGIONS 5: QUANTITATIVE ANALYSIS OF THE IMPACT INVESTMENT ON PRIVATE INVESTMENT IN VIETNAM OF PUBLIC ‘S KEY ECONOMIC REGIONS Chapter 6: POLICY INVESTMENT ECONOMIC IMPICATIONS TO PROMOTE REGIONS, PRIVATE FOR IMPLEMENTATION INVESTMENT OF PUBLIC IN VIETNAM ‘S KEY CHAPTER 1: OVERVIEW OF RESEARCH SITUATION 1.1 Research overview 1.1.1 Studies on the crowding-out effect of public investment on private investment First, studies analyze the crowding - out effect of public investment on private investment within a particular country, or group of countries (Pradhan et al., 1990; Bilgili 2003; Nazmi and Ramirez, 1997; To Trung Thanh, 2012) Second, the studies also separate public investment into investment categories and study the impact of those categories on private investment (Pereira, 2000; Rahman et al., 2015; Dada, 2013; Omotogun et al., 2018; Nguyen Thi Canh et al., 2020; Nguyen Thi Thuy Lien, 2022) Third, the studies also focus on the crowding - out effect ofpublic investment on private investment in different sectors of the economy Fourth, studies show that the crowding - out effect of public investment on investment is still controversial when analyzing in the short and long term (Castillo et al., 2005; Mitra, 2006; Nguyen Thi Chinh, 2017; Mose et al., 2020; Nguyen Thi Thanh Huyen et al., 2022) 1.1.2 Studies on the crowding-in effects of public investment on private investment First, studies analyze the crowding — in effect of public investment on private investment within a country or a group of countries (Hatano, 2010; Naqvi, 2003; Erden and Holcome, 2005; Mitra, 2014; Abiad et al., 2016) Second, in addition to studies on the crowding — in effects of public investment on private investment from the perspective of total public investment, there are also studies on investment division The analysis of components by sector of investment and study of the effects of those components on private investment (Aschauer, 1989a; Xu and Yan, 2014; Saidjada et al 2016; Makuyana, 2016 and Ouedraogo et al., 2019) Third, some studies also analyze the crowding — in effects of public investment on private investment from the perspective of sectors (Saseed et al., 2006; Fujii et al., 2013; S Muthu, 2017; Nguyen Thi Thuy Lien, 2022) 1.2 Research gap 1.2.1 Research content First, there are currently very few studies on the impact of public investment on private investment at the economic region level, and in particular, there is no study analyzing the impact of public investment on private investment in key economic regions in Vietnam Second, there are quite a few studies on the impact of public investment on private investment However, there is a lack of in-depth studies on the relationship between public investment and private investment in Vietnam Third, there are currently very few studies that divide private investment into different components according to capital sources and specify the impact of public investment on those components 1.2.2 Research method First, most of the studies in Vietnam when studying from the perspective of provinces/cities use panel data series with methods such as VAR, POLS, FMOLS, DOLS Second, there are currently very few studies that clearly show the role of public investment in infrastructure on how private investment affects private investment, and there are no studies that clearly indicate the impact of this investment on investment of business and household sectors CHAPTER 2: THEORETICAL BACKGROUND FOR THE IMPACT OF PUBLIC INVESTMENT ON PRIVATE INVESTMENT AND KEY ECONOMIC REGIONS 2.1 The basics of public and private investment 2.1.1 Public investment 2.1.1.1 Definition a The concept of public investment in the world It can be seen that the concept of public investment in the world has three main points of view The first point of view emphasizes the owners of the capital of public investment The second view emphasizes the purpose of public investment The third 11 H2: Public investment has a crowding-in effect on private investment in the business sector in the long term H3: Public investment has a crowding-in effect on private investment in the household sector in the long term H4: Public investment has a crowding-out effect on total private investment in the short term HS: Public investment has a crowding-in effect on private investment in the household sector in the short term H6: Public investment a crowding-out effect on private investment in the business sector in the short term 3.2 Research model and data 3.2.1 Research model 3.2.1.1 Proposed research model ‘The model in this study builds on the neoclassical theory of investment proposed by Jogenson (1963, 1967 and 1971) This model has recently been studied using panel data by Omotogun, O (2018), Omojolaibi et al (2016), Gérard Tchouass et al (2014), AltinGjini et al (2012) as follows: Ply =@+6PUn + @(IRu+gzGRDPạ + 0;INF, + @xFDl, + Me 3.2.1.2 Basis of selecting research variables First, these are variables that reflect the main factors affecting private investment based on the investment theory and empirical research Second, besides gross local product (GRDP), inflation (INF), real interest rate (IR), the foreign direct investment (FDI) variable is added to the model based on the investment climate in key economic regions 3.3.2 Research data Data in the model is collected by year from the Statistical Yearbooks of the provinces in the key economic regions during the period 2010-2021 It includes total public investment capital (State sector investment - PU), total domestic private 12 investment capital (Non-state sector investment — PI including private investment in the enterprise sector (PIE) and private investment in the household sector (PTH)), total capital foreign direct investment (FDI), Gross Local Product (GRDP), Real Interest Rate (IR), Inflation (INF), Gross Regional Domestic Product (GRDP), Real Interest Rate (IR) are considered variables that represent the needs and costs of investment activities (Altin Gjini & Albania Agim Kukeli, 2012; Christian Dreger & Hans-Eggert Reimers, 2015) Research data related to investment capital and gross regional domestic product are calculated using 2010 comparative prices to eliminate the effects of inflation factor Variables are expressed in natural logarithm form, Additionally, the variables are calculated in per capita form With this calculation, the values will be adjusted to suit the characteristics (population size) of the locality 3.3 Research method 3.3.1 Pooled mean group estimation method (PMG) The thesis uses panel data, which is a combination of cross-sectional data and timeseries data components In order to match the research data, the thesis uses an econometric model with the pooled mean group (PMG) estimator This method has the following advantages: (1) estimating for a single equation instead of estimating a system of equations; (2) using variables with different lags, regardless of the order of difference I (0) or I (1); (3) distinguishing short-term (different between groups) and long-term effects (homogeneous between groups) in the model (Pesaran et al., 1999, Samargandi et al., 2015) 3.3.1.1 Unit root test 3.3.1.2 Cointegration test 3.3.2 Non — causality test In addition, the thesis uses the non-causality test proposed by Juodis et al (2021) With the panel data in the model, the thesis uses non-causality test to investigate the impact of public investment in infrastructure on total private investment, private investment in the business sector and private investment in the household sector 13 CHAPTER 4: SITUATION OF PUBLIC AND PRIVATE INVESTMENT IN VIETNAM’S KEY ECONOMIC REGIONS, 4.1 Overview of key economic regions in Vietnam 4.1.1 History of formation of key economic regions in Vietnam 4.1.2 Situation of economic development in Vietnam's key economic regions 4.1.2.1 Size of GRDP and economic growth rate 4.1.2.2 Economic sector 4.2 Situation of public and private investment in Vietnam’s key economic regions 4.2.1 Situation of public investment in Vietnam’s key economic regions 4.2.1.1 Scale and growth rate of public investment 4.2.1.2 Components of public investment 4.2.2 Situation of private investment in Vietnam’s key economic regions 4.2.2.1 Scale and growth rate of private investment 4.2.2.2 Components of private investment 4.2.3 Situation of the relationship between public investment and private investment in Vietnam’s key economic regions 4.2.3.1 Proportion of public investment and private investment in the realized investment capital of the whole society In key economic regions, private investment accounts for a major proportion compared to public investment and foreign direct investment with an average proportion of 56,04%, higher than the national average of 51,7% Besides, key economic regions are gradually reducing their dependence on public investment capital due to attracting large amount of foreign direct investment (FDI) capital 4.2.3.2 The relationship between public investment and private investment in Key Economic Regions Based on the theoretical basis in Chapter | and the role of foreign direct investment (EDI) in the total investment capital in key economic regions in Chapter 4, FDI is the factor that regulates the relationship between public investment and private investment 14 Therefore, the thesis will examine the relationship between public investment and private investment in the relationship with growth of FDI To further strengthen the relationship between public investment and private investment, the thesis calculates the investment attraction coefficient and set in relation to the growth rate of FDI to see the influence of international economic integration between public and private investment 4.2.3 Situation of implementing public investment policies to promote private investment in Vietnam’s key economic regions CHAPTER 5: QUANTITATIVE ANALYSIS OF PUBLIC INVESTMENT’S IMPACT ON PRIVATE INVESTMENT IN VIETNAM’S KEY ECONOMIC REGIONS 5.1 Statistical Description 5.2 Results of estimating the impact of public investment on private investment in Vietnam’s key economic regions 5.2.1 Diagnostic tests 5.2.1.1 Unit root test 5.2.1.2 Cointegration test 5.2.2 Results analysis 5.2.2.1 Long-term impact analysis Case 1: The long-term impact of public investment on total private investment 15 Table 1: Testing the long-term impact of public investment on private investment in key economic regions in the period 2010-2021 Dependent variable PI PU GRDP FDI INF IR EC No of observations PMG Coefficient 0,368*** 0,248** 0,099*** -0,308** -0,044*** -0,316*** 288 Standard deviation 0,032 0,020 0,029 0.463 0,005 0,089 Note: *** represents the 1% significance level, ** represents the 5% significance level, * represents the 10% significance level Source: Author's calculation based on Stata-15 In the long run, all factors including public investment (PU), foreign direct investment (FDI), gross regional domestic product (GRDP), real interest rate (IR) and inflation rate (INF) have an impact on private investment PU, GRDP and FDI have positive effects while IR and INF have negative effects on private investment The noncausal test results show that public investment in infrastructure has a positive impact on private investment in all four key economic regions This is completely consistent with the theory of the crowding — in effect of public investment on private investment At the same time, the results are also consistent with the regression results on the impact of public investment on private investment in the long run in Key Economic Regions Case 2: The long-term impact of public investment on private investment in the business sector (PIE) and private investment in the household sector (PIH) 16 Table 2: Testing the long-term impact of public investment on private investment in the business sector (PIE) and the household sector (PIH) in key economic regions for the period 2010-2021 Dependent variable PIE PU GRDP EDI INF IR EC PIH PU GRDP FDI INF IR EC Coefficient 0,415*** 0.136*** 0.037 -0.0132** -0.0755** -0,151*** Coefficient -0.036 0.893*** 0.088*** -0.422 -0.089*** -0.340%** PMG Standard deviation 0,062 0.032 0,030 0,392 0,012 0,048 Standard deviation 0,038 0,066 0,020 0311 0,008 0,085 Note: *** represents the 1% significance level, ** represents the 5% significance level, * represents the 10% significance level Source: Author's calculation based on Stata-15 The test results show that in the long run, public investment also has a crowding — in effect on private investment in the business sector (EC0) Specifically, a 1% increase in public investment will encourage private investment in the business sector to increase by 0,3% However, the test results show that in the long run, public investment does not have a crowding — in effect on private investment in the household sector in the long run (p-value >5%) The non-causality test results show that public investment in infrastructure has a positive impact on private investment in the business sector in four key economic regions This shows that, for the business sector, public investment in infrastructure plays a very important role in encouraging private investment 17 Table 3: Non-causality test on the impact of public investment in infrastructure on private investment in the business sector in key economic regions in the period 2010-2021 Null hypothesis Coefficient statistics | P-value | Conclusion Public investment in | infrastructure has no impact on private investment in the business sector in the Northern key — economic region Public investment in| infrastructure has no impact on private investment in the business sector in the Central key economic region Public investment in| infrastructure has no impact on private investment in the business sector in the Southern key — economic region Public investment in| infrastructure has no impact on private investment in the business sector in the 0,287*** 0,08 0001 | Reject HO 0/291* 1/75 0/080 | Reject HO 0,411** 248 0/013 | Reject HO 0,090%* 142 0042 | Reject HO Mekong Delta key economic region Note: *** represents the 1% significance level, ** represents the 5% significance level, * represents the 10% significance level Source: Author's calculation based on Stata-15 5.2.2.2 Short-term impact analysis Case 1: The short-term impact of public investment on total private investment 18 Table 4: Testing the short-term impact of public investment on private investment in key economic regions for the period 2010-2021 Region Locality |Ha Noi Northern Hai Phong key [Hai Duong economic | Hung Yen region | Ouang Ninh Vinh Phuc Bac Ninh Da Nang Central | Quang Nam key Y |Ouang Ngai economic region [Binh Dinh Thua Thien Hue Ho Chi Minh Ba Ria — Vung Tau Southther | Tieng Giang key DĐ YÊY economic [Bink Phuoc region [Dong Nai Long An Tay Ninh Binh Duong Mekong |Ca Tho Delta - |Kien Giang key |CaMau economic region |4n Giang APU | 0393 0105 -0222** 0/281*** AFDI |AGRDP| AIR | AINE |0028 — |0564*** |-0014|400672** |o,is2 fooso** _|-0,002 0,538 |0,004 |0665 |-0,008 |0.423 |-0,331*** |0,053*** |-0074*** |-0,610*** o.282** |0321*** |0,163*** |0001 0,047 -0,236*** |-0,228*** 10,185 -0,032#** |-0,813**# 0,249 —|-0.124 — Jo.4s3* — foos1—_—-0,305* -0,185 -0,185** -0,165* -0,692** -0286 -0,161 {1317 |0,199* |0,361* _|-0,046 _|0.460 Joo3s**_|-1,221 |-0,080** |o,s11** _|-0,089*** |1.268 _|0,474*** |o,63s*** |-0,025 |0424 |-0201** |I§826*** |-0032° - |-0/684* _|o,960*** |0,289 _|0,077_|-0,90s _|-0,074** _|-0,209 _|-0,003_|-1,308 _|0,279 |0,372 |-0311 |-0,305* _|0,173**_|o,sos**_|-0,074 _|[-1,745### |0,511*** [0,485** 0,002 |-1,678 *** -0450*** |-0451*** |0,142*% |0031**- |-0067*** -0510*** |0558** {0,937 |-0,002_|-0,336* 0429*** |o,626"** |0,790 |0014 — |0050 -0101Đ— |0198 — |0245*** |0032 — |-0647 0,239 |-0282* {0,093 |0006 — |0098 0,770 _|o117 |o,092 |o,007_|-0,199 -0,616*** |0,035 |0,033** _|-0,062*#* |0,593 -0,153_|-0,016 _|1,s10 |-0,013** _|-0,872 Note: *** represents the 1% significance level, ** represents the 5% significance level, * represents the 10% significance level Source: Author's calculation based on Stata-15