public infrastructure investment and economic growth a study at lang giang district

i MINISTRY OF FINANCE ACADEMY OF FINANCE FACULTY OF FOREIGN LAGUAGES - - GRADUATION THESIS PUBLIC INFRASTRUCTURE INVESTMENT AND ECONOMIC GROWTH A STUDY AT LANG GIANG DISTRICT NGUYỄN THỊ HẠNH CQ47/51.03 Hanoi 2013 Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages ii MINISTRY OF FINANCE ACADEMY OF FINANCE FACULTY OF FOREIGN LAGUAGES - - PUBLIC INFRASTRUCTURE INVESTMENT AND ECONOMIC GROWTH A STUDY AT LANG GIANG DISTRICT SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF BACHELOR OF ARTS IN ENGLISH FOR FINANCE & ACCOUNTING Student: Nguyen Thi Hanh Class: CQ47/51.03 Supervisor: MA Truong Thi Minh Hanh Hanoi 2013 Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages i DECLARATION Signed hereby, certify hereby that that is my own research The content and figures presented in the thesis reflected a fair and true situation of the internship organization Hanoi, April, 27th 2013 Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages ii ABSTRACT This paper attempted to investigate the impact of public infrastructure investment on economic growth in Lang Giang The paper also utilized threestage least squares technique to capture the transmission channels through which public infrastructure promote growth The research covered years (2010, 2011 and 2012) The finding shows that infrastructure investment has a significant impact on growth of the economy directly through increasing in GDP and productivity, indirectly through improving the competitiveness of economy The results also show the management of investment in public infrastructure at district authorities The paper recommended increased investment in infrastructure Also, the financing options for closing Lang Giang’s infrastructure gaps should focus on broadening of finance and a better allocation of public resources Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages iii ACKNOWLEDGEMENT I would like to express my sincere gratitude to my supervisor, Mrs Truong Thi Minh Hanh She gave me her valuable advices and kindly directions Her wide understanding, logical way of thinking and personal guidance provide me a good basic for my thesis I am deeply grateful Mr Dang Van Them, director of Division Of Finance And Planning at Lang Giang district; Mrs Nguyen Thi Kim Thoa, Vice-director of Division Of Finance And Planning at Lang Giang district; Mrs Nguyen Thi Hien, the investing officer and Mr Nguyen Tuan Anh, the budgeting officer of Division Of Finance And Planning at Lang Giang district for giving chance to work with them and facilitating me in the internship period I warmly thank to my family and my friends who have supported me in completing my thesis Their encouragement and knowledge offset and complete my lack of understanding Without their support, I could not finish my own research Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages iv LIST OF TABLES Table 2.1: Capital for infrastructure development from the budget for the peoriod 2010-2012 in Lang Giang district 25 Table 2.2: Structure investment in the infrastructure in sectors 26 Table 3: GDP of Lang Giang district during years: 2010, 2011, 2012 29 Table 4: ICOR of Lang Giang in the peoriod 2010-2012 .30 Table 2.5: The production capacity of a number of products Lang Giang district 34 Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages v LIST OF ABBRIVIATIONS GDP : Gross Domestic Product GNP : Gross National Product DPC : District People’s Committee WB : World Bank OECD : Organization for Economic Cooperation and Development TFP : Total Factor Productivity ODA : Official Development Assistance PPP : Public Private Partnership BT : Build -Transfer BOT : Build - Operate - Transfer ICOR : Incremental Capital Output Ratio Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages vi TABLE OF CONTENTS DECLARATION i ABSTRACT ii ACKNOWLEDGEMENT iii LIST OF TABLES iv LIST OF ABBRIVIATIONS v TABLE OF CONTENTS vi INTRODUCTION CHAPTER 1: LITERATURE REVIEW 1.1 Public infrastructure .3 1.1.1.Definition .3 1.1.2.Types 1.2 The economic growth 1.2.1.The definition .5 1.2.2.The economic growth and the economic development 1.2.3.Measurement of economic growth 1.3 The relationship between the public infrastructure investment and the economic growth 1.3.1.Increase in GDP 10 1.3.2.Rise in market productivity 13 1.3.3.Improvement in the regional competitiveness 19 CHAPTER 2: THE STUDY 20 2.1 Brief introduction about Langgiang district .20 2.1.1.Geographical location and potentially economic development 20 2.1.2.The structure of Lang Giang DPC .21 Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages vii 2.1.3.Lang Giang Division Of Finance and Planning 23 2.1.3.1 .The structure of Lang Giang Division Of Finance And Planning 23 2.1.3.2 The duties and powers of Lang Giang Division of Finance and Planning 23 2.1.3.2.1.Economic planning and investing 23 2.1.3.2.2.Managing revenues and expenditures .24 2.1.3.2.3.Managing price 24 2.2 Investment in the public infrastructure of Langgiang in period 2010-201224 2.3 The impacts of the public infrastructure investment on the economic 28 2.3.1 The public infrastructure development contributes to increase in GDP of Langgiang 28 2.3.2 The public infrastructure development contributes to rise in market productivity 31 2.3.3 The public infrastructure development contributes to improve the competitiveness of Langgiang 35 2.4 Mini conclusion 36 CHAPTER III: RECOMMENDATIONS 38 3.1 The development orientation .38 3.1.1 Developing infrastructure of transport 38 3.1.2 Developing infrastructure of power supply 39 3.1.3 Developing infrastructure of irrigation and coping with climate change 40 3.1.4 Developing urban infrastructure .40 3.1.5 Developing infrastructure of industrial parks and economic zones 41 Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages viii 3.1.6 Developing commercial infrastructure 42 3.1.7 Developing infrastructure of information sector .42 3.1.8 Developing infrastructure of education and training, science and technology 43 3.1.9 Developing infrastructure of health sector 44 3.2 Some suggestions for enhancing the effectiveness of the investment in the public infrastructure 45 3.2.1 Improving the quality of construction and implementing the plan of public infrastructure development 45 3.2.2 Using effectively capital to develop infrastructure systems 46 3.2.3 Improving effectiveness and efficiency of state management of infrastructure investment 48 3.3 Proposals 49 3.3.1.Proposals to the State 49 3.3.2.Proposals to the Lang Giang DPC and relevant agencies 50 CONCLUSION 51 REFERENCE 52 APPENDIX 53 Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 41 Development of public passenger transport and modernization, both road and rail overhead lines and underground static traffic, especially in the form of bulk transportation, intelligent transportation systems, and strive to 2020 rate of shipping take approximately 25-30% of public passenger The district develops a number of major urban infrastructures, modern transportation, power supply, water supply in Lang Giang Constructing of the plant to provide clean water for urban centers in the region, drainage and waste water treatment, solid waste treatment in major town and regional centers are needed By 2015, the rate of water supply in the urban centers of grade III or higher was 90%, the fourth grade, 70%; overcome the frequent flooding during the rainy season in a grade II or higher , about 85% of domestic solid waste collection and urban environmental assurance process By 2020, the rate of water supply to the fourth grade and above 90%, the grade V 70%, substantially improved inundation in the urban centers of grade IV or higher, 95% the total amount of solid waste is collected and treated to ensure the environment 3.1.5 Developing infrastructure of industrial parks and economic zones Development of the system of infrastructure of industrial parks and economic zones is to attract the foreign investment The authorities of Lang Giang not take rice land to build a new industrial park By 2015, resolve the shortage of housing and essential social infrastructure such as Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 42 kindergartens, schools, clinics for the industrial workers By 2020, complete the infrastructure works in industrial parks, economic zones, especially the social infrastructure and wastewater treatment, waste 3.1.6 Developing commercial infrastructure Infrastructure development in the central commercial production and consumption of large quantities of goods at the port gate, the gate economic zones should be put into the developing plan of Lang Giang The district also is interested in developing of agricultural wholesale markets, large distribution centers, wholesale centers in agricultural products, the convenience stores in rural areas of specialized shops, supermarkets and commercial centers, the shopping center in the large urban areas urban centers Moreover, they need to accelerate the construction of the center of trade fairs and exhibitions and upgrade the Expo center business is in big town Building the Expo center commercial medium in the town, city center location regions, rapidly developing e-commerce systems can help develop the economy 3.1.7 Developing infrastructure of information sector Thriving system connected with international diversity, the information superhighway into domestic and international links and enhancing management of information in the Internet are needed to focus Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 43 Building national database of citizens, land, houses, businesses, as the basis for the application of information technology management resources for national development will help the management of Lang Giang as well as accelerating the implementation of electronic citizen card, egovernment and e-ASEAN commitments The important task is promoting the application of information technology in management, exploitating and operating infrastructure systems of economy, society Consider promoting the development and application of information technology is a top priority in the process of industrialization and modernization in each sector Developing strong information technology industry can promote industry develop quickly and sustainably 3.1.8 Developing infrastructure of education and training, science and technology Development the infrastructure of education and training from pre-school to university and research institutes to meets basic requirements and comprehensive national education is the strategy for the social-economic development By 2015, Lang Giang will ensure 60% of demand, and by 2020, ensure adequate basic hostels and student dormitories for boarding schools Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 44 Formation of a high-quality universities, universities of excellence, gradually forming the universities of international stature in Voi, Kep, Bo Ha and the metropolitan area level Construction of the high-quality training in regional centers There are solutions for infrastructure investment in education to improve the quality of human resources in the district State focus investment in scientific research missions of national importance, the scientific and technological solutions for key products 3.1.9 Developing infrastructure of health sector Health sector’s infrastructure should be developed, gradually improved the quality of services on a par with advanced countries in the region Striving to achieve a minimum 23beds per 10,000 people in 2015 and 26beds per 10,000 people in 2020 Continue to improve the capacity of health facilities and the central reserve area, ensuring that 100% of preventive medicine center provincial standard laboratory biosafety level 1, building and development preventive health center district A system of health is cared by the technical levels from low to high, to ensure the continuity of the professional level, contributing to overcome Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 45 overcrowding central hospitals and specialized hospitals Promote socialization of investment for infrastructure development in the medical field Focus on the construction of a number of specialized clinics, high quality in Lang Giang and a number of urban areas 3.2 Some suggestions for enhancing the effectiveness of the investment in the public infrastructure 3.2.1 Improving the quality of construction and implementing the plan of public infrastructure development Reviewing and improving the quality of planning Law of construction planning are general scope for the kind of development planning in the country Review, adjust and supplement plan of developing the economic infrastructure, social sectors, regions and localities, to ensure consistency, the internal connections in the industry, inter-industry and inter-regional in scope throughout the country, to meet the requirements of industrialization and modernization Selecting a number of important works having a radial and creating big break to focus on investment Strengthening the state management of planning, enhancing responsibilities of the head of institution building and implementation of Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 46 the plan, to ensure the efficiency and feasibility Appreciate monitoring, inspecting planning of implementation 3.2.2 Using effectively capital to develop infrastructure systems Effective use of capital from the State budget and government bonds Construction investing plan to develop medium and long term plans instead of investment allocated annually, with priority given to key projects Issuance of bonds, project bonds for the construction of some urgent work Review and complete the provisions of the law on public investment and public procurement Amendment investment mechanisms and decentralized capacity towards management of investment decision investors must balance the ability to allocate capital before approving investment projects, responsible forms of selection decisions contractors and the quality and efficiency of the project Attracting and using effectively ODA Promote advocacy partners, donors continue to provide ODA for infrastructure development, especially the big ones Reviewing, amending and supplementing the legal documents relevant priorities for allocating funds to remove difficulties and to accelerate disbursement, completion of the project Encouraging economic sectors, including foreign investors to invest in infrastructure development, ensuring adequate benefit of investors Expand State forms and people working together Amending and Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 47 supplementing the provisions on financial assistance policies, taxation, price, fee, franchise to increase the trade of the project and the contribution of the user Perfect mechanisms and policies to encourage investment in the form of PPP, BT, BOT Expand State forms and people working together to encourage, honor organizations and individuals for their contribution to the construction of infrastructure, especially in rural, regional and remote areas and areas ethnic Renew and strengthen the promotion of foreign investment, with mechanisms, appropriate policies to attract investment in the infrastructure sector Innovating mechanisms and policies to mobilize strong land resources in infrastructure development Through exploiting rents policy gap by bringing construction, consistent policy of land acquisition to generate capital to support infrastructure development Implementation of the land use right auction for the business project Amend, supplement and perfect the legal provisions of the land acquisition, compensation and site clearance for the construction of infrastructure in the direction of shortening, creating more favorable conditions for building the infrastructure projects, especially major projects There resettlement plans and ensure the rights of people with land acquisition, and voluntary movement execution and positive contributions of the people Uncompromising strictly handling behavior deliberately failing to abide by the provisions of the law on clearance Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 48 3.2.3 Improving effectiveness and efficiency of state management of infrastructure investment Urgently review and improve the institutional environment conducive to attracting and effectively use capital Amending and Supplementing the law on land procurement, law on investment, Urban Law, other relevant laws to facilitate infrastructure development To complete the system, unit prices, technical regulations, and approval regime established the auditing, severe penalties for management, evaluation and monitoring to ensure project quality; against targets extreme, losses and waste Reform of administrative procedures, ensuring clear, convenient, overcoming troubles and reduce costs for investors Development of human resources management, construction, operation and exploitation of the infrastructure works Capacity building of institutions, government agencies, particularly corporations, state enterprises, to ensure good performance of the investor, the owner of the state of infrastructures projects floor Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 49 The application of information technology and modern management methods in organizational development, exploitation and management of infrastructure projects Strengthen counseling, independent monitoring to improve the quality of the work; tightly controlled investment rate, shorten implementation schedule to put into operation and use of effective management Complete decentralization of investment mechanisms, allocation of funds to both promote the initiative, creativity, promote accountability of local governments at all levels, both to ensure the uniform management of the central government, while strengthen supervision and inspection and strictly handle violations How well the propaganda campaign, creating social consensus for the people to support and share in the responsibility for State investment in infrastructure development of the country 3.3 Proposals 3.3.1 Proposals to the State The policies needed stability, unity Currently, policies in the field of management of infrastructure investment is without the long-term stability, change frequently This causes many difficulties and disadvantages for those who work in the financial management field Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 50 The state should reconsider the investment expertise Because this is not truly objective Because of the current situation assessment, who are the decision makers, organizes investment expertise Whereas, the content of investment expertise includes investment decision, investors assessment, reassessment of investment decision at the end of the investment process Suggest state help contractors in the settlement slowly: there are many causes of delay in the settlement for investors, which are not arranged according to schedule; slow capital deployment plans 3.3.2 Proposals to the Lang Giang DPC and relevant agencies Suggesting is that district People's Committeeshould replace or modify some decisions of the DPC or regulations for uniform regulation, specifically the revenues and expenditures of school blocks Proposing DPC to direct the functional departments of the district, annual refresher training organization knowledge management infrastructure investment for public servants from the district to the base, in order to improve the quality of state management on each field Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 51 CONCLUSION Investment in the public infrastructure is an investment activity is very important It creates a system infrastructure for social-economic development, is the basic premise to make the industrialization and modernization of the country Problem of management of the public infrastructure investment is a specificly economic management, complex and always evolving, especially in terms of the regulatory environment, the policies of economic management is incomplete as inconsistencies in our country today Increasing in the public infrastructure investment will help boost the region's GDP, increase productivity of the industry and improve the economic competitiveness of the region With the subject "Public infrastructure investment and economic growth A study at Lang Giang district”, subject has focused on clarifying the relationship between infrastructure investment and economic growth in Lang Giang district, which outlined the development direction for the next peoriod in Lang Giang, as well as the solutions and recommendations to improve the efficiency of infrastructure investment to promote economic growth Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 52 REFERENCE Airey T (1992), “Transport as a factor and constraint in agriculturalProduction and marketing”, World Bank Sub-Saharan Africa transport program, Rural Travel and Transport Project Alicia H Munnell (1992), “Policy watch Infrastructure investment and economic growth”, Journal of economic perspectives Jlilian J and M Ravallion (2003) “Infrastructure and development: poverty, regulation and private sector investment”, Paper prepared for ADB Hoang Thi Thuy Nguyet (2011) “Public finance management” Academy Of Finance Kamara A (2004) “Infrastructure, growth and poverty reduction in Indonesia”, A cross-sectional analysis Asian Development Bank Kenneth Button (February 1998), “Infrastructure investment, endogenous growth and economic convergence”, The Annals of Regional Science Kwon K (2006) “Economic growth and government infrastructure expenditure”, Economic Research Paper Nathan k (2011) “How much does infrastructure contribute to GDP growth” World Bank, Research Digest Robert C Hockett (January 18, 2012), “Public Infrastructure Investment, Renewed Economic Growth, and the U.S Fiscal Position”, Cornell University - Law School Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 53 10 Sylvie Démurger (March 2001), “Infrastructure Development and Economic Growth: An Explanation for Regional Disparities in China?” Journal of Comparative Economics 11 Wolassa L Kumo (2012) “Infrastructure investment and economic growth in South Africa A Granger causality analysis”, Journal of Comparative Economics Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 54 SUPERVISOR ‘S EVALUATION Supervisor: M.A Trương Thị Minh Hạnh THESIS EVALUATION Student: Nguyễn Thị Hạnh Group: CQ47/ 50.03 Title: “Public infrastructure investment and economic growth A study at Lang Giang district” …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… Mark: In number: In word: Supervisor Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages 55 REVIEWER’S EVALUATION Name of reviewer: ……………………………………………………………… THESIS EVALUATION Student: Nguyễn Thị Hạnh Group: CQ47/ 50.03 Title: “Public infrastructure investment and economic growth A study at Lang Giang district” …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… Mark: In number: In word: Reviewer Supervisor: MA Truong Thi Minh Hanh Nguyen Thi Hanh, 47/51.03 Faculty Of Foreign Langguages ... common ways to measure real GDP are:  Quarterly growth at an annual rate  The four-quarter or "year-over-year" growth rate  The annual average growth rate Quarterly growth at an annual rate shows... international data set The strategy for national infrastructure also states, “The majority of empirical research indicates that there is positive relationship between infrastructure and economic growth ... important roads of the country running through (road, rail, and waterways) Voi town Kep town 20km from Bac Giang city and 70km from Hanoi by motorways, located on the National Highway 1A and railway