International Journal of Business and Economics

Vol. 3, No. 1, 2018, pp. 1-11

[Link]
ISSN (online) 2545-4137

[Link]

Determinants Affecting Economic Growth:

The Case of Viet Nam

Nguyen Anh Tru

Newcastle Business School
Faculty of Business and Law. The University of Newcastle
New Space, Level 6, 409 Hunter Street, Newcastle NSW 2300, Australia

Received: 2018-05-10 Accepted: 2018-06-20 Published online: 2018-07-01

______________________________________________________________________________

Abstract

Economic growth can be seen as one of priorities of the Vietnamese Government in recent years. This
article aims to investigate factors affecting economic growth of Viet Nam in the last 40 years (1977-2016).
Our results demonstrated that share of exports, foreign direct investment, value added of agriculture,
forestry and fishery sector, and ASEAN participation had positive impacts on economic growth, while
imports negatively affected economic growth of Viet Nam. Lastly, policies are recommended to the
Vietnamese Government to enhance economic growth.

Keywords: Determinants, Economic Growth, Viet Nam.

_____________________________________________________________________________________

1. INTRODUCTION

Economic growth is an important factor for countries to achieve the target in

sustainable economic development (Nguyen and Nguyen, 2017). A high growth of
economy is a crucial target for many countries. However, economic growth generates
adverse effects, including natural resources degradation and increasing gaps between
the rich and the poor (Tinh, 2012). In addition, inconsistent growth of gross domestic
product (GDP) leads to increasing poverty and decreasing the progress in health and
education of a country (Aziz and Azmi, 2017).

Although there was a moderate growth in 2016, Vietnam‘s economy presented a

favorable environment. Economic growth slightly decelerated by 5.9 percent due to the
impact of the drought on agricultural output, cuts in oil production, and slowing
external demand. Currently, inflation remains below the official target of 5 percent.
Slowdown of import growth led to an increase of the current account surplus and
foreign direct investment (FDI) inflows remain robust (World Bank, 2016).

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Vol. 3, No. 1, 2018, pp. 1-11
[Link]
ISSN (online) 2545-4137

Viet Nam‘s economy has presented numerous variations in the last more than 40
years. GDP per capita rose by more than 5 percent annually in 1992-1997, and again in
2000-2008. Overall, real GDP per capita increased by 2.97-fold over the years 1990-
2009 (Yang et al., 2015). However, the economy of this country has to face various
obstacles such as macroeconomic and financial vulnerabilities and the increase of asset
prices and ignite inflationary effects due to rapid monetary expansion (World Bank,
2016).

This article aims to examine determinants affecting economic growth of Viet Nam
in the last 40 years (1977-2016). Next, policies are recommended to the Government
to foster economic growth in both short and medium terms of Viet Nam.

The rest of this paper is organized as follows. Section 2 presents the literature
review. Research methods are discussed in section 3. In section 4, we present results
and discussion. Finally, conclusion and policy implications are summarized in section 5.

2. LITERATURE REVIEW

2.1 Concepts of Economic Growth

Economic growth is a long-run phenomenon, which is subjected to barriers such

as excessive rise of population, limited resources, inadequate infrastructure, and
inefficient utilization of resources. Economic growth is obtained by using efficient
resources as well as increasing the production capacity of a country (Haller, 2012).
Denison (1962) argued that economic growth is the increase of real GDP or GDP per
capita measured in constant prices. There are four major determinants of economic
growth, consisting of human resources, natural resources, capital formation, and
technology (Boldeanu and Constantinescu, 2015).

2.2 Empirical Studies in Factors Affecting Economic Growth in the World and Viet
Nam

Several studies examined factors affecting economic growth of countries all

around the world. Acuna (2017) investigated external and internal factors contributing
to economic growth of Chile in 2007-2016. His research showed that the decline in the
rate of economic growth in Chile was influenced by external factor like the end of
mining expansion, while the subsequent and persistently low growth rates can be
interpreted by a combination of internal and external factors. A study by Anyanwu
(2014) assessed factors affecting economic growth in Africa. The author concluded that,
unlike in China, openness did not positively and significantly impact on Africa‘s growth
and Africa imports more than exports.

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Vol. 3, No. 1, 2018, pp. 1-11
[Link]
ISSN (online) 2545-4137

Moreover, Aziz and Azmi (2017) studied factors affecting GDP growth in
Malaysia. Their results addressed that FDI and female labor forces presented positive
effects on GDP growth, but inflation negatively affected the growth of GDP. Filip (2015)
examined economic growth and impact factors in 2000-2013 in Central and Eastern
Europe. He argued that imports and domestic credit positively impacted on economic
growth, while unemployment and low performance of banking sector presented
negative relationships with economic growth. Likewise, a study by Oyeyemi and
Awujola (2014) estimated determinants affecting economic growth of Nigeria. Their
findings demonstrated that money supply, oil revenue, Federal Government
expenditure, and foreign private investment had positive relationships with economic
growth, while inflation rate, interest rate, and foreign exchange rates did not affect GDP
growth.

Anh et al. (2016) examined the relationship between corruption and economic
growth in Viet Nam. Their results indicated that corruption negatively affected economic
growth. However, indirect impacts of corruption on economic growth via education and
investment channels were positive. Similarly, Luu et al. (2017) estimated the
relationship between FDI and economic growth in Viet Nam. Authors found that the
increase of FDI led to the rise in economic growth and vice versa, economic growth
contributed to enhance FDI capital. A study by Minh (2009) investigated the impact of
demographic change on economic growth of Viet Nam in the last 30 years. She
concluded that the change in demographics contributed to 15 percent of economic
growth during the last five years and the aged population had no negative impacts on
Vietnam‘s economic growth. Likewise, Nguyen and Nguyen (2017) examined the
influence of domestic savings on economic growth of Viet Nam during 1986-2015. Their
results showed that, domestic savings, investment and dependency ratio did not affect
economic growth. However, in the long run, dependency ratio had a negative impact on
the growth.

Further, a study by Quy (2016) examined the relationship between foreign aid
and economic growth in Viet Nam. His research indicated that there was a negative
relation between foreign aid and economic growth because of ineffective usage of aid
and corruption. Thanh and Dai (2016) studied constraints of economic growth in Viet
Nam. Their results found that a poor business environment, an underdeveloped
infrastructure, failures related to information externalities, learning externalities and
coordination failures, were barriers which leading to slowdown of economic growth.
Tung and Thanh (2015) investigated the relationship between inflation and economic
growth in Viet Nam in 1986-2013. Results showed that inflation had a negative impact
on economic growth and the Government should facilitate investment and improve the
effectiveness of investment to enhance economic growth.

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Vol. 3, No. 1, 2018, pp. 1-11
[Link]
ISSN (online) 2545-4137

3. METHODOLOGY

3.1 Data and Sample

Secondary data for this study is gathered from databases of General Statistics
Office of Viet Nam (GSO) and international organizations such as the World Bank (WB),
the International Labor Organization (ILO), and the Food and Agriculture Organization
of the United Nations (FAO). Specifically, data in GDP value, shares of exports and
imports of goods and services in the total GDP, value of FDI, inflation rate, total
number of labors, the rate of Official Development Assistance (ODA) in total Gross
National Income (GNI), value added of agriculture, forestry and fishery sector, the
World Trade Organization (WTO) participation, and the Association of Southeast Asian
Nations (ASEAN) participation of Viet Nam for the last 40 years (1977-2016) has been
collected to analyze.

3.2 Data Analysis

3.2.1 Descriptive Statistics

Descriptive statistics are employed to describe characteristics of variables in the

model through computing mean, standard deviation (SD), minimum (min), and
maximum (max).

3.2.2 Generalized Linear Model (GLM)

In this research, GLM is applied to estimate determinants affecting economic

growth of Viet Nam in the last 40 years (1977-2016). GLM is chosen because it allows
for non-linearity through the use of high order polynomial and produces a better fitting
for complex relationships between a response and a set of independent variables
(Khouloud et al., 2017). GLM is estimated by the Stata MP 14.2 software.

Specification of GLM can be defined as follows:

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g(E yi ) = μi + Ɛi where Ɛi ~N(0, δ ) (1)
𝑝
μi = β + βi Χi (2)
0 𝑗 =1

Where: g is a link function; yi denotes the dependent variable (GDP value); μi

represents a sum of linear predictor; Ɛi is a random error term with zero mean; β0 is an
intercept; βi are parameters to be estimated; and Xi represent covariates (share of
exports and imports, value of FDI, etc.).

Nine independent variables, including share of exports, share of imports, FDI

value, inflation rate, total labors, rate of ODA received, value added of agriculture,

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Vol. 3, No. 1, 2018, pp. 1-11
[Link]
ISSN (online) 2545-4137
forestry and fishery sector, WTO participation, and ASEAN participation, are chosen to
estimate factors affecting economic growth in Viet Nam for the last 40 years (1977-
2016). To enhance accuracy of the estimation, the dependent and all quantitative
independent variables are calculated by the natural logarithm (Ln) (Table 1).

Table 1. Description of variables

Variable definitions Labels Unit Expected
signs
Dependent variable: GDP value Y million USD
Covariates:
Share of exports of goods and services X1 % +
Share of imports of goods and services X2 % -
Value of FDI X3 USD +
Inflation rate X4 % -
Total labors X5 person +/-
Rate of ODA received X6 % +/-
Value added of agriculture, forestry and X7 million USD +
fishery sector
WTO participation (1=Participate and D1 +
0=Otherwise)
ASEAN participation (1=Participate and D2 +
0=Otherwise)

Note: USD means United States Dollar

4. RESULTS AND DISCUSSION

4.1 An Overview in Socio-economics of Viet Nam

Figure 1. GDP and GNI per capita of Viet Nam

250000 2500

205276.1713
193241.123 2059.211242
200000 186204.6529 1959.147521 2000
171222.0254 1916.481838
1791.134824
155820.0019
1653.577394
million USD

150000 1500 GDP

US$

Gross national
100000 1000
income per capita

50000 500

0 0
2012 2013 2014 2015 2016

Source: FAO, 2018

Note: Retrieved 30 April 2018, from [Link]

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Vol. 3, No. 1, 2018, pp. 1-11
[Link]
ISSN (online) 2545-4137

Both GDP and GNI per capita of Viet Nam tended to increase for five years
(2012-2016). The average growth of GDP of Vietnam accounted for 7.1 percent (or
USD49.4 billion). At the same period, GNI per capita rose by 5.6 percent (or USD406),
which is a result of the increase in GDP and a slight growth in total population. These
outcomes reflect the improvement in livelihood of Vietnamese people in recent years
(Figure 1).

By 2016, the agriculture, forestry and fishery sector contributed 16.32 percent to
the economy; 32.72 percent came from the industry and construction sector; and the
rest (40.92 percent) made by service sector. Export and import turnover of goods
reached USD176.6 billion and USD174.8 billion, respectively. Number of labor force
aged 15 and above accounted for 54.4 million people. The proportion of labors working
in agriculture, forestry and fishery, industry and construction, and services accounted
for 41.9 percent, 24.7 percent, and 33.4 percent, respectively. The unemployment rate
accounted for 2.3 percent (General Statistics Office, 2017).

4.2 Determinants Affecting Economic Growth of Viet Nam

Table 2. Characteristics of factors affecting economic growth in Viet Nam

Variables Mean SD Min Max
GDP value 50012.7 61155.6 1884.6 205276.2
Share of exports 40.3 30.9 0 93.6
Share of imports 45.2 31.5 0 91.1
Value of FDI 2.88e+09 3.78e+09 -80000 1.26e+10
Inflation rate 3.4 5.2 -1.7 23.1
Total labors 3.11e+07 2.16e+07 0 5.64e+07
Rate of ODA received 2.3 1.8 0 5.9
Value added of agriculture, 10149.1 10363.7 804.5 33500.3
forestry and fishery sector
WTO participation 0.2 0.4 0 1
(1=Participate and
0=Otherwise)
ASEAN 0.5 0.5 0 1
participation(1=Participate and
0=Otherwise)
Source: Survey data in 40 years (1977-2016)
Note: SD means standard deviation

For 40 years (1977-2016), the average value of GDP of Viet Nam reached USD50
billion and the share of exports and imports in total GDP accounted for 40.3 percent
and 45.2 percent, respectively. These imply that Viet Nam is a net importing country.
The average value of FDI accounted for USD2.88 billion.

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Vol. 3, No. 1, 2018, pp. 1-11
[Link]
ISSN (online) 2545-4137

The average of inflation rate reached 3.4 percent and during the last 40 years
(1977-2016), inflation rate presented a high volatility. For example, the minimum of
inflation rate accounted for -1.7 percent, while the maximum value reached more than
23 percent. Total labors of Viet Nam accounted for 31.1 million people. The average
rate of ODA received accounted for 2.3 percent in total GNI. The average value added
of agriculture, forestry and fishery sector reached USD10.1 billion (Table 2).

Figure 2. GDP of Viet Nam for 40 years (1977-2016)

250000

200000
million USD

150000

100000

50000

Source: Survey data in 40 years (1977-2016)

For 40 years (1977-2016), GDP of Viet Nam tended to go up. For a decade
(1977-1986), we can recognize that GDP of this country remained stable at low levels
because in this period, Viet Nam has still applied the planned central economy which
has presented weaknesses such as low productivity, poor performance and weak
competition. After implementing the renovation (Doi Moi) in 1986, Viet Nam‘s economy
has presented a moderate growth due to transformation from the planned central
economy into the market-oriented economy. Especially, from 2005 onwards, Viet Nam‘s
economy presented a significant increase (Figure 2).

Determinants affecting economic growth of Viet Nam are presented in Table 3.

Value of log likelihood is equal to 48.4, the Akaike information criterion (AIC) and the
Bayesian information criterion (BIC) account for -1.92 and -110.45, respectively and
these imply fitness of the model. Both AIC and BIC are used to measure fitness of the
model, which adjust the number of parameters to compare across models. Thus,
smaller values of AIC and BIC reflect a better model fit (Table 3).

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Vol. 3, No. 1, 2018, pp. 1-11
[Link]
ISSN (online) 2545-4137

Table 3. Estimation of factors affecting economic growth in Viet Nam

Variables Coefficients OIM z P-

Standard value
Error
LnShare of exports 0.342** 0.138 2.48 0.013
LnShare of imports -0.241*** 0.086 -2.81 0.005
LnValue of FDI 0.008* 0.004 2.04 0.041
LnInflation rate 0.010 0.021 0.47 0.640
LnTotal labors -0.016 0.010 -1.56 0.119
LnRate of ODA received -0.000 0.057 -0.01 0.994
LnValue added of agriculture, 1.166*** 0.054 21.27 0.000
forestry and fishery sector
WTO participation -0.029 0.072 -0.40 0.687
(1=Participate and
0=Otherwise)
ASEAN participation 0.148* 0.071 2.06 0.039
(1=Participate and
0=Otherwise)
Constant -0.475 0.427 -1.11 0.267
Number of observations 40
Log likelihood 48.48
AIC -1.92
BIC -110.45
Source: Survey data in 40 years (1977-2016)
Note: *, **, and *** mean statistical significance at the 1%, 5%, and 10%,
respectively

Share of exports has a positive impact on economic growth. If share of exports

rises by 1 percent, economic growth increases by USD340 thousand, ceteris paribus.
This suggests the importance of exports to Vietnam‘s economy. By contrast, imports
negatively affect economic growth. Specifically, 1 percent of the increase in imports
leads to the decline of economic growth by USD241 thousand, ceteris paribus. That
means Viet Nam‘s economy tends to go down if imports of goods and services increase
(Table 3).

FDI presents a positive influence on economic growth of Viet Nam. If FDI

increases by USD1, then economic growth rises by USD8,000, ceteris paribus (Table 3).
This reflects the important role of FDI in economic growth of Viet Nam. Our results are
consistent with Vu (2008), Trinh and Nguyen (2015), and Luu et al. (2017).

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[Link]
ISSN (online) 2545-4137

Value added of agriculture, forestry and fishery sector also has a positive effect
on economic growth of Viet Nam. Data showed that if value added of this sector rises
by USD1 million, then economic growth increases by USD1.1 million (Table 3). This
suggests the importance of agriculture, forestry and fishery sector to Viet Nam‘s
economy since currently this sector still contributes about 17 percent in total GDP and
employs nearly 42 percent of total labor forces.

A positive sign of ASEAN participation implies that after participating in the

ASEAN, probability in economic growth of Viet Nam is higher than that of non-
participation by 14.8 percent (Table 3). This implies positive impacts of regional
integration on Viet Nam‘s economy.

We found that inflation rate is not statistically significant, while Trinh and Nguyen
(2015) claimed that inflation rate had a negative relationship with economic growth of
Viet Nam. We also found that rate of ODA received is not significant, but Quy (2016)
concluded that foreign aid negatively affects economic growth.

5. CONCLUSION AND POLICY IMPLICATIONS

This article seeks impacts of factors on economic growth of Viet Nam in the last
40 years (1977-2016). We found that share of exports, imports, FDI value, value added
of agriculture, forestry and fishery sector, and ASEAN participation are statistically
significant, while the rest covariates (inflation rate, total labor, rate of ODA received,
and WTO participation) are not significant. Share of exports, FDI value, value added of
agriculture, forestry and fishery sector, and ASEAN participation presented positive
influences on economic growth. However, share of imports negatively impacted on
economic growth.

To enhance economic growth, the Government should focus on fostering exports

of goods and services, reducing imports of goods and services, encouraging FDI inflows,
improving productivity, efficiency, and value of agriculture, forestry and fishery sector,
and expanding the cooperation with ASEAN members. However, the target in economic
growth should be balanced with implementing social and environmental goals to ensure
a sustainable development.

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Vol. 3, No. 1, 2018, pp. 1-11
[Link]
ISSN (online) 2545-4137

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