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DA NANG UNIVERSITY UNIVERSITY OF ECONOMICS NGUYEN VIET VY THE IMPACT OF PUBLIC INVESTMENT ON ECONOMIC GROWTH IN QN PROVINCE Specialized : Economic development Code : 62 31 01 05 SUMMARY OF ECONOMIC DOCTORAL DISSERTATION Da Nang - 2019 Works to be completed in: UNIVERSITY OF ECONOMICS, DA NANG UNIVERSITY Objection 1: Assoc.Prof.Ph.D NGUYEN THI MINH HIEN Objection 2: Assoc.Prof.Ph.D TRAN QUANG HUY Objection 3: Assoc.Prof.Ph.D LE HUY DUC The dissertation will be protected before the conclusion of the economic doctoral dissertation at the University of Economics, Da Nang University on 2019 Can find a thesis at: - Information – Learning Center, Da Nang University - University library, Da Nang economic University PREAMBLE Urgency of the topic Public investment (PI) is one of the key resources in the development of all economies and tools to adjust socio - economic development Many scholars have conducted experimental studies in many different countries and pointed out some of the operating channels of public investment to economic growth (EG) through investment channels, private investment and poverty reduction However, these studies often study within the country's borders or countries that appear to have no research on this topic for a provincial economy During the last 20 years, the economy of Quang Ngai (QN) has been a constant growth The success in EG is greatly contributed from the investment factor in which public investment is especially invested However, the management of the state's public investment in QN province still hold many shortcomings such as investment has not really focus Many of the buildings cannot be expressed, or the private sector can but the state is still invested Working capital management has not been close; construction debt and public debt remain at high levels; construction quality is not guaranteed In order to overcome these existing obstacles, the research topic "The Impact of public investment on economic growth in QN province" is essential Objectives of the study (1) Codified by the rationale and methods for impact assessment of public investment on economic growth (2) Situational Analysis of the impact of public investment to EG through the channel of QN province investment, stimulate private investment and poverty reduction (3) Propose some policy implications to using effective public investment to promote economic growth in QN province Object and scope of research - Objects of studies: Theoretical issues and practical impact of public investment to economic growth in QN province - Scope of research + Content: direct impacts and indirect impacts in a positive direction of public investment to economic growth + Times: The policy implications mean 2025 Research methods: Thesis uses the method of qualitative and quantitative research, concrete will be presented in the next section Scientific significance of the thesis 5.1 Contributions to theoretical and practical - The thesis summarizes related theories and practical research on the impact of PI on EG; however, these studies are conducted on a national or transnational scale, as there is no study conducted at the provincial level From these studies, the thesis has formed an analytical framework for studying the impact of PI on EG at the provincial level This has contributed to fill the gaps in this argument - This is one of the few studies in Vietnam that combines both quantitative and qualitative research on the impact of the PI on the economic growth at the provincial level - The research results show that PI in QN province is mobilized with increasing capital, contributing to the formation, improvement and development of provincial socio-economic infrastructure However, PI in QN is still inefficient - Many studies have shown the positive impact of PI on EG; but few studies have addressed the additional impact of public investment on private and labor resources The thesis has shown that PI in QN province not only overwhelm private investment and labors but also has had a resonant effect on them in promoting EG in QN - The results show that public investment has a positive impact on poverty reduction and economic restructuring in QN This is an important factor to achieve the goal of sustainable development 5.2 Implications, new proposals drawn from the results of research Firstly, improving policies on mobilization, allocation and use of efficient PI Secondly, promoting the role of PI to promoting economic growth through investment channels Thirdly, improving the role of PI for sustainable poverty reduction Forthly, promoting the role of PI stimulating private investment Fifthly, increasing the role of public investment to promote economic restructuring in Quang Ngai province Structure of Subject Include the opening, the conclusion and chapters as follows: Chapter The basis for the impact of PI on EG Chapter Geographical features and research methods Chapter Investment in PI and impact of this investment to the economic growth of QN Chapter Policy implications CHAPTER THE BASIS FOR THE IMPACT OF PUBLIC INVESTMENT ON ECONOMIC GROWTH 1 Public investment issues and economic growth 1.1.1 Public investment concept The Public Investment Law of 2014 states "Public investment is the investment of the State in programs and projects to build socioeconomic infrastructure and invest in programs and projects in servicing social economic development" Public investment includes: Investment in socio-economic infrastructure programs and projects To invest in the operation of state agencies, non-business units, political organizations and sociopolitical organizations Investing and supporting the supply of public utility products State investment involved in public-private partnership projects 1.1.2 Mobilize and the use of public investment Capital mobilization State investment is mobilized from the state budget; development investment credit capital of the State; ODA capital and preferential loans of foreign donors Investment allocation Capital allocation is essentially to follow the market mechanism but also the government's strategic development Focusing on sector development, which sector will be concentrated by the government and combined with other sources In addition, allocations are also concentrated in key areas to create the spread of the region Use investment capital The use of capital is the process of investment in implementing investment projects This is also the process of capital transfer from capital into material capital to incorporate other production factors that produce output Efficiency of investment capital can be assessed through the ICOR 1.1.3 Economic growth In the economic development theory, many studies suggest that economic growth is a economic category, it reflects the scale of growth or decrease of the economy this year compared to the previous year or the period compared to the previous period To measure economic growth often uses two key indicators: the increase, reducing the size of the economy according to GDP, or economic growth in GDP So economic growth can be a better result of the economy in the time and is expressed by increasing the scale of the economy as GDP or GNP The increase needs to be sustained and stable in the long - term conformity with the potential of the economy 1.2 The theories related to the impact of public investment on economic growth (1) Theory of classical growth (2) Theory of neoclassical growth (3) Theory of Keynes growth (4) Theory of modern Samuelson growth (5) Theory of Endogenous economic growth Relevant theories on the impact of PI on EG have been developed over time, with inheritance and development These theories have shown how investment impacts economic growth through investment channels, promoting private investment, poverty reduction, growth and economic restructuring Therefore, this is an important theoretical basis for the study of the impact of public investment on economic growth 1.3 Practical experience and results of empirical research on the impact of public investment on economic growth 1.3.1 Synthesis of empirical studies on the impact of public investment on economic growth through investment channels The study of the impact of PI on the investment channel has a lot of research, but seems to focus largely on developing countries The results are both positive and negative impacts The first direction has positive effects Accordingly, PI contributes to economic growth through providing transport infrastructures, health, education, housing Many cases have shown PI promoting investment growth of private investments that promotes economic growth The second direction has resulted in negative impacts on economic growth The findings found that in some PI countries, there is no impact on economic growth, even an adverse impact on private investment, even investing in macroeconomic instability caused by the construction of the basic debt and public debt 1.3.2 Aggregate results of empirical research on the impact of public investment on poverty reduction Many studies also consider the impact of PI on growth through impact on poverty reduction These studies are not only showing the effects of PI to poverty reduction but also the approach to poverty reduction It is important that most of them confirm the importance and positive impact of this investment to poverty reduction 1.3.3 Aggregate results of empirical research on the impact of public investment through promoting private investment Lutfi Erden (2002), Aschauer (1989a), Barro (1990), Evans Karras (1994a, b), Ramirez (1994, 2000), Blejer and Khan (1984), Aschauer (1989a, 1989b), Munnell (1992) Ramirez (1997) focus on the impact of PI on private investment through the review of PI can influence private investment such as creating hard infrastructure and soft, reducing costs for the private sector; upgrade and improve infrastructure quality, improve the quality of business environment, labor support, output support and promotion The results of many studies show that there is a strong correlation between public sector investment and private sector through creating favorable conditions for private investment such as the provision of public infrastructure, conducive to private investment 1.3.4 Impact through promoting economic restructuring Many studies show that public investment has an important influence on economic restructuring through policies affecting investment structure In operating investment policies, the state can directly intervene such as implementing policies of capital allocation, planning, building investment management mechanisms or indirectly regulating policy instruments to drive the direction of the economy in a way that the government expects This is because the proportion of capital allocation to different industries will bring different results and effects For Vietnam, to achieve the goal of industrialization and modernization of the country, striving to bring our country into an industrial country in the direction of modernization, this is even more meaningful CHAPTER GEOGRAPHICAL FEATURES AND RESEARCH METHODS 2.1 Research geographical feature 2.1.1 Natural condition QN is located in the central key economic region The area is over 5,000 km2, the coast is 135km long, off Ly Son island The terrain has many high mountains, mounds, valleys Mountains occupy nearly two thirds of the area The province is located in a typical tropical climate The temperature is high and less volatile Light mode, rich moist rain, annual average temperature of over 250c Average annual rainfall over 2,000 mm On top of the terrain, QN has four large rivers: Tra Bong, Tra Khuc, Ve and Tra Cau river Natural resources of QN in addition to land and forest land, as in many other areas in the Central, QN also has some mineral deposits such as gold, titanium, cobalt, iron A part of titanium, most of them are not concentrated and the stocks are low 2.1.2 Economic condition QN has a strategic location in the key economic region in central Viet Nam and the east – economic corridor, traffic routes on roads, railways, waterways, sugary roads, and clear roads, which are the gateway to the east coast shipping line and the pacific road The province has Dung Quat economic zone, Tinh Phong industrial zones, Quang Phu and VSIP industrial zones are fully invested with many attractive incentives to attract investment projects in the heavy industry and the light industry that resolute a lot of labours On the basis of the potential development, the local strength 10 The GDP of the province has increased rapidly, at the current price of GDP per capita in 2016 reached nearly 51 million VND (about 2250 USD/person) The rate of poor households in QN province has fallen sharply, from just over 24% in 2010 to just over 13% in 2016 But the poverty rate in mountainous areas is quite high, at 42.2% Unemployment rate in the province is lower than the national average; is less than 2% 2.2 Research method 2.2.1 Research theories Theory 1: PI is mobilized into the continuing economy and accounts for a very high proportion of total investment, but the spread and inefficiency; Theory 2: Investment in the positive impact of economic growth in QN province Theory 3: PI in QN province has an effect on private investment in private investment decisions Theory 4: PI positively impact in poverty reduction and economic restructuring QN Research process From the review of studies and the theoretical background on the impact of public investment on economic growth, the framework for analysis can be outlined as follows: 11 Research subjects: Study the impact of the PI on economic growth Combi research Sample selection in theory Qualitative research Objectives of the study Summarize the theory and results of empirical research Comprehensive analysis of theoretical and empirical research Research Methods Develop interview questionnaire Assessment of public investment in QN province Analyzing the impact of public investment on economic growth in QN Conclusions and policy implications Picture 2.1 research process (Source: by author) 2.2.2 Analytical method a Qualitative analysis methods - Deductive method - Induction method - Deep interview method b Quantitative analysis methods * Statistical analysis methods, including: Statistical analysis of the socio - economic situation of province, economic growth of QN province, in general investment 12 and investment in the process of growth and the impact of PI on economic growth Chart and statistical chart Average method, relative number, correlation analysis method * Econometric Models Econometric Models are used to estimate the impact of PI on economic growth, including the investment channel and reduce poverty In particular: Firstly, a method for analyzing the impact of public investment on economic growth through investment channels Using this model, the doctoral student has built the economic model to analyze the impact of PI by the province's investment channel of QN province: gyit = β0 + 1gKgit + 2gKpit + 3gLit + 4gHit + εit (1) Table 2.2 Interpret the variables of the model Name variable Economic Sign Interpretation and calculation gyit gyit is the growth rate of year t, which is growth measured by the percentage of the increase in sector i next year with previous year Public gKgit investment gKit is the capital growth rate of year t, which is measured in the percentage of the sector's public investment next year with the previous year Private investment gKpit gKpit is the private capital growth rate of year t, which is measured in comparison between the private investment scale next year sector’s private 13 Name variable Labour Sign Interpretation and calculation gLit gLit is the growth rate of year t, which is measured by the percentage of the labour sector in the next year Human gHit gHit is the labor rate of in year t capital Secondly, an analysis of the impact of public investment on poverty reduction The study will use the following model to analyze the impact of PI in QN province on poverty reduction: ratengheoi = β0 + β1ratekgi + β2hi + β3popui +εit (2) ratengheo: Representing the poverty rates ratekp: A representative of PI is determined by the ratio of PI of the province h: A representative of the human capital εit: other random factors 2.2.3 Data collection method a Secondary data collection method Secondary data serving research is collected mainly from the provincial statistical yearbook of QN and some statistics from several provincial departments b Preliminary data collection method The study has collected primary information through the extensive interview method of private business managers to know their investment decisions when possible to feel the effects of PI such as infrastructure quality, environmental quality 14 CHAPTER PUBLIC INVESTMENT AND ITS IMPACTS TO THE ECONOMIC GROWTH OF QUANG NGAI 3.1 Investment and economic growth in QN province 3.1.1 Investment in QN province a Investment source of QN During the last 20 years, the province's economic growth has been high and invested in a huge role Statistics showed that the total investment in the province was very low, but increased sharply from 2006 and the highest in 2008 (24470 billion dong), which gradually declined, but from 2014 The state's investment in public or public investment accounts mainly, highest in 2007 to more than 84% and the lowest in 2016 Foreign investors fell sharply from 2006 to 2009 Foreign investment has increased and accounted for nearly 9% From here: (1) The role of public capital in this economy is essential; (2) The potential for investment from the outside state sector is also quite large b Allocation and use of investment in economic growth The allocation of investment capital shows that the investment source for aquaculture is decreasing The service capital share is generally increasing but also fluctuations Sources of investment are mainly focused on industrial development sector This proportion increases continuously since 1995 to the peak of 2010, the proportion is near 80% If the ratio of investment capital in the investment section indicates the proportion of capital invested in the basis of capital construction This proportion is increasing and now more than 80% Fixed asset purchase rates are not built in the basic construction ratio 15 but also decreasing and currently accounted for more than 12% Other accounts accounted for about 4 – % The ICOR used the general investment capital from 1995 2016 is The inefficient using of investment capital caused by many causes, but generally administrative procedures are cumbersome, the quality of poor governance has made time for investors to carry out the prolonged project 3.1.2 Investment in QN province a Mobilization of public investment Investment in current prices and fixed prices in previous years 2000 is very low, under a few hundred billion dong In 2001 - 2005 began to increase The largest PI in 2006 and to the top of 2007, and then declined In the years after 2010, the scale is still quite high The rate of PI with the total investment in QN province has always taken quite a high proportion, before 2005 is more than 62%, from 2006 to nearly 76%, and 2007 is more than 84%, 2008 is more than 78% PI is mobilized from different sources But the source of the state budget is still the main source, which takes over more than 85% The inherent capital of state - owned enterprises is usually low but in the period from 2005-2013, then plummeted from 2014 and there is only about 7% Other sources are not significant b Allocation public investment of QN The proportion of PI to the sectors of the economy is basically the same as general distribution The proportion of investment in the construction industry is still high, although it has fallen from 2010 to nearly 54% Followed by tourism industry; however, the variation but still rises in 2010 and is close to 40% The proportion of PI to fisheries is significantly lower than 7% 16 c Using public investment of QN How to using public investment is displayed firstly through the ICOR Table 3.1 shows that the ratio of PI is high in the period 1995 - 2005, two subsequent stages The average in 20 years is 6.85 This level is higher than the average of Viet Nam PI Table 3.1 Efficiency of PI in QN The state ICOR The Private ICOR 1995- 2001- 2006- 2011- 1995- 2000 2005 2010 2016 2016 7.39 7.85 4.70 3.85 6.85 1.37 2.78 4.59 3.33 3.02 (Source: Provincial statistical yearbook and the socio economic report of the provincial people's committee) But compared to the private sector's investment efficiency, it is quite low, as well as the state of the country, the ratio of PI to the private sector 3.2 Impact of public investment on economic growth in QN province 3.2.1 A contribution of public sector to economic growth in QN province According to the level of contribution to GDP overall, the share of GDP in total GDP has increased from 1995 to now In 1995, this number was 23%, now is more than 52% So, the public sector has created more than GDP and contributions to the increasing GDP of QN province 3.2.2 Estimating the impact of public investment on economic growth in Quang Ngai province by investment channel - Economic model 17 - Research on using (1) equations gyit = β0 + 1gKgit + 2gKpit + 3gLit + 4gHit + εit (1) Table 3.2 Estimate results Estimate method Random effects (REM) Fixed effects (FEM) Dependent variable : economic growth – gyit gKgit +0.0581*** +0.056*** (0.012***) (0.012***) +0.031*** +0.032*** (0.016***) (0.015***) +0.2200744*** +0.185*** (0.041***) (0.043***) +0.201*** +0.157*** (0.067***) (0.067***) +5.012*** +5.582*** 0.703*** 0.725*** R – sq 0.801 0.799 Breusch-Pagan / Control by robust chi2 (3) = 6.77 gKpit Glit gHit constants Cook-Weisberg Prob > chi2 = 0.0795 test for heteroskedasticity Vif chi2 = 0.0735 18 From a quantitative estimate of some comments: + Plus PI growth has positive impact on economic growth The regression coefficient is + 056 said that if the growth rate increases by 1%, the GDP growth will increase + 0.056 % with the assumption that other factors are unchanged; + Plus the regression coefficient of Gli is + 0.185 This means when other conditions don't change, if labor adds to 1%, GDP growth will increase plus 0.185%; + The regression coefficient of human capital is + 0.157 This implies that when other conditions don't change if the professional qualification of labor is increased by 1%, GDP growth will increase + 0.157% + Constant equals + 5.582 explains that if elements are unchanged, GDP growth is still 5.582% 3.3 Impact of public investment for poverty reduction in QN province 3.3.1 Some public investment programs for poverty reduction in QN province - National targeted programme on rural development - National targeted programme on sustainable poverty reduction 3.3.2 Estimating public investment for poverty reduction * Economic model The study will use the following model to analyze; that is: ratengheoit = β0 + β1ratekgit + β2hit + β3popuit +εit (2) The estimate is shown in table 28 and annex Table 3.3 Model estimate Results 19 Model (2) with 3SLS Dependent variable Ratekg Hi Ratepopu Ratengheo ratekg Model (2) with OLS ratengheo -0.649*** -0.64*** (0.099) (0.05) -0.374* -0.36** (0.201) (0.11) 3.562** 3.62* (1.684) (1.69) 0.670*** Ratego Constant Model (2A) (0.077) 30.337*** 21.914*** 29.95*** (1.498) (0.691) (1.31) Observations 42 42 42 R-squared 0.9671 0.6436 0.9673 From a quantitative estimate of some comments: Firstly, PI has the effect of poverty reduction, the regression coefficient is - 0.649 implies that if other factors are unchanged, PI rate for districts compared to the total increase in 1%, poverty rate will reduce 0.649% Secondly, the human capital of the training in the districts will stimulate poverty reduction With the regression coefficient - 0.374 implies that when other elements are unchanged, the rate of employment through the district's training rate increases by 1%, poverty rate will reduce 374% Thirdly, the high percentage of population growth will be accompanied by severe poverty, the regression coefficient is + 3.562 said that when other elements are unchanged, the percentage of 20 population increases by 1%, poverty rate will increase 3.562% 3.3.3 Poverty reduction in QN The proportion of poor households in QN province is steadily decreasing From 2015 to 2017, the new poverty rate fell 4.42% in rural and more than 1.5% urban areas As a result, QN's poverty reduction effort is huge and has gained quite good successes One of the causes is the result of public investment 3.4 The impact of public investment on private investment through private investment decisions 3.4.1 The effects of public investment to private investment, including: (1) Effect of infrastructure; (2) Effect of business environment; (3) Effects of output support and trade promotion; (4) Influence from Labour support for enterprise; (5) Influence from Startup support 3.4.2 Contributions from the private sector to economic growth in QN province The private sector has made an increasingly important contribution to EG in QN GDP of the private sector in 1995 was about VND 3648 billion, in 2005 increased to VND 8822 billion and in 2016 was more than VND 21438 billion The average growth rate for the period 1995-2016 is 8.3% Private sector ICOR is 3.02, much better than the public sector of 6.85 The proportion of private investment in Quang Ngai economy has increased but is quite slow, from 39% in 1995 to 47.9% in 2016 This implies that private investment is still quite large but has not been mobilized into the economy To mobilize private investment, there are many ways that one is using public investment to create the most favorable 21 conditions for private investment development 3.5 The impact of public investment on the scale of growth and economic restructuring in QN In general, the province's EG relies heavily on TFP or technology but capital is still very important In the structure of investment capital, PI compared to the total investment capital of the province always accounts for a high proportion This shows that PI has a significant impact on the scale of economic growth and economic restructuring in QN Therefore, it can be said that PI is an important factor contributing to the economic growth of QN Province over a period of more than 20 years and create a breakthrough in development from the results One of important results of PI in QN was the event that Dung Quat Oil Refinery was put into operation in 2009 After this, the GDP growth rate increased from 1995 to 2009 and then returned to maintain stable growth from 2011 According to 2010 prices, GDP reached 17 trillion in 2008, more than 29 trillion in 2010, and more than 44 trillion in 2016 Thus, the economic scale of the province has expanded significantly and allowed to improve the socio-economic situation of the province Considering the economic structure, the share of the agriculture sector decreased from 51% to 17.9% During this time construction and industry have increased from 15.7% to 55.9%, up more than 40%, while services dropped from 33.1% to 26.2%, down by nearly 7% The above analysis shows that the economy is changing positively, the economic promotion is gradually based on the growth of industry - construction or in other words the role of this industry is growing and playing the role of master weak 22 CHAPTER IV POLICY IMPLICATIONS 4.1 Policy implications 4.1.1 Improve the policy on mobilization, allocation and use of efficiency Firstly, they must have changes in mobilization, allocation and use of PI in the coming years Secondly, creating favorable environment to promote economic development components, increase expenditure on development investment Thirdly, distribution of PI in years has to ensure the highest efficiency of socio - economic development Fourthly, increasing supervisory management, investment assessment, promoting the role of participate in surveillance of community 4.1.2 Promoting the role of public investment to boost economic growth through the investment channel Firstly, continuing to maintain and increase the positive impact of PI on economic growth in the coming years Secondly, restructuring of PI should focus on the development of private investment and improving the effectiveness of this resource Thirdly, using PI as resources to invest in the highest capital mobilization in the economy Fourthly, uses PI to increase human capital 4.1.3 Promoting the role of public investment to promote private investment In terms of PI, general view is to consider PI as bait to 23 mobilize more private investment into the economy Focus PI on solving problems and barriers to private investments 4.1.4 Promoting the role of public investment to promote poverty reduction Firstly, when planning for PI policies should be associated with sustainable poverty reduction goals Secondly, focusing on training vocational training, training for rural labourers, remote areas Thirdly, continuing to maintain and improve the quality of family planning on the province 4.2 The limitations of research and Rectify The limitations of the dissertation Firstly, the study conducted research on the economy within the economy, so the inheritance of previous studies and solving the problem is not like expectations; Secondly, the length of time is only about 21 years and the extent of the coverage of the field of research is only three sectors I should be limited to Thirdly, method is compared to two methods of estimating Rem and Fem approach which should be compared to many other methods Fourthly, the content of the newly proposed channels is an impact on the investment channel, which promotes private investment by reducing poverty Many channels are not mentioned in the example of employment creation, improving the quality of health, Rectify: if development continues: - Apply more estimates to comparison like the var model or 24 two - stage method of SLS and equations of equations such as SLS to handle endogenous problems - Expand the period of research and scope of the class II CONCLUSION On the basis of the research results in the chapters of the above thesis, the conclusions can be drawn as follows: First; the first goal is to formulate a framework for analyzing the impact of the PI on TFF Secondly; the thesis also assessed the situation of raising, allocating and using the capital of QN province; It shows that the QN people have been mobilized on a larger scale; contributing to the formation, improvement and development of the socio-economic infrastructure of the province; however, the PI is fragmented and ineffective This is also the basis for confirming that the thesis has clarified Hypothesis and fulfilled the second objective set out from the beginning Thirdly; the thesis proved Hypothesis and the second objective was set out from the beginning The PI has had a positive impact on the financial sector via investment channels, while not overwhelming it, which is exerting additional influence on the role of other resources Fourthly; the study has made it clear that Hypothesis and a third set of objectives are set from the beginning The PI helps to improve poverty and promote poverty reduction Fifthly; the thesis has suggested some policy implications to promote the role of the private sector to the economy Implications have focused on the more effective use of the PI, especially using this source to improve the effectiveness of poverty reduction ... industrial zones, Quang Phu and VSIP industrial zones are fully invested with many attractive incentives to attract investment projects in the heavy industry and the light industry that resolute... the size of the economy according to GDP, or economic growth in GDP So economic growth can be a better result of the economy in the time and is expressed by increasing the scale of the economy as... potential development, the local strength and development of many preferential policies to serve attracting investment, QN's economy has been very advanced for years Compared to the time of 1989,