MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY NGUYEN THE KHANG THE IMPACT OF INVESTMENTS ON ECONOMIC GROWTH AND INCOME CONVERGENCE IN VIET NAM Major: Finance and Banking Code: 62.31.12.01 SUMMARY OF PHD THESIS Academic Advisors: Assoc Prof Dr.Nguyen Ngoc Hung HO CHI MINH CITY, 2016 Dissertation was finished at: University Of Economics Ho Chi Minh City Academic Advisors: Assoc Prof Dr.Nguyen Ngoc Hung Reveiwer :…………………………………………………………………………… Reveiwer : …………………………………………………………………………… Reveiwer : …………………………………………………………………………… The thesis will be defend in the council at: ………………………………………………………………………………………… At……….date …….month…… year……… Research at: Library of University Of Economics Ho Chi Minh City [1] SUMMARY Thesis conduct quantitative analysis of the impact of investment on economic growth by model of PMG (Pooled Mean Group), to consider the impact of the factors on economic growth in the short and long term in Viet Nam Study data includes 63 provinces from 2000 to 2014 Therein, the investments are classified into three categories: public investment, domestic private investment and foreign direct investment The results showed that: In short term, the labor and trade openness negatively impacts on economic growth, other factors have not statistically significant coefficients In the long term, public investment negatively impact on economic growth, factors such as domestic private investment, foreign direct investment, labor and trade openness have a positive impact on economic growth The thesis also examines the issue of convergence of per capita income among the provinces in Vietnam The results showed that the phenomenon of convergence in per capita income among the provinces in Vietnam All categories of investments impact positively on the speed of convergence, in which foreign direct investment is the strongest, followed by public investment and domestic private investment [2] CHAPTER INTRODUCTION 1.1 Research proposal The impact of investments on economic growth has been studied in worldwide with lots of space, time and many different research methods Therefore, there are several contradictory statements about the impact of investment on economic growth, such as: Aschauer (1989a, 1989b); Hadjimichael and Ghura (1995); Jwan and James (2014); Blomström and Persson (1983); Aviral Kumar Tiwari and Mihai Mutascu (2011) In addition, one important predictor of the growth model of the neoclassical Solow (1956) and Cass (1965), it is the poorer countries or regions tend to faster economic growth than richer countries or areas However, there is very little research in Viet Nam to assess the contribution of each type of specific investments to economic growth and the process of convergence of per capita income in the economy For this reason, the author select and implement the topic: The impact of investments on economic growth and income convergence in Vietnam, as his doctoral thesis 1.2 Research objectives The primary objective of the thesis is to evaluate the impact of investments on economic growth and income convergence in Vietnam To achieve this goal, the thesis focuses find answers to the following research questions: (1) How is the degree of the impact of investments on economic growth in Vietnam in the short term and long term? (2) How is impact of investments on income convergence process in Vietnam? 1.3 Object and scope of the study 1.3.1 Research subjects: The mechanism of impact of public investment (si); domestic private investment (di) and foreign direct investment (fdi) on economic growth (GDP) and income convergence in Vietnam [3] 1.3.2 Research scope: Research focused on economic growth and the key elements such as public investment, private investment from domestic and foreign direct investment affecting on economic growth and income convergence process on the overall scope of Vietnam includes 63 provinces from 2000 to 2014 In addition, model uses control variables belonging to economic growth theory and former empirical studies 1.4 Research Methods Thesis uses quantitative research methods on the basis of Cobb-Douglas expanded production function including the variables affecting economic growth according to research by Wei (2008), Nguyen Minh Tien (2014) Since that would assess the impact of investments on economic growth and income convergence process 1.5 Thesis’ contributions 1.5.1 Academic contributions Firstly, the thesis will complement the empirical evidence of the impact of public investment, domestic private investment and foreign direct investment on economic growth Secondly, the thesis contributes more empirical evidence for cases identified in Vietnam by the neoclassical growth theories of Solow (1956); Cass (1965), it is the poorer countries or regions tend to faster economic growth than richer countries or areas 1.5.2 Empirical contributions It is an significant practical evidence to the policy makers in selecting resources for economic growth, especially in the allocation of investment in the total investment structure of the economy It is the basis for the balance of resources towards ensuring sustainable economic growth and poverty reduction in society The study also gives some policy suggestions and propose a number of specific recommendations to the Goverment in the implementation of policies to attract investment and use for economic efficiency 1.6 The structure of the thesis The thesis consists of 145 pages, is structured into 05 chapters Chapter Introduction Chapter Overview of theories and related studies Chapter Research Methodology Chapter Research Results Chapter Conclusions and Recommendations [4] CHAPTER OVERVIEW OF THEORIES AND RELATED RESEARCH 2.1 The concepts 2.1.1 Investments According to Sachs and Larrain (1993), general definition of investments as follows: "Investment is the accumulated output to increase production capacity in the later period of the economy" 2.1.2 Economic growth Economic growth was fairly uniformly understood as an increase in actual output of an economy in a given time period Common measure is the increase in total gross domestic product (GDP) in a year or an increase of the per capita GDP in a year Some countries use other indicators to determine economic growth: GNP (gross national product); GNI (gross national income); NNP (net national product) or NNI (net national income) 2.1.3 Income Convergence Convergence of income (also sometimes called the effect "catch up") is the hypothesis that the economists as Solow (1956) and Cass (1965) said that per capita income of poorer countries or provinces will tend to grow faster than the richer countries or provinces As a result, all economies converge to same level of per capita income in long term The developing countries have the potential to grow at a faster rate than in developed countries because the characteristics of declining marginal return on capital in the model the neoclassical growth Moreover, poor countries can copy the methods of production, technology, and organizational activities of the developing country for a chance to "catch up" However, not all poor countries can achieve a high growth rate, if income is too low, people will have consume everything they and thus not have savings to invest in order to maintain the level of investment per employee while the population rise and fell into a trap of poverty At the same time, countries or richer areas, with conditions for development of science and technology, from which the marginal return on capital will rise stronger and [5] faster the countries or poor areas This resulted in income divergence across countries or regions 2.2 Investment theories 2.2.1 Investment multiplier theory Theoretical models of Keynes's investment multiplier is stated in the work “The General Theory of Employment, Interest and Money” in 1936 According to him, to increase the national income (national output), it must first increase investment Here, he has studied the relationship between increasing investment and increasing national production and introduced the concept of "investment multiplier." Investment multiplier (k) represents the relationship between the increase in investment and income increased It tells us that when there is an additional amount of aggregate investment, the income will increase by an amount equal to k times of the increase in investment 2.2.2 Investment Accelerator theory If the investment multiplier explains the relationship between the increase in investment to increase production or to increase investments how that affect to production Thus, investment appear to be a factor of aggregate demand According to Keynes (1936), investments are also considered in view of the total supply, which means that every change of the output making how the investment alter It means that the implementation of investment projects will increase a certain level of output and the output increases, which increases the volume of capital and the promotion of increased investment 2.2.3 Harrod – Domar investment theory If call Y is total output, K is the scale of production capital Output has relationships with production capital: k = K / Y (k: ratio of capital - output) Currently, developing countries still popularly apply this model of growth in planning and mobilizing investment capital for current growth Because these countries mainly base on investment in width to exploit the resources that are not being fully used Harrod - Dorma has pointed out the role of capital and capital efficiency in economic growth 2.2.4 Solow neoclassical theory of investment According to this theory, the investment is equal to saving (at potential output) Saving S = s * Y where