The impact of human capital on economic growth at provincial level in viet nam in the period 2018 2022

Utilizing the Ordinary Least Squares OLS regression method, the study confirms the effects of human capital which is approached through health capital the proportion of social insurance,

FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS & INTERNATIONAL BUSINESS

Econometrics Report Assignment for Midterm Exam

THE IMPACT OF HUMAN CAPITAL ON ECONOMIC GROWTH AT PROVINCIAL LEVEL IN VIET NAM IN THE PERIOD 2018-2022

IN LITERATURE REVIEW

1 Definition of Human Capital

2 Definition of economic growth

3 The relationship between human capital and economic growth

a Definitions of human capital

b Human capital and economic growth

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a Estimation of the result 30

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a Omitted Variable Test 34

b Heteroskedasticity testing ccc ceccccceeeceeeseeneecnecnscetssssseeseeeseeneenseentens 35

c Autocorrelation testing cccccscceseesseeneestecnsecesessssesessseeseeeneesteenseeeeseeees 38

4, Hypothesis Testing cccccccccccccceccseesseeseeceeneecnsesssesseesseeseeeseesteesteeeeeeesessees 39

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Figure 8: White’s Test Result 32

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I ABSTRACT

This paper aims to examine the impacts of human capital on economic growth in

Vietnam, focusing on 63 provinces and cities during the period from 2018 to 2022

The research utilizes secondary data from the General Statistics Office of Vietnam Utilizing the Ordinary Least Squares (OLS) regression method, the study confirms the effects of human capital which is approached through health capital (the proportion of social insurance, the under-five mortality rate, the total fertility rate) and education capital (the unemployment rate of the labor force, the trained labor force over 15 years old) on gross regional domestic product per capita While unemployment is found to

be statistically msignificant and has no noticeable effect on GRDP, the other four factors demonstrate a measurable impact This suggests that governments can leverage

data from these four determinants to effectively address the issues relating to GRDP

of 63 provinces and cities in Vietnam

1 Reasons for choosing the topic

Throughout the history of humanity, human beings have long constituted the most important resource in any civilisation Human capital can be defined as the collective knowledge, skills, and competencies of the workforce (Anu Madgavkar et al, 2022).The concept of human capital in research studies rooted from classical

economics, with early mentions by Adam Smith, who highlighted the value of

education and skills as a form of wealth Later, research expanded to include broader

dimensions, such as social capital and imnovation, highlighting the role of human

capital in economic growth and organisational development Indeed, the intrinsic value of human capital can be attributable to being the cornerstone of economic growth In particular, human capital is the primary source of productivity growth (Nelson & Phelps,1966) while labour productivity helps create a surplus of wealth (Ejiro U Osiobe, 2019) Besides, a research conducted by Elena Pelinescu in 2015 revealed a positive relationship, statistically significant between GDP per capita and Innovative capacity of human capital (represented by the number of patents) and

4

qualification of employees Therefore, it can be observed that there is a causal relationship between human capital and economic growth (Aghion & Howitt, 1998) Human capital not only drives economic growth, but economic growth also increases

the resources available for further investment in human capital development

Thus, the importance of human capital on economic growth 1s undeniable However,

within the context of Viet Nam - an elongated country with 63 provinces spreading over more than 2,000km and cities differing in development levels and cultural

features, the impact of human capital on economic growth may vary greatly Therefore, in order to formulate appropriate and effective policies for Viet Nam's current integrating process with the rest of the world, more in-depth studies are needed

to understand the role and current impact of human capital on economic growth at

provincial level

2 Research objectives

The main goal of this study is to formulate a model of the effects of human capital on the economic growth at provincial level The period 2018-2022 has witnessed several

significant milestones for Viet Nam in general It marked Viet Nam's deepening

integration into the global economy, with the Comprehensive and Progressive

Agreement for Trans-Pacific Partnership (CPTPP) coming into effect in 2019 and the EU-Viet Nam Free Trade Agreement (EVFTA) in 2020 The 13th National Congress

of the Communist Party of Viet Nam set ambitious economic goals aimed at

transforming Viet Nam into a high-income developed country by 2045 It emphasized

rapid, sustainable growth driven by innovation, digital transformation, and green development Key targets included achieving an average annual GDP growth rate of

6.5-7% for the 2021-2030 period and increasing GDP per capita to $4,700-$5,000 by

2025 As a result, by understanding the causal relationship between human capital and economic growth, we can contribute to the development of effective strategies that help provinces to improve their economic growth to meet the goals set by the Communist Party of Viet Nam This research, therefore, aims to provide a comprehensive understanding of how human capital affect the economic growth at provincial level in Viet Nam as well as answer these following questions:

@ What are the key indicators of human capital?

e How have these factors evolved from 2018 to 2022 and have an impact on

economic growth in each province/city?

@ What projections can be made about economic growth in the region for the near

Content: The research focuses on human capital, assessed through two aspects (with 5 indicators in total): education and health For education, the study uses the proportion

of individuals aged 15 and above who have received traming, along with the unemployment rate as indicators For health, the study uses Under five deaths per

1000 live births, total fertility rate and the number of citizens participating in Social Insurance as indicators

4 Research methods

The research team collected secondary data (both time series and cross-sectional) from the General Statistics Office of Viet Nam and utilised descriptive statistics to assess economic growth through GRDP per capita by province and the accumulation

of human capital in terms of education and healthcare across 63 provinces and cities in

Viet Nam Additionally, the study conducts a data analysis process using the Ordinary Least Squares (OLS) method on Stata to run and test the model according to methods taught in Econometrics course at Foreign Trade University

5 Report outline

The report has stx major chapters (excluding the abstract, reference, appendix and list

of tables and figure):

CHAPTER 1: OVERVIEW

CHAPTER 2: THEORETICAL FRAMEWORK AND HYPOTHESES

DEVELOPMENT

CHAPTER 3: RESEARCH METHODOLOGY

CHAPTER 4: METHODOLOGY AND MODEL SPECIFICATION

CHAPTER 5: ESTIMATED MODEL AND STATISTICAL INFERENCES

CHAPTER 6: CONCLUSION AND RECOMMENDATION

II LITERATURE REVIEW

1 Definition of Human Capital

The term human capital refers to the economic value of a worker's experience and

skills Human capital includes assets like education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality It 1s often viewed as an investment in people that enhances their productivity and capacity to contribute to the workforce and society Scholars have approached human capital from various perspectives

At an early stage, Gary Becker, a leading economist, is often credited with formalizing the concept of human capital had defined human capital as "the stock of knowledge,

experience, and skills possessed by an individual, viewed in terms of its value or cost

to an organization or country." Gary Becker (1964).Becker emphasized that Investments in education, training, and health contribute to the development of human capital On the other hand, the economist Theodore Schultz, who is often credited with the early development of the human capital concept, had opined "the capacity of individuals to perform work, which is determined by their education, training, and

experience." Theodore Schultz (1971) Following the groundwork for human capital

as a central element of economic theory, particularly in terms of productivity and growth, later economists further emphasized the concept of human capital within the context of increasing returns to scale, linking it with earnings In that way, Jacob Mincer, a key figure in labor economics saw human capital as the “accumulated knowledge and skills that individuals acquire through education and experience, which are used to enhance their productivity in the labor market." Jacob Mincer (1974) More recently, Amartya Sen, known for his work on development economics, expanded the concept of human capital beyond just economic productivity,

highlighting “the capabilities, skills, and resources of individuals that enable them to

achieve well-being, participate in society, and improve their quality of life.’ Amartya Sen (1999) Sen’s approach incorporates a broader view, including health and

education as integral elements of human development

2 Definition of economic growth

Economic growth refers to the increase in the production of goods and services in an economy over time, typically measured by the rise in real Gross Domestic Product (GDP) It reflects the ability of an economy to produce more goods and services, resulting in higher income levels, improved standards of living, and the capacity to create jobs Economic growth is often driven by factors such as increases in capital (both physical and human), technological advancements, and improvements in labor

productivity

Specifically, Robert Solow — a foundational figure in economic growth theory had defined economic growth as the increase in the output of an economy over time, driven by technological progress, capital accumulation, and labor force growth

Solow’s Solow-Swan growth model emphasized that technological progress is the

primary long-term driver of sustained growth “Economic growth comes from increases in the supply of labor, capital, and advances in technology.” Robert Solow (1956) On another perspective, one of the classical economists, David Ricardo discussed economic growth in terms of the expansion of productive capacity, with a focus on the accumulation of capital and improvements in land productivity, which allowed economies to produce more and increase wealth, as quoted “Economic growth is driven by the accumulation of capital, technological progress, and improvements in the labor force.” - David Ricardo (1817) More recently, Simon Kuznets — an economist known for his work on national income and economic growth

defined economic growth in terms of the long-term rise in a country’s standard of living, which is reflected in higher per capita income over time, stating as “Economic

growth is a sustained increase in output per person, leading to improvements in the material well-being of a population.” Simon Kuznets (1955)

3 The relationship between human capital and economic growth

The correlation between human capital and economic growth is strong and well- documented in both theoretical and empirical economic studies Human capital -

encompassing the skills, knowledge, experience, and abilities of individuals - plays a critical role in driving economic growth

"The ability of a country to grow economically depends on the human capital it has

and the knowledge it generates, which fuels further growth." - Robert Lucas (1988)

The statement meant to consolidate that human capital’s role goes beyond merely increasing individual productivity; it enhances the collective ability of a society to

innovate and develop The innovative idea of human capital role in sustainable

economics was also supported by Paul Romer, whose endogenous growth theory

stresses that economic growth is driven by the accumulation of knowledge, which in

turn is influenced by human capital, thereby indicating that human capital 1s crucial

for technological innovation and that economies grow as a result of the continual

development and spread of knowledge (Paul Romer (1990))

On the other end of the spectrum, numerous empirical studies have demonstrated the positive relationship between human capital and economic growth In detail, Robert Barro, in his study of cross-country economic growth found that education (as a measure of human capital) significantly contributes to economic growth He showed that countries with higher levels of human capital tend to experience faster rates of economic growth Robert Barro (1991) Meanwhile, in 1992, Mankiw, Romer, and

Weil had developed their own growth model in hope of examining whether the Solow’s Solow-Swan growth model mentioned above could remain meaningful within the international variation in modern context In their neoclassical growth model

MRW (1992), they showed that human capital, along with physical capital and technological progress, is essential for sustaining long-term economic growth They argued that differences in human capital explain much of the variation in growth rates

between countries Within the 20th century, researchers had proved the influence of

one indicator directly linked with human capital on the stable development of the economy: Education That is to be said, Hanushek and Woessmann found that the quality of education is more strongly related to economic growth than the quantity of education High-quality education leads to a more capable workforce, which in turn accelerates economic growth Hanushek and Woessman (2008)

Economists widely recognize health as a crucial component of human capital that significantly influences economic development and stability Human capital theory posits that individuals’ abilities, skills, and knowledge—formed through education,

training, and health—are essential drivers of economic growth There is a symbiotic relationship between health and education Economists like Becker and Mulligan

(1997) emphasize that better health contributes to better educational outcomes, while

higher education can lead to better health outcomes Together, they create a virtuous

cycle that fosters sustained economic development Another remark shows that Schultz (1965) and Becker (1964) developed the human capital theory, which links health, education, and economic growth According to this theory, good health contributes to more years of schooling and better learning outcomes, which ultimately increases a country's productivity and income levels

In conclusion, a positive correlation between human capital and economic growth 1s clear to be observed in both theoretical and practical perspectives In fact, human capital is perceived to increase productivity and thus profitability Human capital not only directly contributes to increasing output but also complements physical capital and technological advancements, ensuring that economies can sustain and build on growth over time Having said that, reasonable investment in the development of human capital, particularly in health and education terms, which has been shown to yield high returns in terms of increased national wealth and improved quality of life,

should be taken into serious consideration in favor of sustainable economic growth

4 Revision

Research on the impact of human capital on economic growth is extenstve and suggests that human capital is one of the primary drivers of long-term economic development Numerous studies have explored how education, skills, health, and labor

productivity contribute to economic outcomes at both the national and regional levels

Many cross-country studies have sought to quantify the impact of human capital on economic growth, often using measures such as years of schooling or educational

attainment levels as proxies for human capital

For example, Mankiw, Romer, and Weil (1992) study extending the Solow model by

incorporating human capital as a separate factor of production had concluded that

differences in human capital account for a significant portion of the variation in Income per capita across countries Their findings suggest that investing in education and skills can directly boost economic growth Another instance is the study of De la Fuente and Domenech (2006) This study examined the relationship between human capital and growth at the regional level in Europe They found that regions with higher levels of educational attainment tended to have higher growth rates, suggesting that Investments in human capital contribute significantly to regional economic development

Diving deeper into specified nations, several studies have focused on the role of human capital in the development of low- and middle-income countries, demonstrating that even modest investments in education and health can lead to

significant improvements in economic outcomes We have the Word Bank (2001) which emphasized the importance of education and health in fostering economic development, finding that human capital accumulation was crucial for improving living standards, reducing poverty, and fostering sustainable economic growth in developing countries Similarly, Dani Rodrik's work on economic growth in developing countries emphasizes that human capital development, particularly through education, 1s key to overcoming the constraints of low-income economies by suggesting that human capital 1s necessary for driving industrialization, adopting new technologies, and increasing the global competitiveness of developing nations Rodnk (2003)

5 Research gap

While the relationship between human capital and economic growth 1s well-

established, measuring human capital remains challenging While nuanced indicators,

such as cognitive skills, job-relevant skills, health outcomes, and continuous learning are hard to be statistically gathered, thereby lying beyond the scope of this review However, other statistically significant indicators, such as years of schooling or

literacy rates are increasingly used in research to get a more comprehensive picture of

human capital in the economic background

6 Conclusion

Vietnam, a developing nation who is rising strongly and rapidly to the challenge of stable economic growth does not ignore the importance of human capital during the race Vietnam's economic tradition has evolved significantly over the centuries,

influenced by its geographic location, political history, and cultural values The

economy has undergone multiple phases, from ancient agricultural practices to socialism, followed by a shift toward market-oriented reforms The nation has become

a notable player in the global economy in recent years, and its economic position 1s characterized by rapid growth, export-driven development, and increasing integration Into international markets Yet, placed in the era of integration, the country has also been witnessing a shift from being predominantly agricultural to a more diversified economy, including manufacturing and services, where human capital is a profound indicator Therefore, addressing human capital related factors that are having a significant impact on the economic growth is of great importance

IV THEORETICAL FRAMEWORK & HYPOTHESES DEVELOPMENT

1 Economic growth (GRDP)

A country’s economic growth may be defined as a long-term increase in its capacity to

provide its population with an increasingly diverse economic goods Economic growth

plays a crucial role in the development and prosperity of a country because as the economy grows, income levels typically rise, leading to better living standards and reduced poverty Consequently, identifying factors influencing economic growth is a prominent subject of interest among researchers throughout centuries

According to the Neoclassical Growth Theory, steady economic growth rate results when three economic forces come into play: labor, capital, and technology However,

over time, many studies have explored that other factors such as human capital,

government size or institutions also impact a country's economic growth Typically,

the economic growth rate is calculated as real GDP growth rate, real GDP per capita growth rate or GNI per capita growth in a fixed period of time

In the contemporary context of the national economy, the role of the regional economy 1s crucial Since the regional economy is an essential component of the national economy, regional economic development plays a key role in achieving the success of national development Achieving an increase in output that is reflected in the growth of real GRDP (Gross Regional Domestic Product) is one way to gauge the success of national development Real GDP growth can be used as a proxy for

regional economic expansion

2 Human capital

a Definitions of human capital

There are several definitions and approaches to understanding human capital The first point of view is based on the individual aspects According to Schultz (1961), human capital is "something akin to property," which contrasts with the concept of labor

force in the classical perspective In line with his theory, some researches demonstrate

that knowledge, skills, education, and abilities can all be strongly correlated with human capital (Garavan et al., 2001; Youndt et al., 2004) There 1s a second viewpoint

on human capital that emphasises knowledge and skills acquired throughout educational activities namely compulsory education, postsecondary education, and vocational education (De la Fuente & Ciccone, 2002, as cited in Alan at al., 2008) The third one is strongly linked to the production-oriented perspective of human capital Romer (1990) describes the human capital as ‘a fundamental source of economic productivity’

b Human capital and economic growth

Human capital is widely accepted as a factor that plays a significant role in determining economic growth, and both exogenous and endogenous growth theories unquestionably recognise the significance of human capital accumulation (Mankiw et

al 1992, Bergheim 2005 and Howitt 2005) Thus, the contribution of human capital

to GDP per capita has been the subject of innumerable research over the last decades

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In addition to labour and capital, human capital played a significant role in

endogenous economic growth models, and earlier research highlighted the impact of

human capital on economic growth (Paul Romer (1990), Telatar & Terzi, 2010)

According to research by De la Fuente and Doménech (2000, 2006), there is a positive and strong statistical association between production and human capital in both level and first-order differences (as shown by the Temple, 1999) Meanwhile, using a model

that combines elements of the classical theory of economic growth with the current

theories of economic growth, Michael Funke and Holger Strulik (2000) stress the presence of various effects of human capital depending on the nation's level of development

Some studies examine the role of human capital in economic growth within a country but they focus on different provinces, cities or regions within that country These studies mostly concentrate on China, where some regions and cities have wildly disparate rates of growth, a feature that is thought to be comparable to Vietnam Dinh and Knoght (2011) conduct a study in 30 Chinese provinces and point out that economic growth is stimulated by the accumulation of human capital (and physical capital) As shown by Phan Thi Bich Neuyet et al.' (2018) empirical analysis of provincial/city panel data from Viet Nam, human capital has had an effect on recent economic growth of Viet Nam

c Factors of human capital

Upon a study of previous research, our team intends to examine the relationship between the dependent variable: the Gross Regional Domestic Product of 63

provinces of Vietnam and five independent variables In the section that follows, we

will introduce and further discuss the link between the aforementioned dependent and

independent variables

Under five death rate

Total fertility rate

Figure 1: Theoretical framework

Unemployment rate at working age

e Trained labour force rate

Workers who possess specialized knowledge and skills are better equipped to perform

tasks with greater efficiency, accuracy, and effectiveness They are also able to

maximise the potential of available resources, leading to a direct increase in the

overall output per worker Therefore, a trained labor force is one of the most critical

factors in driving labour productivity, and subsequently influences a region's Gross

Regional Domestic Product (GRDP)

In line with the results of the study by Tahmina Khatun, Sadia Afroze (2016), labour

and capital both make substantial contributions to productivity as indicated by real

GDP in some Asian countries including Bangladesh, India, China, Malaysia and

Thailand, but the contribution of labour is much more significant than that of capital

Nguyen Minh Ha & Le Van Tung (2014) carry out a study in Ho Chi Minh city in

Viet Nam and also point out that training has a positive influence on productivity in

the textile industry of Viet Nam

In addition, a trained workforce is better equipped to understand, adopt, and integrate

advanced technologies into their workflow, which enhances productivity and fosters

economic growth Tirole (1989) and Andrews (2004) supports this assertion, stating

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that only a workforce with appropriate knowledge and skills is able to efficiently

manage the latest technologies Meanwhile, R.D Banker et al (2018), P.M Lan et al

(2018) all believe that technology plays an important and decisive role i increased

labour productivity and GRDP in the end

Hypothesis 1: Trained labour force rate is positively correlated with GRDP

e Social insurance coverage

Social insurance programs in Viet Nam cover worker benefits including sick leave,

maternity leave, allowances for work-related accidents and occupational diseases,

pension allowance, and mortality allowance, helping to hedge against the risks of loss

or decline in income Sick leave and occupational health allowances ensure that

workers can recover from illnesses or injuries without the fear of losing income, while

maternity leave allows mothers to recover post-childbirth and care for their newborns

A study conducted by Xinxin Ma and Takashi Oshio (2020) demonstrates that

participation 1n the social insurance program in China was positively associated with

health outcomes of middle-aged people, which is considered comparable to Viet Nam

As for maternity leave, Jenna Stearns (2015) states that maternity leave programs are

intended to give new parents the opportunity to stay at home and care for their babies

as mothers prepare for and recuperate from childbirth Maternal prenatal stress is

correlated with cognitive development in young children as well (Bergman et al.,

2007), and the availability of paid time off may reduce physical and mental stress

during pregnancy Similarly, the results of the study of Zoe Aitken et al (2015)

provides evidence of a positive association between paid maternity leave and maternal

health

It has been proved that these health benefits contribute to the growth of the economy

According to David E Bloom, David Canning, Jaypee Sevilla (2004), healthier

workers are more energetic and robust both physically and mentally; as a result, they

make more money and are more productive, contributing more effectively to

economic activities The results of their study shows that health has a positive and

statistically significant effect on economic growth

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Social insurance typically reassures workers that they are protected against various

risks, hence encouraging them to invest more in education and skills both of theirs and

of their family members’ As shown by Morduch (1999), Holzmann and Jorgensen

(2001), Dercon (2002), if individuals offset income and consumption falls by resorting

to costly measures (e.g., removing children from school), publicly funded insurance

could increase welfare by eliminating the need for such measures These investments

in human capital can improve labour quality, which enhances productivity and

eventually increases economic output

Hypothesis 2: Social insurance coverage 1s positively correlated with GRDP

e Under five death rate

The under-five mortality rate is a key indicator of a country's health and development,

reflecting the state of healthcare, nutrition, and social conditions Reducing child

mortality is both a moral obligation and a central goal of Sustainable Development

Goal 3.2, set by the World Health Organization (WHO) Research consistently shows

that addressing social determinants of health, improving access to medical care, and

investing in early childhood development can significantly reduce child mortality rates

worldwide

According to UNICEF’s The State of the World’s Children (2018), malnutrition plays

a major role in under-five mortality, contributing to almost half of all deaths in this

age group Children in low- and middle-income countries are disproportionately

affected, facing higher risks due to chronic undernutrition, inadequate sanitation, and

limited access to essential healthcare services The report stresses the importance of

measures such as improving maternal nutrition, increasing immunization rates, and

providing access to clean water and sanitation to save millions of lives annually

Similarly, data from the UN Inter-agency Group for Child Mortality Estimation

(2021) demonstrates a strong correlation between poverty and child mortality Their

systematic analysis of global trends between 1990 and 2019 revealed that while child

mortality rates have declined by 59% globally, stark disparities persist Sub-Saharan

Africa accounts for more than half of all under-five deaths, with countries in this

region experiencing mortality rates 15 times higher than those in high-income nations

The study highlights that sustamed reductions in child mortality require targeted

investments in health systems, education, and poverty alleviation programs (UN

IGME, 2021)

The WHO’s Commission on Social Determinants of Health Final Report (2008) also

identifies structural inequities as major drivers of child mortality Unequal access to

healthcare, education, and economic resources perpetuates these disparities The

report advocates for actions such as universal health coverage, improved living

conditions, and income equality to address these issues It also highlights the critical

role of gender equity, emphasizing that improving the health and education of women

and girls has direct, positive impacts on child survival

In conclusion, evidence strongly supports the hypothesis that reducing under-five

mortality requires a multidimensional approach that addresses both immediate health

interventions and the broader structural determinants of health Investments In

nutrition, healthcare, education, and poverty reduction not only save lives but also

contribute to sustainable development by creating healthier and more equitable

societies

Hypothesis 3: Under-5 Mortality Rate 1s Negatively Correlated with GRDP

e Total fertility rate

The relationship between fertility rates and economic outcomes is multifaceted

Research in Uganda indicates that while rapid population growth can exert pressure on

resources and infrastructure, it also contributes to economic vitality by expanding the

labor force when managed effectively For example, increased fertility can lead to a

"demographic dividend," where a higher proportion of the population is in the

working-age group, potentially boosting productivity and economic growth when

complemented by investments in education, healthcare, and job creation This

underscores how fertility rates, by shaping population size and structure, influence

regional economic outputs under conducive policy frameworks

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Studies like those summarized in the World Employment and Social Outlook (2024)

by the ILO emphasize that higher fertility can positively impact GRDP in contexts

where adequate investments are made in human capital and social infrastructure

However, disparities arise when resources are strained, particularly in regions with

underdeveloped economies Therefore, the economic benefits of fertility depend

heavily on the ability to harness the productive potential of the population through

equitable development strategies

Similarly, theoretical frameworks, such as the one proposed by Eastwood and Lipton

(2011), highlight that fertility’s impact on economic growth varies across stages of

demographic transition In early stages, higher fertility may strain resources, but as

mortality rates decline and dependency ratios stabilize, regions can experience

economic growth This transition often requires targeted policies that align population

dynamics with economic planning, ensuring that growth in population contributes

positively to GRDP rather than diminishing per capita income

In conclusion, the positive correlation between fertility rates and GRDP hinges on a

region’s ability to translate demographic changes into economic advantages through

strategic investments in human capital and social services While high fertility has the

potential to expand labor resources and drive growth, this outcome is contingent on

sufficient infrastructure and policy support to manage associated challenges

effectively

Hypothesis 4: Fertility rate is positively correlated with GRDP

e Unemployment rate at working age

Unemployment, especially among the working-age population, directly umpacts a

region’s economic output by underutilizing a vital resource: human capital This

relationship has been examined across various economies and underlines how

employment influences GRDP outcomes

Research on potential GNP, such as studies highlighted in Potential GNP: Its

Measurement and Significance, demonstrates how unemployment creates an "output

17

gap." This term refers to the discrepancy between actual economic output and the

economy’s potential when all resources, including labor, are fully utilized High

unemployment levels at working age exacerbate this gap, as capable individuals are

unable to contribute to productivity, stalling economic growth In this context, regions

with lower unemployment rates often achieve closer alignment with their economic

potential, resulting in higher GRDP

The IMF report on labor market adjustments in the United States and Europe

underscores how structural and cyclical unemployment affect economic resilience

When unemployment rises, aggregate demand declines, leading to lower investments,

reduced consumer spending, and slower regional growth Persistent unemployment

also damages long-term growth prospects by eroding worker skills, making re-entry

into the workforce challenging Regions that effectively address unemployment -

through skills training, job matching, and supportive policies - tend to experience

stronger and more sustained GRDP growth

In developing Asian economies, as analyzed in "Unemployment and Economic

Growth of Developing Asian Countries: A Panel Data Analysis,” high unemployment

has been found to significantly hinder economic development These economies, often

reliant on labor-intensive industries, see a direct link between workforce engagement

and GRDP High unemployment not only reduces household incomes but also

diminishes aggregate demand and economic circulation, further constraining growth

By creating more jobs and integrating more workers into productive sectors, these

regions could unlock substantial economic potential

The findings of Ball, Leigh, and Loungani (2013) also shed light on the consequences

of structural unemployment - where mismatches between worker skills and market

demands prolong joblessness This inefficiency can trap economies in cycles of

stagnation, with substantial losses in productivity Addressing such mismatches

through education, training, and mnovation-focused policies can lead to improved

employment rates and higher GRDP growth These findings emphasize the dual role

of unemployment: a barrier to immediate economic output and a challenge to long-

term structural development

To conclude, higher unemployment enables lower labor market efficiency, and fosters

lower levels of economic output To optimize GRDP, policymakers must focus on

reducing unemployment through targeted strategies such as vocational training,

employment incentives, and robust labor market policies These interventions not only

support economic growth but also enhance societal well-being by creating inclusive

opportunities for economic participation

Hypothesis 5: Unemployment is Negatively Correlated with GRDP

e Others

In addition to discussed factors such as human capital, trained labor force, social

Insurance, and life expectancy, there are other variables that influence GRDP

significantly

Infrastructure development is a critical determinant of economic growth, as it

enhances productivity and reduces operational costs Calderon and Serven (2008)

emphasize that regions with well-developed infrastructure - such as reliable

transportation networks, energy supply, and telecommunications - experience higher

economic output These advancements facilitate the efficient movement of goods and

services, improve connectivity, and attract investments, directly boosting GRDP In

contrast, inadequate infrastructure restricts economic activities and limits growth

potential, underscoring the importance of sustained infrastructure investment

Investment, both public and private, is another key driver of GRDP Public spending

on infrastructure projects, such as roads, utilities, and education, generates a multiplier

effect that fosters private sector growth, as argued by Aschauer (1989) Private

Investment, meanwhile, introduces new technologies, creates jobs, and strengthens

local economies Regions that attract higher levels of domestic and foreign investment

often experience faster GRDP growth This dual impact highlights the necessity of

balanced public and private investment strategies for regional development

Technology adoption also plays a transformative role in economic performance

Brynjolfsson and Hitt (2021) note that integrating advanced technologies, such as

automation and digital transformation, enhances efficiency, drives mnovation, and

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reduces costs Regions leveraging technology effectively can scale operations,

improve product quality, and compete in global markets, all of which contribute to

GRDP growth The rapid adoption of technology is therefore essential for regions

aiming to sustain long-term economic competitiveness

Finally, macroeconomic stability, particularly in terms of inflation and fiscal policies,

1s crucial for consistent GRDP growth Fischer (1993) explains that high inflation

undermines purchasing power, creates uncertainty, and discourages investment,

negatively affecting economic output Conversely, stable inflation and sound fiscal

policies foster a favorable environment for consumption, investment, and sustainable

economic development Regions with strong economic governance are better

equipped to attract investors and maintain steady economic growth, further enhancing

their GRDP

However, in this analysis, we will focus on factors related to human capital, such as

education levels, health, and the trained labor force, as these are core elements that

directly affect GRDP Other factors will be considered as residual factors in the

analysis, playing a supporting and indirect role in influencing GRDP growth This

approach ensures that the research remains focused and delves deeply into the role of

human capital in driving regional economic development

V RESEARCH METHODOLOGY

1 Research approach

The study employs a quantitative approach to investigate the impact of human capital

on economic growth in 63 provinces of Vietnam from 2018 to 2022 The availability

of economic data further supports the effectiveness of the quantitative method in this

domain By leveraging large-scale datasets encompassing multiple countries and time

periods, this approach minimizes researcher bias through standardized statistical

techniques and comparative analyses The quantitative method is particularly suitable

for identifying key factors affecting female unemployment rates in diverse national

contexts, making it a valuable tool for developing regional policy decisions

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While qualitative methods may provide deep insights into individual experiences, the

macro-level focus of this research necessitates the use of quantitative methods to

recognize patterns, test hypotheses, and establish causal relationships with statistical

certainty This method allows the researchers to draw evidence-based conclusions that

are applicable to larger regions rather than isolated cases

2 Data collection instruments

In this study, the research team utilized secondary data from the General Statistics

Office (GSO) of Vietnam The primary data collection tool was the systematic

extraction of relevant indicators from the database, including Gross Regional

Domestic Product (GRDP) per capita by province, Percentage of trained labor force at

15 years of age and above by province, Percentage of social insurance by province,

Under-five deaths per 1000 live births, Total fertility rate by province, and

Unemployment rate The dataset spans the period from 2018 to 2022, focusing on all

provinces of Vietnam, as classified by the General Statistics Office of Vietnam The

data were systematically extracted using GSO's download tools and stored in Excel

format

3 Data quality control

Ensuring high-quality and reliable data is a critical element of our research To

maintain the integrity of the findings, a rigorous data quality control process was

implemented This involved carefully reviewing secondary data collected from

reputable sources Verification checks were conducted to ensure the data’s accuracy,

consistency, and completeness Any discrepancies or mconsistencies identified were

addressed by cross-referencing multiple sources and confirming according to accepted

statistical standards By adhering to these stringent quality control procedures, we aim

to enhance the reliability of our findings and ensure the validity of our conclusions

4 Ethical considerations

Our research 1s guided by a strong commitment to ethical standards and the protection

of privacy and rights of individuals and organizations involved This includes ensuring

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clear consent from all relevant parties, safeguarding sensitive information, and

adhering to the guidelines provided by the data sources As secondary data from

reputable sources are used, the research team has an ethical obligation to comply with

the terms of data usage Additionally, the research team will strictly follow ethical

practices throughout the analysis and reporting processes, ensuring transparency and

honesty in presenting the findings This ethical approach is intended to maintain the

credibility of the research and ensure that the study on the impact of human capital on

economic growth in 63 provinces of Vietnam from 2018 to 2022 is conducted with

integrity

VI METHODOLOGY AND MODEL SPECIFICATION

1 Methodology

a Data collection

In addition to drawing on local and international research papers, we searched for

presently available data on the human capital factors that influence the Gross Regional

Domestic Product per capita at provincial level of Viet Nam from the General

Statistics Office (GSO) of Viet Nam In light of such sources, we selected five

independent variables to study:

- Percentage of trained labour force at 15 years of age and above (Labour15)

- Percentage of social insurance (Insurance)

- Under five deaths per 1000 live births (Death5)

- Total fertility rate (Fertility)

- Unemployment rate of the labour force at working age (UnEmp)

Additionally, Microsoft Excel and Stata are employed in the data processing stage

Specifically, data is obtained and synthesised from the GSO, then organised into panel

data using Microsoft Excel The statistical program Stata, on the other hand, 1s used to

estimate econometric models and has specific commands for managing, cleaning data,

and performing basic statistical analysis as well as more complex econometric

procedures

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b Data analysis

Given the aforementioned analysis and hypotheses, we employed the quantitative approach to quantify the information acquired for human capital factors influencing the Gross Regional Domestic Product per capita at provincial level of Viet Nam between 2018 and 2022

In this study, the suggested research model is estimated using the Ordinary Least Squares (OLS) approach

Y,=B,+B;,.X,+u,

Ordinary Least Squares (OLS) 1s a basic statistical technique for examining

correlations between one or more quantitative variables and a dependent variable (simple or multiple linear regression) It seeks to determine the best-fitting straight line through a set of data points by finding the mintmum sum of squared differences

between observed and expected values Under the Gauss-Markov assumptions, OLS estimators stand out as the Best Linear Unbiased Estimators (BLUE) with a high level

of statistical efficiency The assumption of a linear relationship between predictors

and the dependent variable, on the other hand, is the foundation of OLS and frequently corresponds with the theoretical frameworks supporting this type of research

By running the Stata software, we have established a number of techniques for data analysis:

- To find the correlation matrix between variables, we use the Correlation matrix

in the Stata program

- To determine the significance of a single regression coefficient, we use the P- value approach

2 Model specification

a Regression model

Based on the panel data estimation approach and the theoretical framework proposed

above, a research model to measure the impacts of human capital on GRDP in

Vietnam from 2018 to 2022 is constructed as below:

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GRDP = f(Trained labour force over 15 years old, Social insurance, Under-five

mortality rate, Unemployment rate, Total fertility rate)

According to this function, we formulate a regression model as follows:

InGRDP= Bụ+ B InLabour 15+ B; InInsurance+ B„.InDeath5+ B„ InUnEmp*+ B, InFertility+u,

live births by province

InUnEmp: The natural logarithm of the unemployment rate of the labor force by

province

InFertility: The natural logarithm of the rate of total fertility by province

InGRDP = B+ B, InLabour 15+B, InInsurance+ B,,.InDeath5+B,.InUnEmp + B InFertility +0,

In which:

Bot the estimator of the intercept of the model

Ậ,: the estimator of coefficient B, with 1 = (1,2,3,4,5)

i,: the residuals — estimator of disturbance YU;