Economic growth • increase in the amount of the goods and services produced by an economy over time • measured as the percent rate of increase in real gross domestic product or real GDP (inflationadjusted term) > Growth rate of GDP in Year 2 = GDP (Year 2) – GDP (Year 1) GDP (Year 1) × 100 • Real GDP • measures value of all final goods and services produced within a given period of time. • measures the total income (adjusted for inflation) of everyone in the economy • not affected by changes in prices Economic growth > improve a countrys standard of living > improve the level of goods and services individuals purchase on average • Population growth > along with economic production > increases in GDP > not necessarily result in improvement in the living standard Economic growth > expressed on a per capita basis > growth rate of GDP per capita > output per person • GDP per capita = GDP Population • Growth Rate of GDP per capita = Growth Rate of GDP – Growth Rate of Population
MACROECONOMICS PRESENTATION Two Main Factors Contributing To Vietnam’s Economic Growth Table of contents Background information Two main factors 2.1 Capital stock 2.2 Labor force Background information • Economic growth • increase in the amount of the goods and services produced by an economy over time • measured as the percent rate of increase in real gross domestic product or real GDP (inflation-adjusted term) -> Growth rate of GDP in Year = [GDP (Year 2) – GDP (Year 1)]/ GDP (Year 1) ì 100 ã Real GDP • measures value of all final goods and services produced within a given period of time • measures the total income (adjusted for inflation) of everyone in the economy • not affected by changes in prices Background information • Economic growth -> improve a country's standard of living -> improve the level of goods and services individuals purchase on average • Population growth -> along with economic production -> increases in GDP -> not necessarily result in improvement in the living standard Economic growth -> expressed on a per capita basis -> growth rate of GDP per capita -> output per person • GDP per capita = GDP / Population • Growth Rate of GDP per capita = Growth Rate of GDP – Growth Rate of Population Background information Economic growth The production possibility frontier’s outward shift Background information Standard of living GDP per capita GDP Productivity Y = A F(L, K, H, N) Government policies Background information Robert Solow’s model of economic growth in 1957 Economy-wide production function Y = A F(K, L) Y is aggregate output A is total factor productivity (TFP) - way in which technological innovation allows capital and labor to be used effectively and efficiently K is a quantitative measure of the size of the stock of manufactured capital L is the quantity of labor used during the period of time Background information Vietnam GDP - Real Growth Rate (%) (CIA World Factbook) Background information Vietnam GDP – Per capita (PPP) (US$) (CIA World Factbook) Background information Vietnam’s 2011 quarterly GDP growth rate (%) (Vietnam Government Web Portal News) Two main factors Vietnam’s economy † development direction concentrating on width but not in depth † low effectiveness in capital utilization † economic growth depend heavily on increased investment capital, natural resource exploitation and labor force Year 1997 2008 Contribution of Capital GDP growth rate investment in GDP 28.7% 43.1% 8.2% 8.5% 2.1 Capital stock Introduction and Definition What is capital? Cash or goods used to generate income either by investing in a business or a different income property (Investorword.com) Where is capital from? The sources of investment capital is the accumulated value expressed in the form can be converted into capital to meet the social needs 2.1 Capital stock Social capital within months in 2011 Trillion VND Structure The same (%) period last year (%) Total 409,7 100,0 105,0 State capital investment 141,1 34,4 97,0 Non-state capital investment 163,0 39,8 114,6 Direct investment from abroad 105,6 25,8 103,1 Source : General Statistics Office, Ministry of Planning and Investment 2.1 Capital stock Capital investment in Vietnam • Domestic capital investment: The accumulation of internal economy including savings of residential areas, the economic organizations, enterprises and government savings are mobilized in the process of reproduction • State capital investment is developed from the state budget, credit capital investment guaranteed by the state, credit capital investment and development of the state and others investment 2.1 Capital stock Capital investment in Vietnam ▪ Capital investment from abroad • Foreign direct investment (FDI) is direct investment by a company in production located in another country either by buying a company in the country or by expanding operations of an existing business in the country • According to a report published by the United Nations Conference on Trade and Development (UNCTAD), Vietnam and Indonesia are most favored destinations for FDI in the South East Asia region in 2011 and 2012 • Foreign Indirect Investment (FII): A way of investing in real estate without actually investing in the property Indirect investment can be done in many ways, including securities, funds, or private equity Most investors interested in indirect investment would so through a company or advisor who has experience in this type of investing 2.1 Capital stock Foreign Direct Investment (FDI) 2.1 Capital stock Official Development Assistance (ODA) • ODA is flows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective, and which are concessional in character with a grant element of at least 25% (using a fixed 10% rate of discount) • In other words, ODA needs to contain the three elements: (a) undertaken by the official sector; (b) with promotion of economic development and welfare as the main objective; (c) at concessional financial terms (if a loan, having a grant element of at least 25%) 2.1 Capital stock Official Development Assistance (ODA) • ODA receipts comprise disbursements by bilateral donors and multilateral institutions • Bilateral donors: Ireland, Britain, Austria, Belgium, Canada, Denmark, Germany, Netherlands, South Korea, Italy, the United States of America, Japan… • Multilateral donors • International Financing Institutions and Funds : the World Bank Group (WB), the International Monetary Fund (IMF), the Asian Development Bank (ADB)… • International and inter-governmental organizations : the United Nations Children's Fund (UNICEF), the United Nations Education, Science and Culture Organization (UNESCO), the World Health Organization (WHO)… 2.1 Capital stock Official Development Assistance (ODA) ODA implementation structure by sector in 1993 – 2007 Unit: million USD Sector Concluded ODA Agreement in 1993 - 2007 Total Percentage Agriculture and rural development in combination with poverty reduction 5,130.73 15.9 Energy and industry 7,376.28 22.97 Transportation, post and telecommunication, water supply and drainage, and urban development, of which: 11,286.64 35.15 - Transportation, post and telecommunication 8,222.99 25.61 - Water supply and drainage, urban development 3,063.65 Health, education and training, environment, science and technology, and others 8,315.6 Total 32,109.25 9.54 25.9 100 2.1 Capital stock Government policies • Encourage foreign investment in the manufacturing industry, processing industry, industry to serve agricultural development and rural economy, construction projects, biotechnology and petroleum, electronics and telecommunications… • Strengthen infrastructure : a prerequisite to attract FDI ( transportation system, the water supply and drainage, technology support system….) • Optimizing the administrative procedures, shorten the maximum time that investors have to spend for the procedure • Raise the efficiency of capital used : improving policies and laws on constructions • Advance the quality of investment strategy and investment planning : to eliminate the “casual” in investment • The selection of investment partners : focus on transnational companies in the long-term 2.2 Labor force Definition • Labor is the aggregate of all human physical and mental effort used in creation of goods and services Labor is a primary factor of production The size of a nation's labor force is determined by the size of its adult population, and the extent to which the adults are either working or are prepared to offer their labor for wages • Labor force is the total number of people employed or seeking employment in a country or region also called work force 2.2 Labor force Vietnam labor force data • Vietnam has high rate of population and 2/3 of the population are in laboring age • In 5th January, Vietnam has 50 millions people are in the labor force • It is believed that the number of labor force in Vietnam will increase 1.5% each year from 2010 t0 2015, which means increase 738.000 people/year 2.2 Labor force Situation of labor force in Vietnam • Vietnamese labor is lack of knowledge and skills because some of them not have enough money to study in training school, the others which have been trained tend to go aboard ( brain stain) and it can contribute only 19,07% to the total GDP • The unemployment rate is usually at 4% to 5% 2.2 Labor force In the country side Lack of training Vocation Intermediate level College University and upper level 36.64 50.09 5.2 4.8 3.3 In the outskirt and center of the city 7.31 32.17 16.41 18.18 25.93 The graph of labor’s training in Vietnamese rural area, 2011 2.2 Labor force Vietnam’s policies to improve the labor force • Open more vocation schools with suitable fee • Rise wage and provide more for talented employees to attract them ... (Vietnam Government Web Portal News) Two main factors Contribution of Capital stock, Labor and TFP to the GDP Growth (%) (calculated from data in GSO) Two main factors Vietnam’s economy † development...Table of contents Background information Two main factors 2.1 Capital stock 2.2 Labor force Background information • Economic growth • increase in the amount of the goods and services... person • GDP per capita = GDP / Population • Growth Rate of GDP per capita = Growth Rate of GDP – Growth Rate of Population Background information Economic growth The production possibility frontier’s