LV Thạc sỹ_Public investments in transport and economic growth

NATIONAL ECONOMICS UNIVERSITY - INSTITUTE OF SOCIAL STUDIES VIETNAM-NETHERLANDS MASTER'S PROGRAM IN DEVELOPMENT ECONOMICS PUBLIC INVESTMENTS IN TRANSPORT AND ECONOMIC GROWTH: THE CASE OF VIET NAM IN THE PERIOD 1996-2006 A thesis presented by … Supervisor: Dr… University, Vietnam January, 2011 ACKNOWLEDGEMENT First of all, I am grateful to my main supervisor, Dr … ABSTRACT This thesis analyzes the impact of public investment in transport on Vietnamese economic growth over the period 1996 - 2006 Relevant econometric models based on panel data from 64 Vietnamese provinces are used to estimate the impact Empirical results obtained show that a change in public investment in transport has a positive and significant impact on the country’s economic growth Of the three main components of public investment, including transport, education and agriculture investments, empirical evidences indicate that only public investment in transport has contributed to growth Besides, a positive spillover effect of investment in transport on economic growth is also observed from the empirical results TABLES OF CONTENT ACKNOWLEDGEMENT ABSTRACT CHAPTER 1: INTRODUCTION .7 CHAPTER 2: LITERATURE REVIEW 12 2.1 Theoretical review 12 2.1.1 Exogenous growth theories 12 2.1.1.1 Harrod - Domar Model 12 2.1.1.2 Solow - Swan Model 13 2.1.2 Endogenous growth theories .14 2.1.3 Theoretical models on public expenditures 15 2.1.3.1 Barro Model .15 2.1.3.2 Devarajan, Swaroop and Zou Model 18 2.1.3.3 Davoodi and Zou Model 19 2.2 Empirical review 20 2.2.1 International studies 20 2.2.2 Vietnam studies review 24 CHAPTER 3: OVERVIEW OF MACROECONOMIC AND PUBLIC INVESTMENT IN TRANSPORT IN VIET NAM 27 3.1 Macroeconomic development in Vietnam 27 3.1.1 Macroeconomic development 27 3.1.2 Overview of Vietnamese government expenditure .30 3.2 Transport system and public investment in transport in Vietnam .33 3.2.1 Overview of transport infrastructure system .33 3.2.2 Overview of public investment in transport in Vietnam 36 3.2.2.1 State and local government investment in transport 36 3.2.2.2 Transport infrastructure invested by the Ministry of Transport 40 3.2.2.3 Vietnam’s transport expenditure level in comparison with neighboring countries 41 3.3 Transport investment and economic – social development in Vietnam .42 3.3.1 Contribution of transport investment to economic and social development .42 3.3.2 Impact of public investment in transport on GDP .45 3.3.3 Contribution of transport investment to GDP in Vietnam and some other countries .45 CHAPTER 4: EMPIRICAL ANALYSIS 47 4.1 Empirical model 47 4.1.1 Model specification 47 1.1.1 Baseline Regression .47 4.1.1.2 Extension regressions 49 4.1.2 Data and methodology 50 4.2 Empirical results and analysis 52 4.2.1 Public investments and economic growth - baseline regression results and analysis: 52 4.2.2 Public investments and economic growth - extension regression results and analysis .57 4.2.2.1 The role of education in the impact of public investment in transport on economic growth: 57 4.2.2.2 The spillover effect of public investments in transport of neighboring provinces 58 4.2.2.3 The relationship between the share of public investments in transport and economic growth rate .60 4.3 Other econometric issues 62 CHAPTER 5: CONCLUSION AND POLICY IMPLICATIONS 64 5.1 Conclusions 64 5.2 Policy implications .65 BIBLIOGRAPHIES 68 APPENDIX 71 LIST OF TABLES AND FIGURES Table 1: Macroeconomic development in Vietnam 27 Table 2: Regional and urban – rural mMonthly GDP per capita in current price 29 Table 3: Public expenditure as ratio of GDP (%) .30 Table 4: State government investment by sectors 31 Table 5: Actual state of national road system in Vietnam 33 Table 6: Actual state of national road system in Vietnam 34 Table 7: Public investment in transport in 2000-2006 .37 Table 8: State and local government’s investment in transport 2000-2006 .39 Table 9: Kinds of transport infrastructure invested by MOF (1996-2007) .40 Table 10: Transport Expenditure Levels as Percentage of GDP of East Asian Countries in period 1999-2004 41 Table 11: Returns to Public Investment in Vietnam, 2000 44 Table 12: Contribution of the transport sector to GDP in selected countries (%) 46 Table 13: Descriptive statistics 51 Table 14: Statistics for government investment shares, 64 provinces, 1996-2006 52 Table 15: Baseline regression estimates .53 Table 16: The effect of education level on growth elasticity of public investment in transport .57 Table 17: Spillover effect of public investment in transport 59 Table 18: Effect of a change in component’s shares on economic growth 61 Figure 1: Trend of public investment in transport infrastructure in constant price 38 Figure 2: Public investment in transport infrastructure per GDP 38 Figure 3: Public investment in transport versus GDP 1996-2006 45 LIST OF ABBREVIATIONS GDP – Gross Domestic Product GSO – General Statistics Office IMF – International Monetary Fund OECD - Organization for Economic Co-operation and Development MOF – Ministry of Finance MOT – Ministry of Transport UN – United Nations US – United States USD – United States Dollar WTO – World Trade Organization CHAPER INTRODUCTION 1.1 Problem statement How to raise the rate of economic growth and improve human living standards is always a great question by governments and policy makers In an economic perspective, the past decades have seen efforts of economists to clarify the source of economic growth and the root of increasing disparities between rich and poor countries Exogenous growth models initially promoted by Solow (1956) and Swan (1956) recognized capital accumulation and technical progress as the determinants of economic growth According to their studies, policy variables have no effect on long term economic growth Policy variables such as investments in public infrastructure have only transitional growth effects Contrast to the idea of the exogenous growth theory, a new stream of endogenous growth theory which is prompted by Lucas (1988) and Romer (1990) argued that the rate of productivity growth is directly depended upon the level of some policy variables such as the level of education of workforce, the amount of transport investment or level of public investment This framework of endogenous growth theory has later stimulated the body for empirical analyses which attempt to examine the link between public investment and aggregate economic activities Examining time series data from the United State in the post World War II, Aschauer (1989a) found a large and significantly positive elasticity of output with respect to public capital stock Firming for his finding, Aschauer (1989b) argued that in area such as public utilities, road and education, public expenditure may complement higher private marginal rate of return This finding is later supported by early study of Munnell (1990a) By exploring the case of the US she indicated that at national level percent increase in stock of public capital would increase output by 0.34 percent Also focusing on the relationship between public investment and economic growth but based on panel data at state level, some other authors provided the result that public capital stock had a significant positive impact on output (Munnell, 1990b; Kelejian and Robinson, 1994) However, they show that the estimated magnitude of public capital stock elasticity generally gets smaller when moving from national to state data because of infrastructure spillover effects The explanation articulated the finding of Munnell (1992) when she argued the benefit of infrastructure spillover across state borders, so that statelevel studies not measure the full effect of public investment This low correlation is also recognized by Nourzad and Vrieze (1995) Based on econometric method of Aschauer and Munnell and taking into account random effect, their study on a panel data of OECD countries over the period of 1963-1988 has shown a relatively low but significant output elasticity of 0.05 with respect to public investment Recognizing the impact of public capital stock on economic productivity, other economists tend to focus on the relationship between economic growth and public investment in one of core infrastructures - the provision of transport infrastructure such as highway, road, port or airport - at national, regional and state levels Based on cross country data, a study of Antle in 1983 implies that transport and communication weakness is the most constrain in less developing countries (LDCs) to raise their production Later in 1993, study of Easterly and Rebelo indicates that growth and public investment in transport has a strong and robust association At the same time with study of Easterly and Rebelo, when exploring the case of US, Canning and Fay (1993) also found a large estimated rate of return for transport and telephone systems at about 40 percent Based on this finding they come to conclude that developed countries with higher income will have normal rate of return for transport infrastructure while newly industrializing countries like South Korea and Chile have a very high rate of this return This finding has been supported for arising concerns on identifying effects on economic growth of transport investment factor in the case of industrializing and developing countries Known as a developing country with impressive economic success of the gross domestic product (GDP) growth rate of 7.5% over 2000-2006, identifying the determining factors of rising economic growth rate while maintaining macroeconomic stability is thus crucial to the government and policy makers in Vietnam In process of finding a reasonable way to improve the economy, public investment is always considered as an engine of economic improvement by the Vietnamese government Budget for transport infrastructure investment accounts about 45-50% of the country’s total non-military spending each year Understanding the effects of public investments in transport on economic growth thus is essential to policy makers in the face of increasing globalization Upon the demand, economic studies on the subject have been widely discussed in recent years Empirical study of Kokko, Patrik and Tingral (2005) has provided some policies that the Vietnamese government would use to promote provincial growth and development, of which more investments in transport infrastructure take an important part Exploring other side of the subject, Lien (2004) examines reality of investments in transport system in Vietnam and concluded that although Vietnam’s transport infrastructure system has been improved, it has not met demands of the country’s social and economic development Other researches describe the impact of transport investment on economic development process in Vietnam and come to conclusion of the need for more investment in the field (Vinh, 2005 and Tin, 2008) Although identifying impacts of investment in transport infrastructure is an important issue for Vietnamese policy makers, existing researches on the subject are only descriptive It is easily observed that there have not been empirical studies using econometric method to examine the correlation in Vietnam These reasons require a study based on a quantitative analysis to examine the contribution of investments in transport on economic growth and thus give a comparison between the level of transport investment’s contribution with that of other public investment In this study, based on frameworks of Aschauer (1989), Munnell (1990), Barro (1991) I focus on investigating the impact of public investment in transport on economic growth in Vietnam and making statistical comparison between the contribution of public investment in transport and the contribution of other components of public spending The study also gives policy implications which would be crucial for long-run development in Vietnam 1.2 Objective of the thesis  Review public investments in transport in Vietnam in recent years  Investigate whether public investments in transport have a significant impact on economic growth of Vietnam in the period 1996-2006  Compare the contribution of public investments in transport with that of other public investments to Vietnamese economic growth in the period 1996-2006  Find out some factors which would affect level of the contribution of public investments in transport to economic growth  Recommend appropriate policies to raise the effectiveness of public investments productivities in transport and government investments in general as well 1.3 Research questions The thesis attempts to answer the following question: “Do public investments in transport have a significant impact on economic growth of Vietnam in the period 1996-2006?” Table 17: Spillover effect of public investment in transport Variable Pooled OLS (Log_y1) estimates Panel data estimates Fixed-effects Random-effects (1) W (2) (3) (4) 0.0636*** 0.114* 0.0706*** (0,0236) (0,0610) (0,0273) Gt 0.124*** 0,0472 0.115*** (0,0300) (0,0457) (0,0324) Ge (0,0465) (0,0853) (0,0445) (0,0431) (0,0579) (0,0452) Ga (0.128)*** (0.135)*** (0.128)*** (0,0309) (0,0449) (0,0331) Gi 0,0307 0,0171 0,0332 (0,0219) (0,0302) (0,0231) EI 0.0462*** 0.0968*** 0.0511*** (0,0139) (0,0281) (0,0159) Ip 0.0498*** 0.127*** 0.0600*** (0,0171) (0,0314) (0,0198) E 0,0892 0,111 0,0952 (0,0547) (0,0913) (0,0597) D 0,00652 0,00812 (0,0097) (0,0114) Constant 2.510*** 2.312*** 2.521*** (0,1800) (0,3470) (0,2000) Observations 659 659 659 R-squared 0,104 0,118 Notes: ***:= 1% significance level; **:= 5% significance level; *:= 10% significance level Table 17 provides the results of regression in equation (5) using pooled OLS and panel data Empirical results show a positive elasticity and a significant link between GDP of one province with transport investment in its neighboring provinces It indicates that the change of state and local government investment in transport of the neighboring areas would contribute to the change of a province’s GDP One percent increase in public investment in transport of neighboring provinces would increase 0.063 percent of GDP of a province in the same region This finding is opposite the suggestion of some other authors who show a negative spillover effect of highways investment in a recipient region on economic growth of other regions1 In a study of Boarnet in 1995, empirical results from the case of California states presented a negative link between transport investment of its For more details see Gillen and Haynes (2001) and Ozbay, Ozmen-Ertekin and Berechman (2007) 59 neighboring areas and growth of a state This supports Boarnet argument that highway and road capital of one state is productive with its economic growth rate because it shifts resources from neighboring states to this state Highway and street investment in a country ought to not only create increases in output in that country, but also economic losses to its neighboring countries elsewhere To explain this difference, the characteristics of a developing country might be a subject for the different result of the Vietnamese case With a weak transport infrastructure system, transport infrastructures of neighboring areas resemble each other Although each province is obtained a different amount of money on transport investment, this different investment is not large enough to create a big inequality in competitiveness between provinces in a same region Moreover, transport investment in a province does not only create facilities for local activities, but also benefit production of neighboring province via trade promotion 4.2.2.3 The relationship between the share of public investments in transport and economic growth rate Devarajan, Swaroop and Zou (1996) suggest that a change in the shares of different components of government expenditure would impact on output Follow the argument, this section uses Vietnamese provincial data to clarify the impact Approached different components of the government investment will be government investments in transport agriculture and education The results obtained give a more details on the contribution of government investment in transport to growth in the case of Vietnam Table 18: Effect of a change in component’s shares on economic growth Pooled OLS Variable (Log_y1) Gt/G Ge/G Ga/G Panel data estimates Fixed-effects Random-effects 0,0495 0.0841** (0,0486) (0,0393) (0,0670) (0,0332) (0,0566) (0,0458) (0.150)*** (0.123)*** estimates 0.0929** (0,0366) (0,0364) (0,0436) (0.116)*** 60 (0,0297) (0,0458) 0,0235 (0,0842) (0,0372) (0,0822) EI 0.0464*** 0.104*** (0,0138) (0,0278) Ip 0.0459*** 0.133*** (0,0170) (0,0311) E 0.0997** 0,1420 (0,0498) (0,0890) Constant 2.515*** 2.326*** (0,1850) (0,3280) Observations 659 659 R-squared 0,094 0,114 Notes: ***:= 1% significance level; **:= 5% significance G/GDP (0,0327) 0,0249 (0,0421) 0.0524*** (0,0160) 0.0580*** (0,0201) 0.109* (0,0562) 2.527*** (0,2030) 659 level; *:= 10% significance level As shown in table 18, estimates from pooled OLS and panel data indicate a consistent finding with previous section A change in the share of government investment in transport is also positive to economic growth The coefficient estimator is significantly different from zero at 5% level This implies that an increase in the share of public investment in transport to total public investment would contribute to the increase of economic growth rate One percent increase in the share would lead to 0.08 percent increase in growth rate The result once again implies the positive impact of public investment in transport on economic growth The finding is very consistent because in the three components approached only an increase in transport investment share stimulates economic growth Regarding the two other components of government investment, table 18 shows a negative impact of a change in share of public investment in agriculture to total public investment on growth This suggests that the Vietnamese government outlays for the area which not create a benefit for economic growth of the country One percent spent more in the area would decrease growth rate by 0.122 percent For public investment in education and total public investment to GDP, empirical results show a nonsignificant link between the change in the ratio of public investment in this area to total public investment and growth Their high posterior probability implies that those factors may require other conditioning variables in order to display its full importance 4.3 Other econometric issues - Shapiro-Wilk test for normality: 61 Because residual ui represents the combined effects (on the dependent variable) of a large number of independent variables that are not explicitly introduced in the regression model An assumption for normality of residuals in OLS estimators can ensure that the impacts of these omitted or neglected variables is small and at best random (Gujarati, 2004, p.108-112) For significant analysis results, this paper uses the Shapiro-Wilk test to examine the normality of residuals The null hypothesis is that the residuals are normally distributed The test’s results are shows in following: Shapiro-Wilk W test for residuals normality Variable Obs Residuals 670 W V z 0.99649 1.539 1.050 Prob>z 0.14692 As the result shows, the p value of rejecting null hypothesis is 0.146 This quite high so that we can recognize that out of some variables added in the model, there might be other omitted variable which can impact the change of dependent variable (economic growth rate in the study case) However, because this study bases on panel data to analyze the relation between the rate of economic growth and independent variables, therefore the value obtained from the Shapiro-Wilk test can be accepted in this case - Correlation matrix Econometrics theory indicates that high degree of collinearity among variables could cause large standard error of coefficient estimators which make it hard to estimate accurately (Gujarati, 2004, p.344-345) Appendix A4 presents the correlation matrix of all variables that are used in this study We find that the correlation coefficients of nearly all explanatory variables are not sufficiently large to cause collinearity problems - MacKinnon, White, and Davidson test (choose log-linear form) In attempt to choose correct form between linear and log-linear models, this paper conducts MacKinnon, White and Davidson test (Gujarati, 2004, p.280-282) with H0: Y is linear function of X which means that linear model is the correct form; H1: Y is linear function of ln(X) which means that log-linear model is the correct form The test results are presented in appendix A1 Coefficient of Z1 represents the test statistic of H0 which is significant at 1% level Coefficient of Z2 represents the test statistic of H1 which is insignificant at 5% level At the result, we reject H0 and choose log-linear model 62 CHAPTER CONCLUSION AND POLICY IMPLICATIONS 5.1 Conclusions Empirical evidences on the link between public investment in transport and economic growth for developing countries have been scarce Still known as a developing country with small scale of economy, however, Vietnam has experienced and impressive growth during the last decades Of which, the success in government expenditure policy is considered one of the most important factors which contribute such economic achievement of the country This thesis examines government investment in transport area and its impact on growth and investigates whether state and local government investment in transport has contributed to GDP of the country over the period 1996-2006 A comparison between the contribution of investment in transport and that of government investment in other areas is also mapped out to give more details of the importance of state and local investment in transport Pooled OLS and panel data analysis are performed and results obtained highlight the importance of local and state government investment in transport to the country economic growth Moreover, empirical evidences suggest that a change in state and local investment in transport is positive to growth Of the three main components of public investment including transport, education and agriculture investment, empirical results indicate that only investment in transport is growth-enhancing Furthermore it has been observed that an increase in the share of government investment in transport to total public investment would increase economic growth The contribution of investment in transport at one province does not only derive economic activities in this province but also in neighboring areas Regarding local and state investment in education, empirical evidences show the negative and inconclusive effects to growth A subject should bear in mind that the transmission channel from education outlays to actual education and through human capital accumulation to economic growth is complex and may have long lags Investment in education at specific time might not immediately contribute to the increase in economic growth This finding might be against the belief of many people However, it is consistent with the finding of some other studiers such as Barro (1990) or Hanushek (1996) who argue that more resource to public schools would not improve quality of labor capital 63 For agriculture area, although the significant impact has been seen between public investment in agriculture and economic growth, statistical results has shown that this category of public investment would appear to have only abrupt economic growth The strong negative impact of agriculture investment may well be explained by small scale of agriculture production in Vietnam Although the main objective of public investment in the sector is to improve the productivity of smallholder agriculture, small scale of agriculture production with limited technology implication and mechanization in Vietnam would hinder productivity growth Regarding other explanatory, we find that private investment, trade openness and educational level have the positive impacts on growth The most prominent factor can be education level which is presented by the ratio of high school graduated pupil to population One percent increase in the ratio would enhance economic growth rate by 0.11 percent This means that province which has higher education level would have more productivity growth However, evidence has shown that education level has negative impact on the link between public investment in transport and economic growth This can be well explained by labor emigration Due to the need for higher education and finding work, the emigration of those pupils might reduce benefits from transport improvement Overall, empirical results support a conclusion that local and state investment in transport has actively contributed to Vietnam’s economic success in the last decade This finding is corresponding to arguments by Aschauer (1989), Barro (1990), Boarnet (1995), Canning (1999), Boopen (2006) and many other authors who support for growth significant effect of government capital expenditure in that score infrastructure With an objective of providing a statistic ground, the results from the thesis may guide a better and more efficient government budget allocation for Vietnamese policy makers 5.2 Policy implications The policy implications are obvious In the condition of budget constrain, the Vietnamese government always undergoes cutting its expenditures and faces a pressure of finding an optimal budget allocation with an absence on solid empirical grounds As the results show, budget strategy for infrastructure investment is almost built in the condition of having no solid statistical foundation and based on a forecast of real demand for infrastructure capital The results from this thesis thus may guide a better and more efficient government budget allocation It has been implied that government should increase its expenditures in investment, especially in transport projects The government should develop an integrated, efficient and affordable transport system for a long time 64 social and economic development To this, the government needs to focus on working out a national strategy on transport improvement which is based on a general balance with other areas and with economic development strategy, instead of basing much on the reality of demand for transport improvement which has been submitted by provinces as doing now Moreover, one factor that restricts productivity of transport project in Vietnam is the late of land clearance process A complexity of land management is the largest reason why the process of land clearance taking so many years As a result, it makes transport project can not complete on time and reduce project’s productivity In order to solve this problem, the long term plan for transport improvement should incorporate the development of a land management regime and scheme for urban development Although public investment in transport is seen to have a remarkable contribution to economic growth in Vietnam, its contribution is still modest in comparison with that of some neighboring countries Statistics have shown that in the period, almost capital is used to repair available transport system and financed by state and local government Participation of private sector is very limited This may be one of the reasons for low efficiency of transport projects in Vietnam during the period In future, to meet the demand for transport infrastructure improvement, the government should increase money financed for the sector by diversifying its capital mobilization which ranges from private participation, public and private participation, official development aid (ODA) and international loans instead of capital expenditure cuts from the budget The government should ensure that the private sector have sufficient incentive to invest in transport capital if the government has a clear and active mechanism for private participation Especially in case of increasing worry on productivity of government projects, increasing private participation in transport projects may be the most important solution This is synonymous with the way that the government tries to reduce its investment procedure and to promulgate new policies to favor private participation In terms of government policy management, the government may pursue different social and economic objectives Those objectives even are not homogenous in short term Therefore, this argument does not mean rigidly that the government should purely increase its capital expenditure on transport infrastructure However, the study persuades the government to continuously follow its investment policy in transport improvement in recently Increasing public investment in transport has obviously obtained remarkable economic achievements We have to admit that although investments in infrastructure 65 system in general or in transport system in particular have been noticeably increased in recent years in Vietnam However, in a comparison with neighboring ASEAN countries, investment in transport infrastructure in Vietnam is still very small and still does not meet the demand for economic development For this reason, in coming years the Vietnamese government needs to set up its objective of capital focusing on transport infrastructure investment by mobilizing all available resources 66 BIBLIOGRAPHIES Aschauer, D A 1989 “Is Public Expenditure Productive?”Journal of Monetary Economics 23 (March): 177-200 Barro, R J 1990 “Government Spending in a Simple Model of Endogenous Growth” Journal of Politica1 Economy 98 (October): S 125 Boarnet, 1995 “Transportation Infrastructure, Economic Productivity, and Geographic Scale: Aggregate Growth versus Spatial Redistribution” The University of Califonia, Working Paper No 255 Boopen.S, 2006 “Transport Infrastructure and Economic Growth: Evidence from Africa Using Dynamic Panel Estimates” University of Technology, Mauritius, Pointes-aux-Sables, Mauritius Canning, D and M Fay 1993 “The effect of transportation networks on economic growth”, Columbia University Department of Economics Discussion Paper Canning D, and E Bennathan (2000) “The social rate of return on infrastructure investments”, World Bank research project , RPO 680-89, Washington, D.C Cohen J.P and Paul C.J.M.(2004) “Public infrastructure investment, interstate spatial spillovers, and manufacturing costs” The Review of Economics and Statistics 86, 551-560 Devarajan, S Swaroop, V and Zou H (1996) “The composition of public expenditure and economic growth”, Journal of Monetary Economics, 37, 313–44 Deno K.T (1988) “The effect of public capital on U.S manufacturing activity: 1970 to 1978.” Southern Economic Journal 55, 400-411 Easterly, W and S Rebelo (1993) "Fiscal policy and economic growth: an empirical investigation." 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D (1998) “Socio-Economic and Spatial Impacts of Trans-European Transport Networks” Institution Raumplanung, University Dortmund 69 APPENDIX A1: Review of the production elasticity of public capital spending on production functions: Study Aggregation level Output Specification Data elasticity of public capital Cobb-Douglas; log Time series Aschauer (1989a) National level Cobb-Douglas; log 1949-85 Time series 0.39 Ram and Ramsey National level Cobb-Douglas; log 1949-85 Time series 0.24 Munnell (1990) National level Cobb-Douglas; 1949-87 Time series 0.31-0.39 Ford and Poret-1991 National delta log Cobb-Douglas; 1957-89 Time series 0.39-0.54 Tatom (1991) National delta log Cobb-Douglas; log 1949-89 Time series insignificant Eisner (1994) National level 1961-91 Sturm and De Haan Cobb-Douglas; log Time series -1995 level and delta log 1949-85 Cross-section resp 0.19-0.26 Costa et al (1987) Munnell and Cook 48 states Translog; level Cobb-Douglas; log 1972 Pooled cross- -1990 48 states level section 1970-86 Cross-section Cobb-Douglas; log aver-aged 1965- level 83 Pooled cross- Aschauer (1990) 50 states 0.27 0.41 and insignifi-cant, 0.15 0.055-0.11 section 1970-86 Cobb-Douglas; log Pooled time 0.17 Eisner (1991) Garcia-Mil` a and 48 states level Cobb-Douglas; log series 1970-86 Panel data 1969- insignificant McGuire (1992) Holtz-Eakin 48 states 48 states and level Cobb-Douglas; log 82 Panel data 1969- 0.04-0.05 (1992,1994) regions level 86 Pooled cross- Cobb-Douglas; log section 1970-86 insignificant Munnell (1993) ) 48 states level (90) Panel data 1970- 0.14-0.17 Pinnoi (1994) 48 states Translog; level Cobb-Douglas and 86 -0.11-0.08 translog; log level Panel data 1970- and delta log Cobb-Douglas; 86 Panel data, 1970- Evans and Karras (1994a) Holtz-Eakin and 48 states 48 states 70 insignificant negligible Schwartz (1995) delta log 86 Panel data 1958- Translog; level 78 Cobb-Douglas; Panel data 1970- 38 metropolitan Eberts (1986) Garcia-Mil` a, areas McGuire and Porter 0.03-0.04 (1996) 48 states delta log Cobb-Douglas; 83 Panel data 1966- insignificant Aschauer (1989c) G-7 Japanese delta log 85 Panel data 1954- 0.34-0.73 Merriman (1990) regions Translog; level 63 0.43-0.58 mixed and Cobb-Douglas; log Time series level 1960-88 Berndt and Hansson (1991) Sweden implausi-ble results A2: Correlation matrix g1 g1 D Gt Ge Ga EI Ip E W -0.0016 0.1116 0.0334 -0.1428 0.158 0.14 -0.084 0.2529 D -0.2503 -0.275 -0.3417 0.2126 -0.1397 -0.1957 -0.1618 Gt 0.5767 0.3859 -0.217 0.0305 0.1608 -0.0331 Ge Ga 0.4352 -0.1604 0.1459 -0.0685 0.1136 -0.3443 -0.0493 0.2315 -0.1177 71 EI 0.0697 -0.2393 0.1894 Ip -0.1579 0.1737 E -0.5 W A3: MacKinnon, White, and Davidson test of choosing between linear and log-linear regression models H0: Y is linear function of X (reject H0 if the coefficient of Z1 is statistically significant) H1: log(Y) is linear function of ln(X) (reject H0 if the coefficient of Z2 is statistically significant) Z1= logy_hat- y_hat Random-effects GLS regression Number of obs Group variable: id_code Number of groups = 61 R-sq: within = 0.0923 Obs per group: = 10 between = 0.0396 avg = 11.0 overall = 0.0699 max = 11 Random effects u_i ~ Gaussian Wald chi2(9) = 51.54 corr(u_i, X) Prob > chi2 = 0.0000 gy reg Gt Ge Ga EI Ip E E Z1 _cons sigma_u sigma_e rho = (assumed) Coef 0.024384 4.346707 123.5264 -47.10995 0.8998714 -0.4813111 1.856277 -52.74307 -11.26584 136.3173 1.0767978 7.7852944 0.01877105 Std.Err 0.1435268 8.171693 45.09983 26.72643 0.4437512 3.25759 0.4210615 11.38974 3.430264 26.40317 z P>z 0.17 0.53 2.74 -1.76 2.03 -0.15 4.41 -4.63 -3.28 5.16 = 670 [95% Conf -0.2569234 -11.66952 35.13232 -99.49279 0.030135 -6.866071 1.031012 -75.06654 -17.98903 84.56799 0.865 0.595 0.006 0.078 0.043 0.883 0 0.001 Interval] 0.3056914 20.36293 211.9204 5.272897 1.769608 5.903449 2.681543 -30.4196 -4.542648 188.0665 Z2= exp(lny_hat)- y_hat Random-effects GLS regression Number of obs Group variable: id_code Number of groups = 61 R-sq: within = 0.1143 Obs per group: = between = 0.0962 avg = 10.8 overall = 0.0930 max = 11 Random effects u_i ~ Gaussian Wald chi2(8) corr(u_i, X) Log_gy D Log_Gt = (assumed) Coef -0.0086727 0.1017295 Prob > chi2 Std.Err 0.01094 0.0340428 z P>z -0.79 2.99 72 0.428 0.003 = = 659 = 69.25 0.0000 [95% Conf -0.0301146 0.0350068 Interval] 0.0127692 0.1684522 Log_Ge Log_Ga Log_EI Log_Ip E Z2 _cons sigma_u sigma_e rho -0.067243 -0.0584448 0.0415888 0.0487764 -0.0418038 0.0466883 2.181345 0.11895465 0.50064161 0.05343891 0.0496835 0.0370405 0.0163149 0.0199716 0.1331483 0.0171231 0.5738914 -1.35 -1.58 2.55 2.44 -0.31 2.73 3.8 73 0.176 0.115 0.011 0.015 0.754 0.006 -0.1646208 -0.1310428 0.0096121 0.0096328 -0.3027697 0.0131276 1.056539 0.0301348 0.0141532 0.0735655 0.0879201 0.2191621 0.0802489 3.306152 ... of economic growth Weak transport infrastructure system is one of the three main constraints to economic growth including labor force and administrator system In order to gain higher economic growth, ... public investments in transport of neighboring provinces to GDP of province i The public investments in transport of neighboring provinces are measured by a sum of state and local government investments. .. identifying the determining factors of rising economic growth rate while maintaining macroeconomic stability is thus crucial to the government and policy makers in Vietnam In process of finding a