Foreign capital inflows and economic growth Does foreign capital inflows promote the host country's economic growth? An empirical case study of Vietnam and the intuitive roles of Japan's capital inflows on Vietnam s economic growth. 1 Presenter: Vu Van Chung, Visiting Scholar, Policy Research Institutes, Ministry of Finance, Japan. Tokyo, January 15, 2015 1
Overview Economic in brief Recent development of capital inflows in Vietnam Theories, empirical evidence on capital inflows and economic growth Empirical results: the case of Vietnam Q&A 2
I. Economic in brief Vietnam s economy has witnessed a relatively stable growth trend in since 1990: % 20.0 8-9 percent for the period 1990-2000 except for two years 1997, 1998; 7 percent from 2002-2007; about 5.5 percent for the period 2008-2013 because of the 2008 global financial crisis. per capital income are triple in every 10 years. Speed of growth is above the average growth of ASEAN countries. 15.0 10.0 5.0 0.0-5.0 1986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013-10.0-15.0 ASEAN Vietnam Indonesia Malaysia Philippines Singapore Thailand 3
I. Economic in brief (cont.) Economic growth is mainly based on the capital and labor intensiveness via maintaining a sustained high level of the gross investment while it shifts towards more export-oriented with 3 drivers of economic growth: The relatively strong institutional system, The deeper global integration and trade expansion, No. Structure of exports and imports 1991-1995 1996-2000 2001-2005 2006-2010 2011 2012 2013 I Structure of exports 1 Mining and heavy industrial products 31.7 30.6 34.3 33.9 35.8 42.1 44.3 2 Light industries and handcrafts 19.4 34.6 40.2 42.9 41.6 37.8 38.1 3 Primary products 48.9 34.8 25.5 22.8 22.5 20.1 17.6 II Structure of imports 4 Machineries and equipment 24.4 29.8 29.2 28.5 29.6 35.1 36.7 5 Production Materials 60.5 61.1 62.7 60.8 59.0 55.8 55.3 6 Consumer products 15.0 9.1 7.7 8.4 9.5 9.1 8.0 7 Other imports 0.0 0.0 0.4 2.3 1.9 0.0 Source: GSO statistics yearbooks 1994-2013 4
I. Economic in brief (cont.) - and the large capital inflows. Capital inflows maintain a stable macroeconomic balance via offsetting the trade deficit and building foreign reserves besides the growth effect. Items Unit 1995-00 2001-05 2006-10 2011 2012 2013 Capital inflows to GDP (%) 15.0 15.2 19.3 17.2 15.9 16.2 1. Current Account (2+3+4) ($US million) -701-678 -4,940 233 9,267 9471 2.Trade balance ($US million) -2,083-3,536-11,048-9,844 749 863 3. Investment income and current transfers ($US million) 548 980 616 1,476.9-1,681.6-2,592 4.Remittances ($US million) 834 1,877 5,492 8,600 10,200 11,200 5. Capital Account ($US million) 3,179 4,009 10,594 14,658 14,611 16,591 Net FDI inflows ($US million) 2,003 2,439 8,069 11,063 10,495 11,470 Net ODA inflows ($US million) 1,176 1,570 2,525 3,595 4,116 5121 6. Change in foreign Exchange reserves (1+5) ($US million) 2,478 3,331 5,654 14,891 23,878 26,062 Source: ADB 2014, IMF2013, and author calculation 5
I. Economic in brief (cont.) Major economic growth barriers were: (i) adverse economic environment and investment climate which drew down the capital inflows of neighbor countries, e.g. Japan, Singapore, Taiwan, Korea, Hong Kong; (ii) unequal distribution of capital resources between the state-owned sector and the private sector while the state-owned sector is not economically efficient; (iii) the financial system is inadequate and fails to meet the demand of the economy for some times. 6
II. Recent developments of capital inflows in Vietnam 1. FDI inflows 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Number of projects Registered capital (accrued) Disbursed capital (accrued) 300,000 250,000 200,000 150,000 100,000 50,000 0 0 1988-94 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2009 2010 2011 2012 2013 No. Items 1995-2000 2001-2005 2006-2010 2011-2013 1 FDI contribution to GDP 9.7% 14.6% 17.9% 18.6% 2 FDI s share in total government budgets 10.2% 13.25% 19.10% 19.70% 3 FDI s share of the gross exports 4 FDI s share of the manufacturing output 5 FDI share of gross investment 35.60% 50.90% 54.50% 60.40% 31.40% 36.10% 40.10% 47.20% 24.20% 16.30% 23.70% 21.90% 6 FDI s share of gross employment 0.98% 1.78% 3.70% 5.20% 7 FDI s share of manufacturing labor 11.52% 16.42% 21.1% 24.2% Sources: No.1,3,4,5,6,7 from the GSO-MPI; No.3 from MoF of Vietnam 7
II. Recent developments of capital inflows in Vietnam 1. FDI inflows (cont.): Classified by local region Economic regions Number of industrial & export zones (%) Share of Registered Projects (%) Share of Registered Capital (%) Share of Employment (%) Share of Exports (%) East Southern 33.8% 56.3% 42.5% 16.6% 64.4% Red River Delta 20.7% 28.4% 24.8% 22.7% 21.3% Mekong River delta 29.4% 5.3% 4.8% 20.0% 8.5% Central coastal 15.0% 6.1% 24.1% 21.9% 3.6% Central Highlands 1% 0.9% 0.3% 4.8% 2.2% Other regions < 1% 2.8% 3.4% 13.9% 3.4% Sources: GSO-MPI and author's calculations 8
II. Recent developments of capital inflows in Vietnam 1. FDI inflows (cont.): classified by country of origin Country/ territory Number of registered projects Share of Registered Projects (%) Share of Registered Capital (%) Share of Exports (%) Annual change of export (%) Japan 2186 13.7 15.0 10.3 4.3 Singapore 1243 7.8 12.8 2.0 12.2 Korea Republic 3611 22.7 12.7 5.0 18.6 Taiwan, PR 2290 14.4 12.0 1.7 6.5 British Virgin Islands 523 3.3 7.3 0.1 - Hong Kong, PR 772 4.8 5.3 3.1 10.9 United States 682 4.3 4.6 18.1 21.2 Malaysia 453 2.8 4.4 3.7 9.3 China, PR 992 6.2 3.2 10.0 3.1 Thailand 339 2.1 2.7 2.4 9.6 Total 13,091 82.2 80.1 56.4 10.82 Sources: GSO-MPI, and author's calculations, those data are accumulated to 2013 No. FDI classified by Economic sector Registered Projects (%) Registered capital (%) Size of project on average ($million) 1 Manufacturing 54.8 53.8 14 2 Real estate activities 2.6 20.9 120 3 Accommodation and Food services 2.1 4.6 31 4 Construction 6.6 4.4 10 5 Electricity, gas, steam and air conditioning supply 0.6 4.1 104 6 Information and communication 5.9 1.7 4 7 Arts, entertainment and recreation 0.9 1.6 26 8 Wholesale and retail trade; repair of motor vehicles and motorcycles 7.1 1.5 3 9 Transportation and storage 2.4 1.5 9 10 Agriculture, Forestry and Fishing 3.1 1.4 7 Sources: GSO statistics yearbook 2013 9
II. Recent developments of capital inflows in Vietnam 1. FDI inflows (cont.) Classification of Investments 2009 2010 2011 2012 2013 All Forms of FDI Investments 100% 100% 100% 100% 100% 100% foreign owned firms 77.1% 82.6% 82.6% 83.4% 83.8% Joint-venture and others 22.9% 17.4% 17.4% 16.6% 16.2% Employment 100% 100% 100% 100% 100% 100% foreign capital 84.3% 88.1% 88.2% 89.7% 91.0% Joint-venture and others 15.7% 11.9% 11.8% 10.3% 9.0% Annual Operation Capital 100% 100% 100% 100% 100% 100% foreign capital 58.1% 69.4% 62.2% 73.6% 75.0% Joint-venture and others 41.9% 30.6% 37.8% 26.4% 25.0% Sources: GSO-MPI and author's calculations, those data are accumulated to 2013 340.0 290.0 240.0 190.0 140.0 90.0 ASEAN Thailand Malaysia Indonesia Singapore Philippines Viet Nam Others 40.0-10.0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-60.0 10
II. Recent developments of capital inflows in Vietnam 1. FDI inflows (cont.) FDI contribution (continued): ASEAN Comparativeness Advantages - The stable socioeconomic and political environment over time - Vietnam s legal systems have been relatively accomplished and complied with international practices - Business competitiveness improved - Operational cost effectiveness Disadvantages - Business setup procedures - Tax and tariff systems remain less attractive - Laws restrictions and applications - Undeveloped infrastructures - Lack of local supportive industries 11
II. Recent developments of capital inflows in Vietnam 2. ODA inflows inflows have been significantly large and grown over time, 3 percent of GDP or equivalence of US $3.0-4.0 billion; about 10 percent on average contributes to the gross capital formation. EU UN ADB IDA UK Denmark US Korea Germany France Japan 1.1 Figure 13: Top ODA donors in Vietnam 1.95 1995-2012 (accrued, committed) 1.03 1.1 1.11 1.67 2.28 3.24 5.33 13.54 US$ billion 18.87 Table 12. Vietnam ODA types 2008-2010 ODA structure 2008 2009 2010 Budget support Projects, programs On-lending Total ODA, US$ million ODA to GDP (%) 21.1% 41.8% 25.0% 44.3% 36.2% 43.3% 34.6% 22.0% 31.8% 2,100 3,447 3,602 2.1% 3.2% 3.2% Source: PEFA 2013; GSO statistics Environmental protection and urban development, 15.0% Institutional reforms, business environment, administrative and social supports, 14.0% Healthcare, 4.4% Education, 4.2% 0 5 10 15 20 Economic infrastructure 63.2% Transport and telecommunicati on, 38.2% Agriculture, 15.2% Economic infrastructure, 73.2% 12
II. Recent developments of capital inflows in Vietnam 2. ODA inflows (cont.) Figure 14: ODA classified by local economic region in 2012 100% 3.991% 5.599% 90% 18.190% 13.471% 80% 28.65% 14.44% 70% 17.37% 60% 65.56% 50% 26.754% 18.382% 25.05% 40% 13.638% 15.931% 14.619% 30% 7.07% 20% 4.561% 10% 18.81% 24.21% 23.62% 26.50% 0% On-lending Total external borrowing Population (2010) Expenditures (2011) Mekong River Delta South East Central Highlands North and Central Coast Northern midlands Red River Delta 13
II. Recent developments of capital inflows in Vietnam 2. ODA inflows (cont.): Japan s ODA roles in Vietnam Large and grown over time; about % 30 of total all donor ODA. large loans with low interest rates and long term repayment; Major sectors in infrastructure: transportation, energy, telecommunication; Year TA (US$mil.) Grants (US$mil.) Loans (US$mil.) Total (US$mil.) Peer ranking 1995-99 254.36 364.44 973.32 1592.12 6-13 2000 91.49 41.52 790.67 923.68 2 2001 86.71 51.58 321.24 459.53 4 2002 79.81 53.51 241.42 374.74 4 2003 83.63 53.18 347.43 484.24 4 2004 83.89 39.81 491.63 615.33 3 2005 71.72 50.58 480.36 602.66 4 2006 60.82 40.97 461.12 562.91 4 2007 73.85 18.48 547.71 640.04 3 2008 74.59 26.29 518.16 619.04 2 2009 86.21 22.82 1082.33 1191.36 1 2010 106.81 51.84 649.16 807.81 2 2011 125.07 26.74 861.24 1013.05 1 2012 148.27 20.38 1478.06 1646.71 1 2013 118.72 17.48 1031.29 1167.49 1 Telecommunic ation, 3% Social services, 15.1% Others, 14.9% Energy, 24% Figure 19: JapanODA by sectoritle Transport 43% [1] The 2013 amount is estimated. 14
Japan s ODA roles in Vietnam (cont.) - Regional comparativeness 15
II. Recent developments of capital inflows in Vietnam 3. Remittance inflows Large and grown over time; approximate 7 percent of GDP Vietnamese inward remittances have originated from two sources, overseas workers and expatriated citizens and the latter has overwhelmed the former source; 80,000.0 70,000.0 Figure 23: Remittances Developing world comparativeness US$ million India China 60,000.0 Philippines 50,000.0 40,000.0 Mexico Nigeria Egypt 30,000.0 Bangladesh 20,000.0 Pakistan 10,000.0 Viet Nam 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Indonesia Poland 16
II. Recent developments of capital inflows in Vietnam 3. Remittance inflows (cont.) Remittances as a share (%) of Year GDP FDI ODA Gross capital Inflows Exports 1995 1.4 14.3 34.1 9.2 6.1 1996-00 3.3 50.4 70.6 21.4 12.8 2001-05 5.0 80.5 124.7 32.5 17.4 2006-10 6.7 71.2 231.3 34.8 36.1 2011 6.3 77.7 235.1 36.9 43.5 2012 6.5 97.2 247.0 41.1 48.4 2013 6.5 97.6 218.7 40.3 48.3 Table 17: Vietnam Inward Remittances by country 2002 2004 United States 41.10 % 57.70 % Australia 7.30% 8.60% Canada 6.20% 6.10% France 2.80% 4.00% Eastern Europe 9.30% 3.90% Russia 3.40% 3.20% Hong Kong 0.00% 1.10% Taiwan n/a 0.80% Thailand 0.30% 0.40% China 0.20% 0.20% Others 19.40 % 6.50% Source: MOFA (2012), Vietnam Review of Vietnamese migration. US$ 3,000 2,500 2,000 1,500 1,000 500 0 Figure 25: Kinship household Overseas remittances by region 2,722.2 2,323.6 2,411.3 1,521.6 1,433.0 1,465.8 1,257.7 1998 2002 2004 2006 2008 2010 2012 Red River Delta North Mountainous and Midland North Central and Coastal Central Highlands South East Mekong River Delta Country average 17
III. Theories, empirical evidence on capital inflows and economic growth Classical theories have focused on the roles of capital investment and growth: Capital inflows not only exert the direct effects on the economic growth through capital stock accumulation, but also FDI and ODA and remittances expose the indirect spillovers on the economic growth via technological transfusion, human capacity enhancement, infrastructure improvement, demand hike FDI not only fills the gap of financial resources for investment, it also carries new technologies and managerial know-hows to the recipient economies; ODA contributes to capital investment in both physical and human capital, particular infrastructure development and poverty reduction; Remittances: consumption, domestic demand hike, and poverty reduction; 18
IV. Vietnam case study 1.Growth contribution by capital element Year Share of FDI in GDP by GSO statistics (%) Total K contribution Economic growth of Capital stock (K) contribution decomposition (%) DI Capital inflows FDI (calculated) ODA Remittances 1995 6.3 33.0 18.60 14.42 10.05 4.21 0.16 1996 7.4 54.5 41.40 13.08 8.89 4.03 0.16 1997 9.1 63.0 49.48 13.49 9.59 3.74 0.16 1998 10.0 71.4 59.16 12.25 7.21 4.63 0.41 1999 12.2 83.3 71.95 11.39 5.80 5.09 0.49 2000 13.3 54.3 41.67 12.63 6.33 5.55 0.76 2001 10.3 55.7 45.19 10.54 6.00 4.24 0.30 2002 13.8 55.7 46.21 9.52 5.89 3.31 0.32 2003 13.8 56.8 47.47 9.30 5.23 3.73 0.34 2004 14.5 51.8 43.44 8.36 4.74 3.34 0.28 2005 15.1 45.0 36.64 8.33 5.05 2.99 0.30 2006 16.0 53.6 45.31 8.24 5.51 2.48 0.25 2007 14.8 60.5 49.85 10.62 7.85 2.45 0.33 2008 17.0 66.4 54.74 11.69 9.41 2.02 0.26 2009 18.0 58.8 46.93 11.84 8.46 3.04 0.34 2010 18.4 52.1 41.93 10.21 7.90 2.06 0.25 2011 18.3 43.3 33.17 10.12 7.38 2.44 0.30 2012 17.7 40.6 30.32 10.28 7.08 2.79 0.41 2013 18.0 35.7 24.72 11.02 7.27 3.24 0.51 19
2. Economic growth contribution by K, L, TFP Equation: g Y = TFP + α*g K + (1-α)*g L Year GDP (billions K stock GDP shares of %Growth factor decomposition ggdp VND) (billions VND) gk (%) gl (%) (1- α) (%) αgk TFP K L TFP gl 1995 195,567 327,099 9.5 2.1 9.5 3.2 1.4 5.0 33.0 15.0 52.0 1996 213,833 377,031 15.3 2.2 9.3 5.1 1.5 2.8 54.5 15.8 29.7 1997 231,264 435,076 15.4 2.2 8.2 5.1 1.4 1.6 63.0 17.8 19.3 1998 244,596 488,763 12.3 2.1 5.8 4.1 1.4 0.2 71.4 24.8 3.8 1999 256,272 547,052 11.9 2.1 4.8 4.0 1.4-0.6 83.3 29.5-12.8 2000 273,666 607,566 11.1 4.5 6.8 3.7 3.0 0.1 54.3 44.6 1.1 2001 292,535 677,559 11.5 2.5 6.9 3.8 1.7 1.4 55.7 24.5 19.7 2002 313,247 757,762 11.8 2.5 7.1 3.9 1.6 1.5 55.7 23.1 21.2 2003 336,242 852,480 12.5 2.7 7.3 4.2 1.8 1.4 56.8 24.5 18.7 2004 362,435 955,686 12.1 2.5 7.8 4.0 1.7 2.1 51.8 21.4 26.8 2005 393,031 1,064,513 11.4 2.9 8.4 3.8 1.9 2.7 45.0 22.6 32.4 2006 466,385 1,183,882 11.2 2.8 7.0 3.7 1.9 1.4 53.6 26.9 19.5 2007 486,459 1,337,032 12.9 2.8 7.1 4.3 1.9 1.0 60.5 26.1 13.4 2008 525,890 1,487,851 11.3 2.8 5.7 3.8 1.8 0.1 66.4 32.6 0.9 2009 552,797 1,629,502 9.5 2.8 5.4 3.2 1.8 0.4 58.8 34.1 7.1 2010 589,748 1,793,148 10.0 2.7 6.4 3.3 1.8 1.3 52.1 28.4 19.5 2011 643,318 1,938,458 8.1 2.7 6.2 2.7 1.8 1.8 43.3 28.4 28.3 2012 703,233 2,062,408 6.4 2.7 5.3 2.1 1.8 1.3 40.6 34.0 25.4 2013 732,417 2,182,277 5.8 2.2 5.4 1.9 1.5 2.0 35.7 27.4 36.9 20
3. Model estimation: Hypotheses and equations Hypotheses Direct hypotheses 1. Do the aggregate capital inflows have a positive and significant impact on economic growth? --Does FDI inflow have positively significant effects on economic growth at the national level? --Does FDI inflow have positively significant effects on economic growth at provincial level? --Does ODA inflow have positively significant effects on economic growth at the national level? --Does ODA inflow have positively significant effects on economic growth at provincial level? --Does remittance inflow have positively significant effects on economic growth at the national level? 2. Does the business cycle increase or decrease partly capital inflows, then economic growth? 3. Does the national competitiveness increase or decrease partly capital inflows, then economic growth? Model equations (1) GDP=f(fid, oda, rem, inflows, educ, ex, fid, govex, health, imac, infra, lap, prod, reer, tot, tra, gdp*fdi, gdp*oda, gdp*rem) (2) GDP =f(fdi, educ, fid, educ, ex, fid, govex, health, imac, infra, lap, prod, reer, tot, tra, gdp*fdi); (3) FDI =f(gdp, educ, fid, educ, ex, fid, govex, health, imac, infra, lap, prod, reer, tot, tra, gdp*fdi); (4) GDP=f(fdi, oda, demand, educ, health, gl, lacost, mpv, tel, reer, gdp*ex, gdp*govex, gdp*fdi, gdp*oda, gdp*tel, region); (5) FDI =f(gdp, ex, demand, educ, health, gl, lacost, mpv, tel, reer, gdp*fdi, region) (6) GDP= f(oda, oda(-1), educ, ex, gov, health, imac, infra, lap, prod, reer, tot, tra, pov, gdp*fdi, gdp*oda, gdp*rem); (7) ODA= f(oda(-1), gdp, educ, ex, gov, health, imac, infra, lap, prod, reer, tot, tra, pov, oda*gdp); (8) GDP= f(oda, oda(-1), educ, ex, gov, health, imac, infra, lap, prod, reer, tot, tra, pov, region, oda*gdp, fdi*gdp); (9) ODA= f(oda(-1), gdp, educ, ex, gov, health, imac, infra, lap, prod, reer, tot, tra, pov, region, oda*gdp); (10) GDP =f(rem, educ, health, infra, reer, rem, pov, demand, gdp*rem, gdp*fdi, gdp*oda); (11) REM =f(gdp, educ, health, infra, reer, rem, pov, demand, rem*gdp); (12) GDP=f(fid, oda, rem, inflows, educ, ex, fid, govex, health, imac, infra, lap, prod, reer, tot, tra,(region), dummy) (13) GDP=f(fid, oda, rem, inflows, educ, ex, fid, govex, health, imac, infra, lap, prod, reer, tot, (region), tra,bci) Indirect hypotheses 4. What are major determinants of FDI inflows? (14) FDI =f(gdp, educ, fid, educ, ex, fid, govex, health, imac, infra(tel), lap, prod, reer, tot, tra, gdp*fdi) --Does a region with better economic infrastructure attract more FDI than (15) FDI =f(gdp, educ, fid, educ, ex, fid, govex, health, imac, infra, lap, prod, reer, tot, tra, fdi*infra(tel), dummy) others? --Does a region with better provincial competitiveness attract more FDI? (16) FDI = f(gdp, educ, health, gl, lacost, mpv, infra(tel), bci(cpi), (region), (dummy)) 5. What are major determinants of ODA inflows? (17) ODA= f(ggdp, gfdi, gedu, ghealth, gmpv, gdemand, reer, gtrade, pov, infra(tel), bci, (pci), (region), (dummy)) 6. What are major determinants of remittance inflows? (18) REM = f(gdp, literacy, demand, prod, reer, imac, pov, dummy) 7. Do FDI inflows impact on the export of the economy? At national and provincial level? 8. Do ODA inflows impact on the infrastructure development? At national and provincial level? (19) FDI=f(gdp, educ, fid, gov, health, imac, infra(tel), lap, rem, tra, tot, lacost, reer, ex, ex*fdi); (20) EX=f(fdi, gdp, educ, fid, gov, health, imac, infra(tel), lap, rem, tra, tot, lacost, reer, fdi*ex) (21) ODA= f(oda(-1), gdp, educ, ex, gov, health, imac, infra(tel), lap, prod, reer, tot, tra, pov, oda*infra(tel)); (22) Infra= f(oda, gdp, educ, ex, gov, health, imac, infra(tel), lap, prod, reer, tot, tra, pov, oda*infra(tel)) 21
4. Estimation Results and discussion Table 22. Estimation growth effects of capital inflows at national level Independent variables Growth effects FDI, ODA, REM Foreign Direct Investment (FDI) 0.164189 (*) 0.021028 (*) Growth effects of FDI Growth effects of ODA Official Development Assistance(ODA) 0.111177(****) 0.115637 (**) Growth effects remittances Overseas Vietnamese remittances (REM) 0.037784 (*) 0.022899 (*) Aggregate inflows (INFLOWS) Education (EDUC) 1.157058 (*) 0.606306 (*) 0.354364 (*) 0.34765(*) Exports (EX) 0.186557 (***) 0.130376 (*) -0.134361 (****) 0.051777 Financial market development (FID) -0.010888(*) -0.006613 (*) -0.010073 (*) -0.006446(*) General government spending (GOVEX) 0.474033(**) 0.190397 (*) 0.182812(*) Healthcare (HEALTH) -0.05827-0.838921 (**) 0.843638 (*) -0.011234 Technological progress (IMAC) 0.077702 0.073436 (*) -0.123763 (*) 0.023573 Economic infrastructure (INFRA) -0.067758 (*) -0.029013 (*) 0.058846 (*) 0.00421 Labor participation ratio (LAP) 1.028516(*) 1.456134 (*) 1.225574 (*) 1.282873(*) National labor productivity (PROD) 0.335009(*) 0.412801 (*) 0.245843(*) Real effective exchange rate (REER) -0.149756 (**) -0.031275 (*) -0.017418 Terms of trade (TOT) -0.327007 (*) -0.217996 (*) -0.40453 (*) -0.212047(*) Trade volume (TRA) -0.474206 (**) -0.251123 (*) -0.115287 (*) -0.107992(**) Interactions between FDI and GDP 0.001036 (*) Interactions between ODA and GDP 0.005732 (*) Interactions between REM and GDP 0.001069(*) Interactions between GDP and BCI 0.009956 Booming business cycle (dummy =0) 0.000361 0.00033(****) 0.000282 0.001077 Downturn business cycle (dummy =1) -0.000361-0.00033 (****) -0.000282-0.004933 22
4. Estimation Results and discussion (cont.) At national level: Capital inflows have a positive and significant relationship with economic growth; aggregate effect is stronger than the individual effect of each factor FDI, ODA, REM; FDI inflows show a stronger effect than the rest of capital inflows, ODA and REM; Supporting factors: labor growth, productivity of the economy, education, exports, technological progress, and government expenditures, have been actively supported to the economic growth; Unsupporting factors: infrastructure and financial markets in Vietnam remains undeveloped; terms of trade (low value of the primary products); relative appreciation of VND compared; human resource quality (healthcare); FDI, ODA are affected by business cycles, but remittances are countercyclical inflows. Country s competitiveness also affects capital inflows and the economic growth. 23
4. Estimation Results and discussion (cont.) At provincial level: Relationship b/w capital inflows (FDI and ODA) and GDP is positive and significant; In case of FDI, regions with better economic infrastructure, better social development, and better governance associated with larger capital inflows disbursed (the Red River Delta and the South East region versus the rest); In case of ODA, infrastructure, human capital, exports, and local government expenditures are growth-supported; Regions with better socioeconomic conditions are receiving more ODA. However, ODA inflows are decreasing in its marginal effects on economic growth in the developed regions relative to the rest of the region; Healthcare, financial market development and infrastructure, real effective exchange rate, terms of trades also have negative effects on the provincial economic growth; FDI, ODA are affected by business cycles; Provincial competitiveness also affects the economic growth. 24
4. Estimation Results and discussion (cont.) Results at provincial level Table 23. Estimation growth effects of capital inflows at provincial level Independent variables Across Region Red River Delta Northern Mountain and Midland North Central Coast Central Highlands Southeast Mekong River Delta Provincial FDI (FDI) 0.022903 (*) 0.033736 (*) 0.035831 (*) 0.031792 (*) 0.033158 (*) 0.032718(*) 0.031899 (*) Provincial (ODA) 0.099075 (*) 0.098339 (*) 0.103769 (*) 0.101519 (*) 0.107359 (*) 0.098554(*) 0.099506(*) Provincial (DEMAND) 0.083063 (*) 0.124211 (*) 0.12508 (*) 0.132785 (*) 0.113005(*) 0.126819(*) 0.132745(*) Education (EDUC) 0.600994 (*) 0.907082 (*) 0.912578 (*) 0.89382 (*) 0.861471(*) 0.895928(*) 0.89569(*) Healthcare (HEALTH) -0.005071-0.007465-0.007054-0.010654-0.010962-0.009046-0.009174 Labor growth (gl) -0.499676 (*) -0.396261 (**) -0.477602 (*) -0.450342 (*) -0.462562(**) -0.437034(*) -0.456651 (*) Labor cost (LACOST) 0.024317 (****) -0.004634-0.001118-0.004807 0.002155-0.002811-0.005791 Learning by doing (MPV) -0.03889-0.083822-0.071766-0.083632 (****) -0.062884-0.083537-0.088099(****) Infrastructure (TEL) -0.017072 0.034957 (*) 0.038546 (*) 0.035013 (*) 0.034533(*) 0.03332(*) 0.034893(*) Real eff.exchange rate (REER) -6.106985 (*) -1.253146 (*) -1.068257 (***) -1.012052 (****) -0.91595 (****) -0.921443 (****) -0.973016(****) Interaction GDP& GOVEX 0.053098 (*) 0.058418(*) 0.052496(*) 0.055707(*) 0.05376(*) 0.056969(*) 0.056257(*) Interaction GDP& EX 0.012142 (*) 0.006553 (*) 0.006768(*) 0.006569(*) 0.006758(*) 0.006903(*) 0.006724(*) Interaction GDP & FDI 0.00462 (*) 0.005633 (*) 0.005447(*) 0.005143 (*) 0.005155(*) 0.005163(*) 0.005133(*) Interaction GDP &ODA 0.009665 (*) 0.01686 (*) 0.016691 (*) 0.016387(*) 0.016164(*) 0.016766(*) 0.016232(*) Interaction GDP& TEL 0.009665 (*) 0.009724 (*) 0.009965(*) 0.009347(*) 0.009444(*) 0.006506(*) 0.006434(*) Booming business cycle 1.109661(****) 5.504409(**) 4.540704(**) 5.458802(**) 5.557723(**) 1.107271 (*) 1.177022(****) Downturn business cycle -0.422905-1.899446(****) -1.457347 (****) -1.768077(****) -1.875325(****) -0.422017(*) -0.449806 25
4. Estimation Results and discussion (cont.) Capital inflows determinants and policy changes FDI s determinants: Economic growth, infrastructure, Supporters: Trade activities, the level of financial market developments, given technology progress, labor ratio, however, not statistically significant; Unsupporters: Labor cost s productivity in decreasing its marginal effects on firms production effectiveness; country s real effective exchange rate is appreciated, reduce the country s competitiveness; labor force s quality (healthcare and education) are inadequate; Country s/ province s competitiveness also positively affects FDI inflows, insignificant at country level, but statistically significant at provincial level; Business cycles affect the FDI inflows; 26
4. Estimation Results and discussion (cont.) FDI s determinants and policy changes Table 24. Estimation FDI determinants at national level Independent variables FDI interacts with exports FDI Interacts with FDI estimates with FDI interacts with economic BCI labor cost infrastructure FDI interacts with technological infrastructure In booming business cycle In downturn business cycle National GDP (GDP) 0.750287 3.754964(****) 0.130974 2.475882(*) 0.571301 (*) 1.570162-7.006593 (*) Education (EDUC) -1.534297(*) -6.503552(**) 0.52745(****) -2.211929(*) -1.124529 (*) -3.17062 (****) 3.019459 (**) Government spending (GOV) 0.319728(*) 0.34157-0.164403(****) -0.201025 0.033754 2.645362 (*) 0.46554 Exports (EX) 0.16683-0.329787(****) -1.610416(**) -0.093916 1.12016-1.936775 (*) Financial development (FID) 0.022643(*) 0.027527 0.015314(*) 0.017041(*) 0.009086 (*) -0.035574 (****) -0.094809 (*) Healthcare (HEALTH) 4.777689(*) -0.432912 5.03882 (*) -3.576643(*) 2.214926 (*) -14.89236(*) -11.35666 (*) Learning by doing (IMAC) 0.143167 (****) 1.069628-0.586633(*) 0.154071-2.325133 (*) 2.572706(*) 1.396842 (*) Infratructure (INFRA) -0.121204(*) 0.466184(*) -0.171327(*) -0.045187-0.036651 0.390333 (*) Trade (TRA) -1.122714 (*) -0.606413 0.617682(*) 0.880599 0.062138-3.510944(**) 0.755508 Real eff. Exchange rate (REER) 0.098188(****) 0.19398 0.00715-0.2229(****) -0.064113 (***) -0.72224(*) -1.437983 (*) Labor participant(lap) -1.87042 (****) -5.77657 0.960323 17.64683 (*) Labor cost (LACOST) 0.158867(*) -3.861941(*) 0.01772-0.020391-0.556855 (*) Interaction GDP&EX Interaction FDI&EX 0.056525(*) Interaction FDI&BCI 0.004209 Interaction FDI&LACOST 0.22934 (*) Interaction FDI&INFRA -0.019882 (*) Interaction FDI&TEL 0.13031 (*) Booming business cycle 0.012548(*) Downturn business cycle -0.005926 (*) 27
4. Estimation Results and discussion (cont.) FDI s determinants and policy changes Table 26. Estimation FDI determinants at provincial level with Provincial Competitiveness index Independent variable, Across Region Red River Delta Northern Mountain and Midland North Central Coast Central Highlands Southeast Mekong River Delta Provincial GDP (GDP) 3.251106 (****) 7.544102 (*) 6.576472 (*) 7.103524 (*) 7.413218 (*) 7.349324 (*) 7.011901 (*) Education (EDU) -0.92059 (****) -0.814992 (*) -1.008407 (*) -0.809594 (*) -0.748903 (*) -0.769218 (*) -0.826659 (*) Healthcare (HEALTH) 0.391674 0.139401 0.17058 (****) 0.204417 0.22777 (***) 0.30273 (***) 0.161564 Labor (L) 4.393148 (*) 4.571527 (*) 5.053435 (*) 4.808595 (*) 5.241985 (*) 4.701783 (*) 4.743105 (*) Labor cost (LACOST) -2.131642 (**) -0.516068 (**) -0.59272 (*) -0.56306 (**) -0.553003 (**) -0.532342 (**) -0.526576 (*) Learning by doing (MPV) -0.48052 0.15496 0.307104 0.04334-0.166145-0.016598 0.080925 Infrastructure (TEL) 0.65031 (***) 0.272053 (***) 0.275227 (*) 0.293779 (**) 0.316377 (*) 0.26915 (***) 0.28084 (***) Provincial competitiveness (PCI) 0.505482 0.546105 (*) 0.444615 (*) 0.542828 (*) 0.498413 (*) 0.524184 (*) 0.497487 (*) Interaction FDI& Ex 0.018533(**) 0.037405 (*) 0.039062 (*) 0.036357(*) 0.036831(*) 0.03619(*) 0.038302(*) Interaction FDI&TEL 0.011985 (*) 0.011997(*) 0.011716(*) 0.012019(*) 0.012019(*) 0.01083(*) 0.01159(*) Interaction FDI&FDP 0.086374 (*) 0.086336(*) 0.086063(*) 0.086947(*) 0.083543(*) 0.078271(*) 0.085804(*) 28
4. Estimation Results and discussion (cont.) ODA s determinants and policy changes Economic growth and infrastructure are positive and significant; Supporters are trade, historical ODA disbursed, and macroeconomic stability (REER), poverty, and learning by doing; Unsupporters: labor growth, education, low given technology progress/ lowered labor skills (learning by doing), labor productivity, and labor cost; Country competitiveness/ provincial competiveness affect the ODA inflows and ODA allocation; Business cycles affect the ODA inflows; Provinces with better infrastructure and economic conditions are allocated more ODA; 29
4. Estimation Results and discussion (cont.) ODA s determinants and policy changes Table 27. Estimation ODA determinants at national level Independent variables General estimates ODA interacts with poverty Poverty interacts with ODA Economic infrastructure interacts with ODA ODA estimates with downturn business cycle dummy Estimates with booming business cycle dummy National GDP (GDP) 1.293404 (*) 1.382398 (*) 0.428428(*) -0.512292 (****) -3.246699(*) exnational ODA (ODA (- 1)) 0.173738 (*) 0.63597 (*) -0.4074 (**) -0.4074 (**) Education (EDUC) -1.625366(*) 0.450365 (**) -2.764586 (*) -1.567831(*) 1.906921 (*) 4.052423 (*) Export (EX) 0.023395-0.09431 0.531261 (*) 0.784433(*) 1.273792 (*) 0.76152 (*) Government spending (GOV) -0.101287-0.572356 (*) 0.800005 (*) 0.383657(*) -0.152195-0.355955 (*) Healthcare (HEALTH) 1.197243(*) 1.355059 (*) -2.754643 (*) -0.680605(**) -3.945665 (**) -6.158891(*) Manufacturing value (IMAC) -0.048006(****) -0.016787 0.352877 (*) 0.089113(*) 0.611973 (*) 0.397332 (*) Infrastructure (INFRA) 0.131915(*) -1.756384 (*) -2.052411 (*) 3.81456 (*) 11.06517 (*) Labor participation (LAP) -0.772306(*) 0.347215 (*) -0.197294 (*) -0.969448(*) 0.111886 (****) -0.025794 Productivity (PROD) -0.291564(*) 0.015863 0.053676-0.559624(*) -0.195936 (***) -0.577161 (*) Real eff.exchange rate(reer) 0.237059(*) 0.128044 (*) -0.089307 0.248492(*) 0.123374 0.296775 (****) Trade (TRA) 0.246962(**) -0.14614 (*) 0.125336 (*) -0.760597(*) -0.311859 (*) -0.45339 (*) Poverty (POV) 0.113823(*) 0.138318(*) 0.098374 (*) -0.193545 (*) Interaction GDP and ODA 0.053225(*) Interaction ODA and POV 0.002347 (*) Interaction POV and ODA 0.062773 (*) Interaction ODA and INFRA Interaction INFRA and ODA 0.076241(*) Booming business cycle (dummy =0) -0.005158 (*) Downturn business cycle (dummy =1) 0.009096 (*) 30
4. Estimation Results and discussion (cont.) ODA s determinants and policy changes Table 28. Estimation ODA determinants at provincial level Independent variables Across Region Red River Delta Northern Moutain and Midland North Central Coast Central Highlands Southeast Mekong River Delta Provincial GDP growth (gdp) 1.067613(*) 1.114461(**) 1.053175(****) 1.067588 (**) 1.051605 (**) 1.176234 (**) 1.076633(**) Human capital (educ) -8.435585(****) -8.293289(***) -8.568069(***) -8.683999 (***) -8.384479 (***) -9.276985 (***) -8.712821(****) Human quality (health) 0.107677 0.169821 0.031608 0.015726 0.096859 0.141764 0.194202 Labor growth (gl) 0.147338 0.120092 0.184846 0.202294 0.150227 0.153322 0.123713 Tech infrastructure (tel) -0.788735-0.941835-0.672473-0.635008-0.778408-1.064096-1.077099 Macroeconomic stability (reer) 0.054228 0.05501 0.054941 0.059315 0.051857 0.061347 0.054314 Poverty (pov) 14.48767 11.89155 17.6023 19.03339 14.33757 18.08133 12.31557 Interact b/t ODA & infrastructure 0.037939 (*) 0.038215 (*) 0.037551(*) 0.038093(*) 0.037094(*) 0.038365(*) 0.0378731(*) Provincial Competitiveness (PCI) 0.010012(***) 0.01164(***) 0.009521(***) 0.010823(**) 0.009941(***) 0.01134(**) 0.01084(**) Interaction ODA and provincial competitiveness index 1.13173 (**) 1.177858(**) 1.079845(**) 1.056454(***) 1.13174(**) 1.129268(**) 1.240177(**) Interaction ODA and Poverty -0.014471 (**) -0.01616(***) -0.012763(****) -0.011912(****) -0.014706(****) -0.012202-0.016486(****) Downturn business cycle (dummy =1) Booming business cycle (dummy =0) 1.949754(**) 2.086868(**) 1.570812(****) 1.95523 (**) 1.838008 (****) 1.98317(**) 1.978373 (**) -2.20028(**) -2.337204(**) -2.017022(****) -2.202189 (**) -2.528359 (***) -2.237783(**) -2.192109 (**) 31
4. Estimation Results and discussion (cont.) Remittances determinants and policy changes Table 29. Estimation Remittances determinants at national level Independent variables General estimation Interact between REM and GDP Interact between REM and poverty Interact between REM and TEL Interact between REM and DEMAND Interact between REM and IMAC Boming business cycle Downturn business cycle National GDP(GDP) 8.248163(****) 0.792723 2.183013 (**) 0.678238 (****) -1.238419 8.297831 (****) 8.298026 (****) Literacy (LITERACY) -6.191566 (*) 0.053089(*) -0.558962 (*) -0.38725-0.482072 (****) 1.963958 (*) -6.245703-6.2476 Domestic demand (DEMAND) -5.390506 (**) 0.249547(*) -0.31989-0.117495 0.700168 (**) -5.389993(****) -5.388936 Productivity (PROD) 3.307656 (*) -0.423745(*) 0.526502 (****) -1.870154 (*) -0.790667 (*) -0.13199 3.322438 (*) 3.322089 (*) Real eff.exchange rate (REER) -0.82695 0.039018 0.047708-0.083194 0.374883 (*) -0.345927 (***) -0.843866-0.844023 Learning by doing (IMAC) 0.864147 0.083474-0.268377 (***) 0.598905(****) -0.248675 (**) 0.849604 0.849599 Poverty (POV) 2.370289 (****) -0.010821-1.176899 (*) 0.416988 (*) -1.480331 (**) 2.391582 2.391881 Interaction REM&GDP 0.118769(*) Interaction REM&POV 0.079834(*) Interaction REM&TEL -0.166522 (*) Interaction REM&DEMAND 0.168778 (*) Interaction REM&IMAC 0.130703 (*) Downturn business cycle (dummy =1) -0.01045 Booming business cycle (dummy =0) 0.01054 32
4. Estimation Results and discussion (cont.) Policy changes to attract more capital inflows, FDI and ODA The future governmental policies should focus to improve the underdeveloped conditions of infrastructure, quality of human resources (healthcare and education), while their incentives are spurious to the economic growth: Firstly, the government should review and amend those laws and incentive policies that promote foreign investment to take off. Earlier, the Law on investment, the Law on Enterprises, and other laws on land management, construction, and intellectual property rights must have been amended to meet the demand for current socioeconomic developments and the new global integration period; Secondly, the government should focus on up-grading socioeconomic infrastructure by increasing more public spending and socialized resources. Particularly, electric power supplies, seaports, roads and bridges are the top priorities. In line with the improving of the backbone infrastructure, reforming public administration and enhanced institutional capacity are needed; Thirdly, human resource development via training and education should be another government priority. The quality of Vietnam's labor forces must be enhanced in different ways, such as vocational training, foreign languages, healthcare, and industrial disciplines. 33
Thank you very much for your attention and your valued comments. Q&A 34