DETERMINANTS OF VIETNAM’ S ECONOMIC GROWTH

FROM 2010 TO 2019

 

Phan Thanh Tam, Lac Hong University (LHU)

Nguyen Van Dung, Lac Hong University (LHU)

 

ABSTRACT

 

The study's objective is to explore the factors affecting Vietnam's gross domestic product (GDP) growth from 2010 to 2019.This paper implemented in a period of 2 months and data collected from the General Statistics Office from 2010 to 2019. The results of multiple linear regression analysis showed that four factors are affecting Vietnam's GDP growth, including the following elements: credit growth (%); inflation (measured through the CPI); Interbank interest rates (%), and population (people) with a significant level of 5%. Besides, research results processed from SPSS 20.0 software. The estimated parameters of the model by the least square method with a significance level of 5%. Moreover, the results are also a significant scientific justification for Vietnamese researchers and financial policymakers to apply the research results to future credit growth.

Keywords:CPI,GDP,credit,population,interest rate,andLHU.

 

INTRODUCTION

 

In recent years, lending activities have contributed to credit growth and improved access to finance for people, providing financial services to low-income and low-income people, enterprise. At the same time, it helps the poor avoid the vicious cycle of borrowing black credit with too high-interest rates. Credit growth thus spurs economic growth, through its effect on aggregate demand. Besides, credit growth in which consumption growth has increased at a rate many times higher than the growth rate of the final consumption component in GDP. This GDP contributes to economic growth and is the starting point of development, both theoretically and practically. Here, economic growth understood as creating more wealth to meet social needs.

Economic growth is often measured based on the gross domestic product (GDP) (Frederic S. Mishkin, 2014). GDP is all the new goods and services created in a period (usually a year) by production factors within the national territory. For this index, economic growth merely increases the capacity to create added value through commercial activities. Besides, economic growth is not only more than inherent, and it should become a structural shift that changes all aspects of production and consumption. The economic restructuring, technological level arose for many reasons—increased income changes, consumption trends, pressures for production, and technology changes accordingly. In turn, manufacturing and technology can stimulate new consumption patterns. The pace of economic restructuring depends on the institutional capacity (market, state), level of opening. Maybe, in other words, economic growth is not everything, but without an increase, we cannot go anywhere.Therefore, under the pressure of practical and theoretical pressure, the author decided to choose the research topic and set the research goal to explore factors affecting Vietnam's economic growth within ten years. Recent year. Among the four impact factors, there is a credit growth factor. Therefore, the authors chose the implementation of the topic "Credit growth affecting gross domestic product growth: a case study of Vietnam from 2010 to 2019”is very urgent.

LITERATURE REVIEW

 

Gross domestic product growth(GDP)

 

Economic growth: Economic growth is an increase in the gross domestic product (GDP) or gross national income (GNP) over a given period, usually a year according to (Alex Reuben Kira, 2013). Economic growth also defined as the increase in the level of production the economy produces over time.

Measurement of economic growth: (1) Measured by changes in real GDP: Because economic growth measures the increase in production level, which is a real variable, we use real GDP. (2) Measured by changes in GDP per capita: The growth rate considered to reflect best the level of improvement of the people's living standards, which is the use of real GDP per capita to calculate. Economic growth in this paper is shown as the GDP growth rate as follows.

 

 

(Source: General Statistics Office)

 

Figure 1: Vietnam’ s GDP growth from 2010 to 2019

 

Credit growth

 

Credit growth: is the total credit of the whole banking system this year will change from the previous year according to (Anaman, K. A, 2018). The credit growth done in this study is as follows.Therefore, the following hypothesis built.

 

 

(Source: General Statistics Office)

Figure 2: Vietnam’ s Credit growth from 2010 to 2019

 

Consumer price index (CPI)

 

Inflation: Inflation understood as the price increase in the economy. However, economists prefer to measure with more specific indicators: the consumer price index (CPI). Inflation is a continuous increase in the price of goods and services over time and a devaluation of currency according to (Kamaan, C. K., & Nyamongo, E. M, 2014). When the overall price rises, a unit of money will buy fewer goods and services than before, so inflation reflects a decrease in purchasing power per unit of currency. In this paper, we use the CPI data to measure inflation as follows.Therefore, the following hypothesis built.

 

 

 

(Source: General Statistics Office)

Figure 3: Vietnam’ s CPI from 2010 to 2019

 

Interbank interest rate(IR)

 

Interest rate: a certain percentage of a loan's transaction between parties. This amount is called the interest that the borrower needs to pay the lender under (Themba G. Chirwa, 2019). Accurately, the interest rate calculated as a percentage multiplied by the principal amount over a specified period agreed between the two parties (usually calculated by month or year).Interbank interest rate: is the interest rate borrowed from one bank to another through the interbank market when there is a shortage of capital, according to (Roger LeRoy Miller, 2017). In this paper, use the interbank interest rate data as follows. Therefore, the following hypothesis built.

 

 

(Source: General Statistics Office)

Figure 4: Vietnam’ s Interbank interest rate from 2010 to 2019

 

 

Population (PO)

 

Population: Population is a collection of people living in a particular geographical area or space, a valuable source of labor for socio-economic development, often measured by the census, numbers and denotes by population pyramid(Nwoko, N. M., Ihemeje, J. C., & Anumadu, E, 2016). In this paper, the Vietnamese population data from 2010 to 2019 used as follows. Therefore, the following hypothesis built.

 

 

 (Source: General Statistics Office)

Figure 5: Vietnam’ s Population from 2010 to 2019

 

Related studies

 

Monetary policy is part and instrument of the macro plan, a set of measures and strategies to meet the required objectives through various tools. The primary monetary policy objectives are job creation, economic growth, price stability, interest rate stability, financial market stabilization, and foreign exchange market stability. To manage monetary policy, the central bank can use tools such as Required reserve ratios, open market operations, and discounted lending according to (Anyanwu, J. C, 2017). These tools have a specific impact on interest rates, investment, and real GDP through transmission channels. Theoretically, the effect of monetary policy on economic growth depends on many factors, including the elasticity of interest rates on money demand. If money demand is inelastic with interest rates, the money supply has a substantial impact on market interest rates.

Besides, the elasticity of interest rates on investment spending also has an impact. If investment spending expectations are inelastic with interest rates, the change in market interest rates had a substantial effect on economic growth. Marginal consumption trends are also potentially influential factors. If the direction of negligible consumption is significant, the impact of investment on real economic growth considered according to (Kamaan, C. K., & Nyamongo, E. M, 2014).

From the theoretical basis, many studies did the test and evaluated the impact of monetary policy on economic growth. These empirical studies have published many different results.The study results show that the variables representing monetary policy, including money supply increase (represented by credit growth variable), inflation and exchange rate, are positively correlated with economic growth. For credit growth variables, the test results show a positive correlation with economic growth.

With the same research object as Nigeria, the study (Nwoko, N. M., Ihemeje, J. C., & Anumadu, E, 2016) performed the test “The effectiveness level in using Nigeria's monetary policy to stimulate the increase. Economic growth from 1990 - 2011. The author has used multiple regression models and OLS methods to analyze the impact of money supply, average prices, interest rates, and labor force on GDP. The research results show that monetary policy effectively adjusts the unemployment rate, price, output, and growth rate of the economy. Specifically, the average price and labor force have a substantial impact on GDP, and money supply affects GDP; interest rates have a negative but negligible effect on GDP.

Based on the above research results, the author makes the following hypothesis:

H1: Credit growth has a positive impact on Vietnam's GDP growth.

H2: Inflation has a positive impact on Vietnam's GDP growth.

H3: Interbank interest rate has a positive (negative) impact on Vietnam's GDP growth.

H4: Population has a positive impact on Vietnam's GDP growth.

The related theory and the relationship between the factors affecting Vietnam's GDP growth and the associated arguments presented above based on previous studies. The author built the research model as follows:

 

 

 (Source: Authors proposed)

Figure 5: Factors affecting Vietnam's gross domestic product (GDP) growth from 2010 to 2019

 

METHODS OF RESEARCH

 

In this paper, the author uses a combination of both research methods: qualitative research and quantitative research, according to ( Nguyen Dinh Tho, 2011). The paper conducted through two steps: (1) preliminary research using qualitative methods to identify the factors affecting Vietnam's GDP growth from 2010 to 2019 through the comments of 5 experts. economist. (2) Official research using quantitative methods to evaluate the impact of the factors on Vietnam's GDP growth from 2010 to 2019, thereby providing a basis for concluding the problem, the methods are presented by preliminary research and official research according to (Hoang Trong, Chu Nguyen Mong Ngoc, 2008). In this paper, the author uses qualitative research methods through suggestions of 05 economic experts to make evaluation criteria based on the research of factors affecting Vietnam's GDP growth since 2010. to 2019. The author conducted a model adjustment.

In the official study, the author applied the quantitative method used to collect data used, such as: collecting data from the General Statistics Office from 2010 to 2019. After entering the data, simulate data processing with SPSS 20.0 software through the following steps:Statistics describing the observation sample, multiple linear regression analysis to give a model:Testing the suitability of the model. Finally, the author proposes the policy implications to improve Vietnam's GDP growth in the coming period. The following are the results of data collection from the General Statistics Office.

RESEARCH RESULTS

Table 1 showed that within ten years, Vietnam has an average GDP growth of 6,311%, the slowest growth in ten years is 5.25%, and the highest is 7.08%. Besides, the average credit growth is 15,6170%, the lowest credit growth is 8,89%, and the highest is 27,90%. Besides, other indices also have sharp fluctuations over the years.

Table 2 showed that the column "Sig." < 0.05 with significance level 0.05 and column "Conclusion" all ofthe hypotheses supported. Besides, the results of the multiple linear regression analysis have the adjusted determination coefficient reaching 84.0%. This result meant that four independent factors affect Vietnam's economic growth to 84.0%. This study indicated that the model explains 84.0% of the variation of Vietnam's economic growth, namely GDP growth due to four factors. The four factors are following Credit growth has a positive impact on Vietnam's GDP growth.Inflation,  interbank interest rates harm Vietnam's GDP growth.The population has a positive impact on Vietnam's GDP growth.The regression results showed that Durbin - Watson stat = 2.179 indicates that there is no autocorrelation. According to the empirical principle, the Durbin-Watson stat values ​​in the range of 1 to 3 did not correlate.

 

CONCLUSIONS AND MANAGERIAL IMPLICATIONS

 

Conclusions

The authors had the results of data collection from the General Statistics Office from 2010 to 2019. The results of multiple linear regression analysis show that four factors are affecting Vietnam's economic growth, including the following factors: credit growth (%); inflation (measured through the CPI); Interbank interest rates (%), and population (people) with a significant level of 5%. Besides, research results processed from SPSS 20.0 software. The estimated parameters of the model using the least-squares method (OLS) with significance level is 5%. Besides, the results are also a significant scientific justification for Vietnamese researchers and financial policymakers to apply the research results to future credit growth. The following are managerial implications:

 

Managerial implications

 (1) Policy implications of credit growth: In recent years, the management of credit policies under the supervision of the State Bank of Vietnam's monetary policy has achieved critical success. However, in the coming time, the State Bank of Vietnam will continue to operate a flexible credit policy, in association with restructuring credit institutions, to curb inflation, promote GDP growth, and contribute. The section was dealing with some social security issues. Credit policy administration's success in the overall monetary policy management placed in the context of the world economy and the domestic macroeconomy with many unusual developments. Especially now, the disease of Covid-19 is very complicated around the world. Besides, the State Bank of Vietnam should continue to direct capital flows into priority areas, in operating monetary policy, the State Bank also needs to issue warnings and complete tools continuously. Regulating and limiting credit flows into risky areas such as real estate...

 (2) Policy implications of inflation: High economic growth is associated with high inflation and other macroeconomic instability. This factor is a common feature of many developing economies. In the coming time, the Government will implement a tight monetary policy and careful and close fiscal policies as follows:

+ For monetary policy: Regulate that the credit growth rate kept below 20%. The total means of payment increased by about 15-16% and prioritized rural agriculture, exports, supporting industries, and small and medium-sized businesses. They are tightening credit for non-manufacturing sectors, especially real estate and securities. Besides, the ratio of outstanding loans to this field also reduced. Introduce a policy of stabilizing the foreign exchange market and gold market to meet production and business needs and increase foreign exchange reserves. Currently, the Government is holding foreign currency trading in the free market and banking individual gold shops from buying and selling gold pieces.

+ For fiscal policy: Strive to increase budget revenue of 7 - 8% compared to the estimate approved by the National Assembly. Rearrange recurrent expenditures to save an additional 10% of recurrent spending in the remaining months of 2020. Cut budget deficits to less than 5% of GDP. 

 (3) Policy implications of interbank interest rates: To implement monetary policy, the central bank needs to use a variety of policy instruments, focusing on key strategies such as reserves. Mandatory, open market operations (OMO), interest rates, refinancing instruments, or even legislative instruments. Besides, interest rates are one of the tools that the State Bank of Vietnam (SBV) needs to use flexibly to manage domestic monetary policies such as base rate, rediscount interest rate, interest rate. The refinancing rate in the current difficult situation, the State Bank of Vietnam (SBV) implemented an asynchronous reduction of interest rates along with drastically directing credit institutions (CIs) to reduce costs, reducing profits will continue to create conditions for credit institutions to reduce lending rates sustainably in the coming time, contributing to minimize difficulties for the economy actively.

 (4) Policy implications on population: Vietnam's population is over 96 million, the incentive to give birth more when the fertility rate is still above 2 children/mother affects the quality of the people and the quality of labor and economic growth. The Government continues to implement the policy of firmly maintaining replacement fertility; bring sex ratio at birth to natural equilibrium; effectively take advantage of the golden population structure; adapt to an aging population; Reasonable population distribution and improvement of population quality, contributing to rapid and sustainable national development. Promote the emulation movement to carry out population work tasks, especially the campaign for each couple to have two children, to follow a civilized lifestyle, to build a healthy living environment, and to improve their health. Improve the health and material and spiritual life for the people.In this paper, the limitation of the research is due to time and resources limitation. The author only studied the data set from the General Statistics Office for ten years. Besides, the SPSS running data is ten years, which is relatively small compared to the data set of the General Statistics Office.

REFERENCES

 

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Kamaan, C. K., & Nyamongo, E. M. (2014). The effect of monetary policy on economic growth in Kenya. International Journal of Business and Commerce, 3(8), 11-24.

Nwoko, N. M., Ihemeje, J. C., & Anumadu, E. (2016). The impact of monetary policy on the economic growth of Nigeria. African Research Review, 10(3), 192-206.

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