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MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING ACADEMY OF VIETNAM - NGUYEN THI KIM CHUNG THE IMPACT OF PUBLIC INVESTMENT ON ECONOMIC GROWTH AND INFLATION IN VIETNAM SUMMARY OF DOCTORAL THESIS Hanoi - 2021 MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING ACADEMY OF VIETNAM NGUYEN THI KIM CHUNG THE IMPACT OF PUBLIC INVESTMENT ON ECONOMIC GROWTH AND INFLATION IN VIETNAM MAJOR: FINANCE - BANKING CODE : 9340201 SUMMARY OF DOCTORAL THESIS INSTRUCTOR IN SCIENCE: 1.ASSOC.PROF.DR.DAO MINH PHUC ASSOC.PROF.DR.LE THI TUAN NGHIA Hanoi - 2021 PREFACE Necessity of research topic According to the World Bank, "public investment is public expenditure that increases the accumulation of physical capital Total public investment includes investments in physical infrastructure by central government, local government and public sector companies" At the same time, OECD believes that the definition and measurement of public investment vary from country to country, but generally refers to investment in physical infrastructure (roads, government buildings, etc.) And soft infrastructure (e.g., support for innovation, research and development, etc.) has a service life of more than one year Public investment has always been regarded as one of the government's fiscal instruments, with the main goal of stimulating long-term economic growth and influencing the economic system to maximize economic welfare (Tanzi & Zee, 1997) It can be said that public investment is one of the important policies for the social and economic development of the whole country, especially for developing countries Government expenditure will consist of two parts: expenditure for the government's own needs (and the performance of government functions), and expenditure for the measures taken by the government Intervene in the market Among these expenditures, public investment has dual effects: on the one hand, it is consumption itself, which directly increases the total demand of society On the other hand, it stimulates private investment through the spillover effect of increased demand, which will stimulate entrepreneurs' investment confidence, optimism and enthusiasm Through this dual effect, public investment will promote economic growth and development Public investment has a direct and indirect impact on the total supply and demand in the economy through its influence on other factors in the economy From the perspective of Keynesianism, the influence of public investment on demand-side economic growth Keynes believed that the market will never work perfectly, so government intervention is needed to increase effective demand, stimulate consumption and production, and stimulate investment to ensure employment and increase income Vietnam's economic reform began at the Sixth National Congress in 1986 Over the past 35 years, Vietnam has made great strides to become one of the most developed economies in Asia The economy is expanding day by day, and the GDP in 2019 is 12.5 times that in 2001 The GDP growth rate is relatively high, with an average annual growth rate of 7.26% from 2001 to 2010, reaching the growth rate of 7.56%/year of the social and economic stability and development strategy in 1991-2000, which is a very important economic development achievement in this period of China During the period from 2011 to 2019, GDP increased by 6.3%/year, including 7.08% in 2018, which is the highest growth rate since 2008 GDP will increase by 2.4 times, from US $116 billion in 2010 to US $268.4 billion in 2020 GDP per head will rise from $1,331 in 2010 to about $2,750 in 2020 The above results in Vietnam are mainly the contribution of public investment process But in addition to the success of economic development, keeping inflation at a safe level has always been a top concern for the Vietnamese government In 1999 and the first two years of the 21st century, the inflation rate in China was very low In fact, in 1999, 2000 and 2001, the CPI growth rate was very low, only single digit Even during deflation in 2000, the inflation rate was-0 6% In 2002 and 2003, the inflation rate rose again, but not too high In 2002, the inflation rate was 4%, and in 2003 it was 3% However, from 2004 to 2009, the inflation rate in Vietnam remained at a relatively high level, at 10% During the first three years of this period, the inflation rate increased significantly over the previous period, although it remained in the single digits, i.e 9.5 percent in 2004 (an increase of 216.7 percent) Compared with 2003), it was 8.4% in 2005 and 6.6% in 2006 However, in the face of this situation, there is no satisfactory solution in China Therefore, in 2007 and 2008, China's inflation rate rose and fell into an uncontrollable situation, and the consumer price index (CPI) soared to double digits Specifically, the inflation rate reached doubledigit thresholds of 12.36 percent in 2007 and 24.4 percent in 2008 The reason is that with the world economic recession, the depreciation of the US dollar, the rise of crude oil prices, the sudden rise of food and raw material prices, and the impact of natural disasters and epidemics Vietnam's economy exposes the inherent weaknesses of the transition economy Since then, thanks to the timely efforts of economic policies, including public investment policies, the government has stabilized the inflation rate, which reached 7% in 2009 During the period from 2010 to 2019, it benefited from the simultaneous implementation of monetary policy, including strict control of public and financial investment policies, promotion of production development, increase of exports and inflation The development is stable at the single digit level and tends to decline Public investment in Vietnam serves both as a guide and as an attraction to other sources of capital, contributing to investment, construction of technological facilities in the productive and commercial sectors and development areas Carry out social activities to enhance the potential of the country's economic zone to develop together for the country's socio-economic development goals Public investment plan has achieved the goal of social and economic development, and is an important object of national economic plan to curb inflation However, if public investment is not well controlled, it will have serious consequences for economic development and push up the inflation rate In view of this function and significance, the author chooses “The Impact of Public Investment on Economic Growth and Inflation in Vietnam” as the theme of the thesis For research purposes, at the same time, we have a deep understanding of the public investment situation in Vietnam in the past 25 years (1995-2019), as well as the impact of public investment on economic growth and Vietnam The impact of public investment on domestic inflation There is no research on these two aspects at the same time in China In addition, more research has been conducted on the experiences and lessons learned in the use and management of public investment capital in some countries in the Asia-Pacific region From there, propose appropriate solutions to help effective public investment while stimulating effective and sustainable economic growth in the new era Research objectives General objective: To analyze the impact of public investment on economic growth and inflation in Vietnam From there, solutions are proposed to improve the efficiency of public investment expenditure and achieve economic growth and control goals in the future Specific objectives: - To analyse and assess the experience of typical countries with regard to the impact of public investment on economic growth and inflation and to draw lessons from the experience of Vietnam This thesis analyzed and evaluated the public investment policies of these countries Through the achievements in economic growth and inflation control, this thesis pointed out the limitations and shortcomings of policies, and the main factors that lead to the failure or success of investment budget, waste or effective use - A theoretical summary of the impact of public investment on economic growth and inflation - Assess the current situation of public investment in Vietnam from 1995 – 2019 - To analyse and assess the impact of public investment on economic growth in Vietnam and the impact of public investment on inflation - Propose public investment policies and solutions to promote economic growth and well control inflation in Vietnam for some time to come Research question - What is the reality of public investment in Vietnam in the period 1995 -2019? - How does public investment affect economic growth and inflation in Vietnam in the period 1995 - 2019? - What solutions are needed to promote Vietnam's economic growth and well control inflation in the coming time? Subject and scope of research - Analytical period: From 1995 - 2019 - Analytical space: Macroeconomic context of Vietnam - Research object: Impact of public investment on economic growth; impact of public investment on inflation in Vietnam - Research scope: The main research content is the one-way impact of public investment on economic growth and inflation in Vietnam Research Methods Research Methods To realize the research objectives, the thesis applies a combination of both qualitative and quantitative research methods In which: - Qualitative research: Using inherited methods, synthetic methods, descriptive statistics of average values, percentages, growth rates for analysis and comparison, to assess the current state of public investment, increase economic growth and inflation in Vietnam; assess the successes and limitations in public investment in the period 1995-2019 - Quantitative research: Applying the vector autoregression (VAR) model by Sims (1980) to describe the impact of public investment on economic growth and public investment on inflation Through important analysis tools of VAR model such as Granger causality test, shock analysis and analysis of variance decomposition Research data - Data to assess the state of public investment, economic growth and inflation in Vietnam are used from 1995-2019 Secondary data on public investment capital; Non-state investment capital; investment capital with capital sources from abroad; world oil prices; money supply is collected from various sources including General Statistics Office, World Bank data, Asia Pacific Development Bank data - The data used in the VAR model is quarterly time series data, in the period from 1995-2019 Research Procedure In order for the thesis to be researched effectively, the thesis has been carried out through the following steps according to the research procedure shown in Figure below: Determine the problems and research objectives of the thesis Establish the theoretical basis of the thesis Establish the Research model Data acquisition and processing Check data Realization of regression model Carry out proper inspection Introduce and explain the research results Propose solutions and policies Figure 1: The thesis implementation procedure Overview of the research 6.1 A summary of the impact of public investment on economic growth 6.2 A summary of the research on the impact of public investment on inflation In a word, there are many different methods to evaluate the impact of investment and public investment on economic growth and inflation, namely: Guble-Dusla cost function method; Linear regression approach; Autoregressive vector method (VAR), vector error correction model (VECM), ARDL regression These are the alternative methods applied to this study Scientific contribution of the thesis - Theoretically: This thesis combined qualitative research with quantitative research, and studied the impact of public investment on economic growth and the impact of public investment on domestic inflation - Practically: analysed and pointed out the status quo of public investment, economic growth and inflation since Vietnam began normalizing relations with the United States in 1995 This is a historic milestone, affirming that Vietnam has lifted the isolated siege and really opened the door to international integration From then until 2019, the expansion of diplomatic relations promoted trade and investment, promoted international cooperation in various fields, and significantly improved economic conditions and rural society - Although the study still used the VAR model to estimate the impact and assess the response of economic growth and inflation to public investment shocks However, the thesis also considered the influence of public investment and other factors (such as private investment, foreign investment, international oil prices, domestic expansionary money supply) These variables are included in the research model as control variables Structure of the thesis The structure of the thesis consists of the following parts: Introduction: Briefly state the reason for carrying out the thesis; Objectives of the study; Object and scope of the study; the methods applied in the research to achieve the objectives set by the topic; overview of previous research papers related to the research problem of the thesis Chapter 1: Theoretical basis for the impact of public investment on economic growth and inflation This chapter mainly presents concepts and theories related to public investment, economic growth, and inflation Chapter 2: The reality of the impact of public investment on economic growth and inflation in Vietnam in the period 1995-2019 This chapter presents the assessment results of the current state of public investment; the impact of public investment on economic growth and inflation Evaluation of the efficiency of using public investment capital of Vietnam in the period 1995-2019 Chapter 3: Testing the impact of public investment on economic growth and inflation through the Var model Reasons for choosing the research model; data description; Research results on the impact of public investment on economic growth and Research results on the impact of public investment on inflation through the VAR model Chapter 4: Recommendations on some policies to promote economic growth and control inflation Put forward policies and solutions to improve the efficiency of public investment in the future to ensure sustainable economic growth and well control of inflation Conclusion: The main purpose is to summarize the highlights and limitations of the research results At the same time, some new research directions are proposed CHAPTER THEORETICAL BASIS FOR THE IMPACT OF PUBLIC INVESTMENT ON ECONOMIC GROWTH AND INFLATION 1.1 General theoretical basis of public investment, economic growth and inflation 1.1.1 Public investment 1.1.1.1 Concept The concept of public investment used in the thesis: Through the investigation of different concepts of public investment, the concept of public investment should be understood as follows: the investment activities carried out by the state from the state budget are for the sake of social and economic development, and the state or the state from the budget can or cannot recover capital directly 1.1.1.2 Characteristics of public investment 1.1.1.3 The role of public investment In short, by reviewing the concept of public investment studied at home and abroad, or according to the provisions of Vietnam Public Investment Law, it can be summarized as follows: Public investment is the government's budget expenditure on public services for social and economic development and ensuring national security Public expenditure is mainly concentrated in areas such as capital construction investment, such as basic infrastructure (roads, docks, electricity, schools, hospitals, etc.); Development investment expenditure for education, health care and health care, expenditure for security and national defense, … Public investment capital comes mainly from the state budget, in addition to being raised from loans, state-owned enterprise capital and other capital Public investment capital is decentralized by Central or local levels, and the decentralization rate depends on the regulations of each period and the economic development direction of each period 1.1.2 Economic growth 1.1.2.1 Concept 1.1.2.2 Determinants of economic growth 1.1.2.3 Indicators for measuring economic growth 1.1.3 Inflation 1.1.3.1 Concept 10 aggregate demand will increase The persistently high level of public spending leads to an increase in the price level, which causes inflation First, the state budget deficit increases gradually over time due to the continuous increase in high public spending Increasing state budget spending to stimulate consumption demand, stimulate investment and increase development investment will lead to high growth At the same time, if spending is increased beyond the allowable limit of the economy, it will lead to an excessively high state budget deficit When the budget deficit can be compensated by issuing money or borrowing, there is a risk of inflation 1.4 The thesis's model of testing the impact of public investment on economic growth and inflation 1.4.1 A brief overview of the theoretical basis of the vector autoregression (VAR) model The simple Var model has the following form: Yt = C + q1Yt-1 + q2Yt-2 +…+ qpYt-p+ et In which: p is the lag of the variables in the model Yt … Yt-p is the vector of variables in the equation Y= (Yt-1, Yt-2,…, Yt-p) C is the vector of constants et is the vector of errors 1.4.2 Model to assess the impact of public investment on economic growth LNGDP =α0 + α LNIG+ α 2LNIP+ α 3LNIF + α 4LNLAB + εt (Model 1) In which: - LNGDP: Natural Logarithm of Gross National Product - LnIG: Natural Logarithm of Public Investment Capital - LnIP: Natural Logarithm of Non-State Investment Capital - LnIF: Natural Logarithm of Foreign Direct Investment Capital Area - LnLAB: Natural Logarithm of Labor working in the economy 1.4.3 Model to assess the impact of public investment on inflation LnINF =β0 + β1 LnIG+ β2LnIP+ β3OIL+ β4LnLCU +ut (Model 2) In which: - LnINF: Natural logarithm of the inflation rate - LnIG: Natural Logarithm of Public Investment Capital - LnIP: Natural Logarithm of Non-State Investment Capital - LNOILP: International oil price - LnLCU: Natural Logarithm of Domestic Expanded Money Supply 11 1.5 International experience and lessons for Vietnam 1.5.1 Experience from Singapore 1.5.1.1 Development of Public Investment in Singapore 1.5.1.2 Singapore's Economic Growth and Inflation in 2006-2018 1.5.1.3 The Impact of Public Investment on Singapore's Economic Growth and Inflation 1.5.2 Experience from Japan 1.5.2.1 Development of Public Investment in Japan 1.5.2.2 Japan's economic growth and inflation in 2006 – 2018 1.5.2.3 Impact of public investment on Japan's economic growth and inflation 1.5.3 Experience from Korea 1.5.3.1 Development of Public Investment in Korea 1.5.3.2 Korea's economic growth and inflation in 2006-2018 1.5.3.3 Impact of public investment on Korea’s economic growth and inflation 1.5.4 Lessons learned for Vietnam Through the analysis and evaluation of public investment of Japan, Singapore and South Korea, some lessons have been drawn for Vietnam in the management and effective use of public investment as follows: a) Strengthening investment capital for infrastructure, education, training and scientific research b) Strengthening public administration reform and public governance c) Privatization of the public investment sector d) Transparency in the management of public investments e) Attention to decentralization of supervision and management of community public investment SUMMARY OF CHAPTER In the chapter 1, the paper focuses on the theoretical basis related to economic growth, public investment and inflation And the theory of the influence of public investment on economic growth and inflation International experience and public investment From there, two proposed research models were developed to assess (1) the impact of public investment on inflation and economic growth and other controlling variables: (2) non-state investment, (3) investment in the FDI sector, (4) labour in the economy, (5) international oil prices and (6) money supply 12 CHAPTER THE REALITY OF THE IMPACT OF PUBLIC INVESTMENT ON ECONOMIC GROWTH AND INFLATION IN VIETNAM IN THE PERIOD 1995-2019 2.1 Real situation of public investment, economic growth and inflation in Vietnam from 1995 – 2019 2.1.1 Real situation of public investment in Vietnam from 1995 - 2019 2.1.1.1 Scale of public investment Vietnam is pursuing an economic growth model based mainly on increasing investment capital Therefore, during the period from 1995 to 2019, the total value of social investment capital increased from 72.4 trillion VND in 1995 to 2,046.8 trillion VND in 2019, an increase of 28.25 times and an average growth rate Is 11.45%/year (constant price in 2010) Since 2011, the growth rate tends to slow down The average growth rate during 20062010 was 13.2%/year, but in 2011-2019, this figure was only 8.7% 2.1.1.2 Sources of public investment capital Vietnam's investment capital mainly comes from three sources: state budget capital, loan capital and state-owned enterprise capital Between 1995 and 2019, public investment capital increased from 3,044.7 billion VND in 1995 to 63,494.8 billion VND in 2019 (an increase of 20.85 times) 2.1.1.3 Allocation and use of public investment capital (1) Public investment by management levels (2) Public investment by economic sectors and lines 2.1.2 Real situation of Vietnam's economic growth from 1995 – 2019 2.1.3 Real situation of Vietnam's inflation in 1995 - 2019 2.2 Impact of public investment on economic growth during 1995-2019 2.3 The impact of public investment on inflation during 1995-2019 2.4 Overall assessment of the impact of public investment on economic growth and inflation in Vietnam from 1995-2019 2.4.1 Results achieved First, public investment contributes to economic growth Second, public investment is coordinated with other economic sectors Third, public investment contributes to the development of infrastructure systems 2.4.2 Limitations 13 Besides the success of public investment in economic growth and inflation, there are many limitations and deficiencies as follows: In some periods (such as 1995-2019), the impact of public investment on inflation or growth is unclear, and the inflation rate in Vietnam fluctuates greatly Planning has not really been effective in the implementation of investment activities, and coordination among agencies in the formulation of socio-economic master plans, sectoral and sectoral plans remains weak The basis for formulating the medium-term public investment plan and the annual public investment plan has not yet appealed for and attracted investment from economic organizations according to the actual economic development of Vietnam People have not been deployed synchronously The investment capital structure is mainly concentrated in the infrastructure sector and rarely in sectors directly serving human development (e.g education, health) The efficiency of public investment is generally limited, lower than that of the private sector and far lower than that of the economies of the corresponding development period in East Asia The decentralization process of public investment capital lacks uniformity in ensuring consistency between the powers and tasks of decentralization and the capacity to exercise those powers and the responsibilities of the decentralized institutions The process of investment project management is decentralized, but it also includes many complicated and tedious stages and procedures This is also the reason for the slow expenditure of investment capital Although the state has been paying attention to the structural adjustment of public investment rate, the actual implementation is still very slow The economic crisis occurred during 2007–2009, but it was not until 2011 that the government formulated policies to reform the economic growth model and restructure public investment The restructuring of public investment capital is still very slow, and the main source of public investment capital is still the capital collected from the budget and loans 2.4.3 The causes of limitations Promulgating documents guiding policies and laws related to public investment are not timely and limited Poor quality planning and limited management Limited and loose supervision of the use of public investment capital Attracting and managing public investment projects under the form of PPP is still limited 14 Delay in restructuring public investment The efficiency of using public investment capital is not high Inappropriate use and allocation of public investment capital Many public investment projects are implemented behind schedule and disbursed rate is low SUMMARY OF CHAPTER In the chapter 2, the thesis deeply clarifies the impact of public investment on economic growth and inflation in Vietnam from 1995 to 2019 Through comprehensive research, the documents, reports and summary data of the National Bureau of Statistics of Vietnam show that Vietnam is interested in building Vietnam in order to promote economic development Distribution of infrastructure and public investment in economic sectors The strong growth of public investment expenditure helps to accelerate economic growth However, apart from the success of economic growth and inflation, there are still many limitations and deficiencies in the allocation, use and payment of public investment capital 15 CHAPTER 3: TESTING THE IMPACT OF PUBLIC INVESTMENT ON ECONOMIC GROWTH AND INFLATION THROUGH THE VAR MODEL 3.1 Selection of the applicable quantitative model 3.1.1 Selection of quantitative model There are different ways to assess the impact of investment and public investment on economic growth and inflation According to the review of previous studies, the author used linear regression model in the past; Autoregressive model (VAR), Vector error correction model (VECM), ARDL regression These are the alternative methods applied to this study Moreover, there are still few studies using VAR model to evaluate, so this paper decided to choose VAR model to study the impact of public investment on Vietnam's economic growth and inflation 3.1.2 Describe how to implement the VAR model in the thesis Data processing and measurement methods Perform VAR model estimation Granger causality test in multivariable model 3.2 Descriptive statistics and tests in two research models 3.2.1 Data description of two VAR regression models The results of the thesis's statistical data for the statistical indicators used in the VAR (1) and VAR (2) regression models in the period 1995-2019, respectively 100 quarters, shown in Table 3.1 Table 1: Table of descriptive statistics of the two regression models (N=100) Vari able GDP IG IP IF Indicator GDP (Compared price 2010) Public investment capital (comparative price 2010) Private Equity (Compared Price 2010) (Compared Mean Billion 474.994, VND Billion VND Billion VND Foreign Direct Investment Capital Unit Price Billion VND Standard Minimu deviation 239.324,2 m 150.039, Maximum 1.215.568,0 36.437,4 32.824,0 3.781,8 150.651,2 34.932,7 46.372,8 1.781,8 229.861,8 82.779,4 53.379,7 13.893,6 252.558,9 16 Vari able Indicator Unit Mean Standard Minimu deviation m Maximum 2010) OILP LCU International oil prices USD/barr el M2 Money Supply Growth % 55,9 27,6 1,0 127,6 29,6 20,4 2,4 102,3 7.841,8 32.147,8 56.103,0 Labor is working in the Thousand LAB economy s of 45.370,9 people 3.2.2 Test Results of Defects in VAR Regression Model 3.2.2.1 Data stationarity test The VAR model requires all research variables to be stationary, so before entering the VAR model estimate, the study will perform a stationarity test for all variables The thesis applies the unit root test method - Augmented Dickey-Fuller (ADF) to test the stationarity of the variables According to the results in the appendix summarized in Table 3.2 below, it shows that the absolute values of the t-Statistics of the variables are larger than the Critical value at 1% and 5% significance levels At the 5% level of significance, most of the data series are stationary at the first difference; only the variables LnGDP and INF stop at their original values, no difference needed 3.2.2.2 Appropriate lag test The results show that the appropriate model for the data of both research models is VAR (5) because all three methods give a delay of which is the order of minimum lag 3.2.2.3 Autocorrelation test of residuals To inspect the model whether or not the autocorrelation phenomenon of the research residuals occurred, the statistical test tool for the residuals was used to diagnose The results show the results of the correlation tests of both model and model 2: At lag (1), at 5% significance level, in both models, there is a P-value of respectively 0.7991 > 0.05 and 0.7997 > 0.05 Therefore, both models not have autocorrelation 3.2.2.4 Testing the stability of the VAR model Based on the results of testing the stability of the model shown in Figure 3.1, it shows 17 that: The eigenvalues are all within the unit circle, so both estimation models (1) and (2) have met the necessary stability conditions to ensure guarantee the reliability of the results 3.2.2.5 Testing variance of residuals The test results showed that the value Ta has Prob = 0.356 > α= 0.05, the hypothesis Ho should be accepted Therefore, the model does not have variable variance 3.2.2.6 Testing the String autocorrelation The test results in Table 3.5 show that the Pvalue at all lags in both model (1) and model (2) are larger than α= 0.05, so the hypothesis Ho is accepted Therefore, both models have no sequence autocorrelation 3.3 Regression results on the relationship of public investment and economic growth 3.3.1 Estimated VAR The estimated results in Table 3.6 show that the variables in model (2) explain 71.83% of the variation of inflation in Vietnam 3.3.2 Ganger test From the results of Granger test, model (1) has the following relationship in turn: - Public investment (LNIG) and private investment (LNIP) have a causal relationship to economic growth (LNGDP) at the significance level of 10%; - Private investment (LNIP), foreign direct investment (LNIF), Labor at work (LNLAB) are causally related to Public Investment (LNIG) at the significance level of 10%, respectively ; 1% and 5% ; - Foreign Direct Investment (LNIF) is causally related to Private Investment (LNIP), at 1% significance level; - Public investment (LNIG), Private investment (LNIP) have a causal relationship to foreign direct investment (LNIF) with significance level of 1% and 10%, respectively; - Public investment (LNIG), foreign direct investment (LNIF) have a causal relationship to Working Labor (LNLAB) with significance level of 10% and 5%, respectively 3.3.3 Impulse response function The results show that public investment does not have an immediate effect from the first period on growth like the rest - When there is a shock to LNIG public investment, LNGDP has a decreasing response in about cycles (1 year), peaks after cycles and then adjusts to the equilibrium 18 level in the 6th cycle, stabilizing gradually and corrected down at the end of the period - When there is a shock to LNIP private investment, the LNGDP has a decreasing response in the 2nd cycle (1 year), the lowest in the 3rd cycle, then adjusts to the equilibrium level in the 5th cycle, gradually stabilized and corrected slightly at the end of the cycle - When there is a shock to FDI investment, the LNGDP has not reacted in the first periods, starts to increase in the 2nd period, peaks after periods, then starts to decrease sharply in the 5th period and then adjusts to equilibrium level in the 7th cycle, gradually stabilizing and increasing slightly at the end of the cycle - When there is a shock to the labor investment working in LNLAB, the LNGDP has not reacted in the first period, but starts to decrease in the second period, peaks after and continues to decrease in the next periods ( period 4, and 5) and then adjusted up by cycle and down by cycle to bring GDP back to equilibrium 3.3.4 Analysis of the variance decomposition The variance decomposition results in Table 3.8 show more clearly that the level of impact and time to reach the impact of factors on economic growth are different in each cycle: The effect of private investment on economic growth is always higher than the effect of public investment Public investment does not affect GDP immediately, but has a lag of year From the second year onwards, public investment has clearly shown its influence The results show that public investment has a time lag to influence economic growth Similar results are found with Devarajan, Swaroop and Zou (1996), Barro (1990), Davoodi and Zou (1998) Up to the 20th cycle (ie after years), GDP itself has the endogenous effect back to itself, and has the strongest effect (reaching 75.74%); the public investment sector affects 6.69% of GDP growth, lower than that of private investment (reaching 10.48%), or it can be said that private investment is overwhelming public investment; Next, the number of employees working affects the growth of 6.35%; Finally, the FDI sector has a corresponding influence of 0.72% Thus, the impact of public investment has the same direction on economic growth in Vietnam and is weaker than that of investments from the non-state-invested sector and the foreign-invested sector This result is similar to the research results of (Tran Nguyen Ngoc Anh Thu, Le Hoang Phong, 2014) in Vietnam 19 3.4 Regression results on the relationship of public investment and inflation 3.4.1 Estimated VAR The estimated results show that the variables in model (2) explain 71.83% of the variation of inflation in Vietnam 3.4.2 Ganger test From the results of Granger test, it is shown that in model (2) there are the following relationships in turn: - Private Investment (LNIP) has a causal relationship with Public Investment (LNIG) at 5% significance level; - Inflation (INF), Private Investment (LNIP) and international oil price (LNOILP) have a causal relationship with expanded money supply (LNLCU) at 5% significance level; - Inflation (INF), public investment (LNIG), and private investment (LNIP) have a causal relationship with the expanded money supply (LNLCU) at the 5% significance level Thus, there is no causal relationship between the public investment variable (LNIG) and inflation (INF) 3.4.3 Impulse response function The results show that public investment does not have an immediate effect from the first period on growth like the rest of the factors - When there is a shock to LNIG public investment, inflation (INF) has a decreasing reaction in about the first quarters, then rises to a peak in the 5th quarter, then adjusts to the equilibrium level and tends to decrease gradually - When there is a shock to the LNLCU expansion money supply, inflation (INF) reacts in the first quarter and adjusts for fluctuations in small cyclical intervals (every quarters), but generally the INF adjusts adjusted in an increasing trend - When there is a shock to LNIG private investment, inflation (INF) has a downward reaction in the first two quarters and adjusts slightly to the equilibrium level until the end of the cycle - When there is a shock to the international oil price LNOILP, inflation (INF) has an upward and downward reaction in about the first quarters and tends to adjust down to the equilibrium level until the end of the cycle 3.4.4 Analysis of the variance decomposition The variance decomposition results in Table 3.11 show that the level of impact and 20 time to reach the impact of the factors LNIG, LNIP, LNLCU, LNOILP on the INF inflation rate are different The above variables not have an immediate effect on INF in the first quarter, but only from the second quarter onwards The variables LNIG, LNIP, and LNOILP have a stepwise influence on INF However, only the extended money supply variable LNLCU has a strong influence on INF from the fourth quarter onwards The impact of the international oil price LNOILP on the INF is the lowest The effect of public investment LNIG on INF inflation is lower than the effect of the remaining factors LNIP, LNLCU - As of the 20th quarter (ie after years), the LNLCU money supply has the strongest influence on the INF, the LNLCU in the past years before years explains about 21.15% of the current INF fluctuation; but LNIG only explains 5.84% of the INF volatility; The explanatory power of LNIP and LNOILP was 8.18% and 1.06%, respectively SUMMARY OF CHAPTER In this chapter, through VAR regression method, with time series from 1995-2019, the study has performed Ganger test, Impulse response function and Differential decay analysis to specify the impact of public investment on economic growth, the impact of public investment on Vietnam's inflation: The thesis finds: Public investment does not immediately affect economic growth and inflation, but has a lag of year That is, public investment needs time lag to affect economic growth and inflation 21 CHAPTER 4: SOLUTIONS ON PUBLIC INVESTMENT TO PROMOTE ECONOMIC GROWTH AND CONTROL INFLATION 4.1 The economic development orientation of Vietnam's public investment, economic growth and inflation by 2025 and the direction by 2030 4.1.1 Orientation on public investment 4.1.2 Orientation on economic growth and inflation 4.1.3 Orientation on the impact of public investment on economic growth and inflation 4.2 Proposed policies and solutions 4.2.1 Improve the document system guiding public investment policies and regulations 4.2.2 Improve the planning and management of public investment projects 4.2.3 Strengthen the supervision of the use of public investment funds 4.2.4 Strengthen the attractiveness and management of public investment projects in the form of PPP 4.2.6 Increase the attractiveness of FDI investment 4.2.7 Solutions to support inflation control (1) Public expenditure needs to be well controlled: (2) Strengthen the role of state-owned enterprises in promoting economic growth and curbing inflation: (3) Well management between public debt and inflation is needed: SUMMARY OF CHAPTER Improving the quality and efficiency of public investment is particularly important to achieve the goals set out in the socio-economic development strategy In chapter 4, the author gave orientations for economic development and public investment of Vietnam, also in chapter 4, the author has proposed some solutions to improve investment efficiency, thereby contributing to economic growth and sustainable development Solutions include: Completing the system of guiding documents on policies and laws related to public investment; Improve planning and management of public investment projects; Strengthen supervision of the use of public investment capital; Strengthen the attraction and management of public investment projects in the form of PPP; Strengthen the restructuring and renewal of state-owned enterprises; Strengthening restructuring and renovation of stateowned enterprises; Enhance FDI attraction and support measures to curb inflation 22 CONCLUSIONS Conclusion The thesis has applied the VAR model to estimate the impact of public investment on economic growth (model 1) and the impact of public investment on inflation (model 2), the following conclusions can be drawn: The results of the Granger test of model have confirmed that the influential variables satisfy 7/13 of the original hypotheses, which are: - Hypothesis H1a and H1f: LNIG public investment and LNIP private investment have an effect (create shock) on LNGDP economic growth; - Hypothesis H1c: FDI investment (LNIF) has an effect (creates a shock) on private investment (LNIP); - Hypothesis H1e and H1g: Foreign investment LNIF and private investment LNIP have an effect (create shock) on public investment LNIG; - Hypothesis H1k: Labor LNLAB has influence (create shock) on foreign direct investment LNIF - Hypothesis H1l: Public investment has an effect (creates a shock) on the number of workers working in the economy The results of the Granger test of model have confirmed that the influential variables satisfy 4/14 of the initial hypotheses, which are: - Hypothesis H2d, H2h and H2l: Private investment LNIP, International oil price LNOILP and INF inflation have an influence (shock) on the expansion of money supply; - Hypothesis H2e: LNIP private investment has an effect (create shock) on public investment LNIG; - Hypothesis H2a about "Public investment LNIG has an impact on INF inflation" has not found a statistically significant relationship - In addition, model also finds the impact (shocking) of INF inflation, LNIG public investment, LNIP private investment affecting (shocking) the international oil price LNOILP These are issues that the research hypothesis has not raised The research results of the thesis have shown the factors that have affected economic growth and inflation According to the results of shock analysis and variance decomposition shows: - Public investment has created shocks affecting economic growth After years (i.e., 20 cycles), the public investment sector affects 6.69% of GDP growth, which is lower than that of private investment, but higher than the remaining variables (the amount of labor is 23 working) Therefore, in order to effectively use public investment but at the same time ensure economic growth, it is necessary to take measures to manage investment capital well public private sector; implementing the socialization of investment capital sources with the public sectors; and aiming to develop the economy in depth to reduce capital intensiveness - LNIG public investment can only explain up to 5.84% of the variation in the INF inflation rate Money supply LNLCU is the variable that has the strongest influence on the INF inflation rate (21.15%); The explanatory power of LNIP and LNOILP was 8.18% and 1.06%, respectively Therefore, in order to control inflation well, the Government needs to implement appropriate measures for fiscal policy and economic tools In addition, the Government also needs to pay more attention to the psychological factor of inflation expectations - Based on the analysis and assessment of limitations and causes in Vietnam's public investment spending in the period 1995 - 2019, orientations and goals for economic development by 2025, the thesis has proposed 11 solutions to improve the efficiency of public investment, promote economic growth and control inflation well To be able to promote economic growth on the basis of controlled inflation will further strengthen the stability of the domestic macro-economy Limitations of the thesis and future research directions a) Limitations of the thesis The VAR estimation method only studies about the causal relationship and learns about the shock of the independent variables to economic growth There are limitations in looking at the effect of lag of each independent variable on the dependent variable; The impact of public investment on the quality of economic growth has not been studied in depth b) Future research directions Future studies, if any, should expand on the impact of independent variables on economic growth and inflation in both the short and long run It is possible to use some additional estimation methods such as ADRL to both tests the short-run and long-term effects of the lags of the independent variables on the dependent variable In addition, the study expands the influence of some control variables, which are macroeconomic factors or institutional factors on economic growth and inflation / SCIENTIFIC RESEARCH WORKS THE PAPERS RELATED TO THESIS THEME Nguyen Thi Kim Chung (2020) – Public investment, inflation in Vietnam for the period 1995 -2019: Current situation and recommendations - Economy and forecast – No 25 – pp 32-35 Nguyen Thi Kim Chung (2020) – Impact of public investment on economic growth in Vietnam: an empirical perspective from the VAR model – Economics and forecasting – No 27 – pp 3-7 Nguyen Thi Kim Chung (2020) – Public investment and economic growth of Vietnam in the period 1995-2019: Current situation and recommendations - Economics and forecast – No 28 – pp 11-14 Nguyen Thi Kim Chung (2020) – Impact of public investment on economic growth and inflation in Korea: Some suggestions for Vietnam – Economy and forecast – No 08 – pp 62-65 Nguyen Thi Kim Chung (2019) – To overcome limitations and obstacles in public investment management – Economics and forecasting – No 28 – pp 16-19 Nguyen Thi Kim Chung (2019) – Removing difficulties, promoting disbursement of foreign capital public investment – Economics and forecast – No 26 – pp.11-14 Nguyen Thi Kim Chung (2019) – The relationship between public investment and economic growth and inflation: International experiences and lessons for Vietnam – Banking Review – No 08 – pp 49-53 Nguyen Thi Kim Chung (2017) – What can we see from public investment management experience in China and Brazil? – Financial magazine – issue 654 – pp 73-74 ... Vietnam from 1995 to 2019 Through comprehensive research, the documents, reports and summary data of the National Bureau of Statistics of Vietnam show that Vietnam is interested in building Vietnam... IN VIETNAM IN THE PERIOD 1995-2019 2.1 Real situation of public investment, economic growth and inflation in Vietnam from 1995 – 2019 2.1.1 Real situation of public investment in Vietnam from... EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING ACADEMY OF VIETNAM NGUYEN THI KIM CHUNG THE IMPACT OF PUBLIC INVESTMENT ON ECONOMIC GROWTH AND INFLATION IN VIETNAM MAJOR: FINANCE - BANKING CODE
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