This study examines the extent to which budget deficit affects economic growth in Vietnam in the 2007-2017 period. Using the panel data regression, where the dependent variable is the economic growth (GDP), independent variables include consumer price index (CPI), foreign direct investment (FDI) and budget deficit (BD), the results show that during the research time frame, budget deficit has a positive correlation with economic growth at a statistically significant level, while no significant correlation is found between CPI and FDI with the dependent variable.
Trang 1A case study of Vietnam
Khanh Tuyet Nguyen Thanh Khac Hoai Le
Ngày nhận: 22/05/2019 Ngày nhận bản sửa: 16/06/2019 Ngày duyệt đăng: 27/08/2019
This study examines the extent to which budget deficit affects economic
growth in Vietnam in the 2007-2017 period Using the panel data regression,
where the dependent variable is the economic growth (GDP), independent
variables include consumer price index (CPI), foreign direct investment
(FDI) and budget deficit (BD), the results show that during the research
time frame, budget deficit has a positive correlation with economic growth
at a statistically significant level, while no significant correlation is found
between CPI and FDI with the dependent variable.
Keywords: Budget deficit, Growth, Vietnam Economy
Ảnh hưởng của thâm hụt ngân sách đến tăng trưởng: Nghiên cứu trường hợp của Việt Nam
Tóm tắt: Nghiên cứu này xem xét mức độ ảnh hưởng của thâm hụt ngân sách đến tăng trưởng kinh tế ở Việt
Nam trong giai đoạn 2007-2017 Với hồi quy dữ liệu bảng, biến phụ thuộc là tăng trưởng kinh tế (GDP), các biến độc lập bao gồm chỉ số giá tiêu dùng (CPI), đầu tư trực tiếp nước ngoài (FDI) và thâm hụt ngân sách (BD), kết quả cho thấy trong khung thời gian nghiên cứu, thâm hụt ngân sách có mối tương quan dương với tăng trưởng kinh tế ở mức có ý nghĩa thống kê, trong khi không có mối tương quan đáng kể nào được tìm thấy giữa CPI và FDI với biến phụ thuộc.
Từ khóa: thâm hụt ngân sách, tăng trưởng, kinh tế Việt Nam.
Nguyễn Tuyết Khanh
Email: tuyetkhanh1203@gmail.com
Lê Khắc Hoài Thanh
Email: hoaithanhlk89@gmail.com
Khoa Kinh tế- Du lịch, Đại học Quảng Bình
1 Introduction
Vietnam and many other countries
have been facing numerous issues and
instability that have a great impact on the
macro economy One of the issues is a
state budget deficit which is an extremely sensitive issue, especially in developing countries like Vietnam In the context of global economy with big changes such
as increasing oil and gasoline prices, financial crisis in the US, high inflation
Faculty of Economics and Tourism, Quang Binh University
Trang 2rates , finding solutions to adjust a state
budget deficit is urgent and necessary
In Vietnam, the level of budget deficit
is increasing and negatively affecting
people’s living standard as well as the
national economy
In recent years, Vietnam’s economy
has been facing many uncertainties
Although during the period 2007-2017
the GDP showed a positive trend, it grew
at unstable rate, while budget deficit also
sharply increased, especially in the
2012-2016 period (Figure 1)
While studying the causes of these
uncertainties, we have found that besides
the external impacts of the 2008 global
financial and economic crisis, there are
other reasons that need to be mentioned:
(i) ineffective fiscal management, e.g
budget calculation methods that do not
follow the international practices; (ii)
inadequate process of managing and
allocating public expenditures, (iii) raising
government budget ineffectively
Within the research scope, the study gives
an overview of Vietnam’s budget deficit since 2007 to provide a comprehensive view on economic growth and the budget deficit in relation to the growth in both theoretical and practical perspectives
2 Literature review
Experimental studies on the relationship between budget deficit and economic growth also give many heterogeneous results According to Al-Khedair (1997), interest rate increases in the short run due
to budget deficit, but in the long run that impact has not been explored Al-Khedair used the VAR model by selecting a data
of G-7 countries for the period 1964-1993
to observe the relationship between budget deficit and economic growth While he also discovered that the deficit negatively affects the trade balance, it has a positive and significant impact on the economic growth of those countries World Economic Outlook (IMF, 1996) concluded that during the mid-1980s the group
of developing countries had a higher financial imbalance and lower economic growth than countries with low or medium
Figure 1 GDP Growth and Budget Deficit in Vietnam from 2007 to 2017
Source: https://countryeconomy.com
Trang 3budget deficit Shojai (1999) argued that
the budget deficit financed by the Central
Bank could also lead to inefficiencies
in the financial market and cause high
inflation in developing countries while
negatively impacting the nation’s real
exchange rates and interest rate, thus
reducing the nation’s competitiveness
Few studies further support the impact of
budget deficit on investment, exchange
rate, and real interest rate Bahmani (1999)
investigated the long-run relationship
between the U.S federal real budget
deficit and real fixed investment using
quarterly data over the 1947I– 1992II
period The methodology was based
on the Johansen-Juselius cointegration
technique The results reveal that there
are three cointegrating vectors among
investment, income, interest rate, and the
budget deficits The estimates of these
cointegrating vectors and further analysis
show that a cointegrating vector in which
all four variables carry their expected
signs support the Keynesian view that in
the long run the U.S real federal deficit
crowds-in real investment
Gulcan and Bilman (2005) investigated
the effect of budget deficit reduction on
exchange rate between US dollar and
Turkish lira using cointegration methods
for the period 1960 to 2003 The research
shows that the budget deficit is very
important in maintaining the real exchange
rate They argued that the Government
must focus on stabilizing the budget
because the trade balance is significantly
affected by the real exchange rate and has
an impact on economic growth
There are studies that have found positive
significant relations between budget
deficit and growth in both developing and developed countries (IMF 1996), while other studies have found the inverse relationship (Karras, 1994) Lozano (2008) collected quarterly data of last
25 years (1983-2007) and using Vector Error Correction (VEC) model explored a mixed relationship of inflation and money growth with fiscal deficit Vuyyuri & Seshaiah (2004) studied the interaction
of budget deficit in India with other macroeconomic variables such as Nominal effective exchange rate, GDP, Consumer Price Index and money supply (M3) giving special emphasis on the budget deficit-exchange rate relationship using Cointegration approach and VECM for the period 1970-2002 The results reveal that the variables under study are cointegrated and there is a bi-directional causality between budget deficit and nominal effective exchange rates However, no significant relationship between budget deficit and GDP, Money supply &
consumer price index have been found Fatima et.al (2012) investigated the true impact of the budget deficit on the economic growth of Pakistan The sample taken for the study was comprised of time-series during the period of 1978-2009 The regression analysis was conducted
to ascertain the impact of BD on the GDP, and explored a negative impact of budget deficit on the economic growth Huynh (2007) conducted his study while collecting data from the developing Asian Countries for the period of 1990 to 2006
He concluded that there is a negative impact of the budget deficit on the GDP growth of those the countries while simply analyzing the trends in Vietnam Haider et.al (2016) investigated the true impact
of a budget deficit on GDP growth As
Trang 4employment rate, exchange rate, interest
rate, and inflation also cause an impact on
GDP, these variables were considered as
control variables along with the budget
deficit The quarterly data of the variables
were taken from the period of 2000-2012
Different statistical tests and models (i.e
Unit root test, VAR, Granger Causality)
were used to find out the impact of budget
deficit on GDP growth For short run
adjustment and co-integrating relation
measurement, VEC method was also
applied Both VAR and VEC models were
tested based on their stability tests The
results of the research suggest that, there
are co-integrating relationships among
budget deficit, inflation and exchange rate
and there is a negative impact of budget
deficit on GDP growth
The relationship between budget deficit
and economic growth has been studied
by many scholars in Vietnam Van,
V B., & Sudhipongpracha, T (2015)
assessed the probability of such claims
for the Vietnamese government’s fiscal
policy between 1989 and 2011 After
the introduction of the Doi Moi reform
policy in the late 1990s, Vietnam has
witnessed high economic growth
Yet, its government’s deficit pattern is
among the highest in Southeast Asia
The findings demonstrated that in the
case of Vietnam, government deficits
had no direct effects on the country’s
economic productivity between 1989 and
2011 Instead, the article discovered that foreign direct investment (FDI) played
an important role in Vietnam’s economic productivity over the same period, while real interest rates adversely affected the growth This article concludes that rather than expanding public sector through government spending deficit, Vietnam requires administrative and regulatory reforms to ensure an efficient use of government resources, a continuous flow of foreign capital, and consistent economic growth Huynh The Nguyen
& Nguyen Le Ha Thanh Na (2015), examined the relationship between budget deficit and economic growth in Vietnam using VAR model The model used secondary data series, including a time series of data from 1990 to 2012 Data was collected from Asian Development Bank including annual economic growth (GDP), government investment (GI), exchange rate (REX), budget deficit (BD) and real interest rate (RIR); from the IMF including real annual growth data (GDP), consumer price index (CPI) In the model, the variables before analysis were processed logarithm transformation
to estimate the determination of variation between 1990 and 2012 Research results show that budget deficit has no clear relationship with economic growth, however, government investment is causal with budget deficit and economic growth
Table 1 Independent variables definition
BD Ahmad (2013)Dang Van Cuong & Pham Le
Truc Quynh (2015)
Budget deficit (budget income <
-CPI Huynh The Nguyen & Nguyen Le Ha Thanh Na (2015) Consumer Price Index %
Trang 5Therefore, to achieve a stable growth in
the coming time, the government should
implement and control the investment
flows as well as effectively manage budget
deficit
Dang Van Cuong & Pham Le Truc Quynh
(2015) studied the impact of budget deficit
on economic growth in some Southeast
Asian countries using additional factors:
inflation, foreign investment and credit of
private sector To evaluate the regression
coefficients of the variables in the model,
the authors used a fixed effect model and
general least squares method (GLS) for
panel data from 2001-2013 Experimental
results show that budget deficit, credit
in the private sector negatively impact
economic growth, foreign investment
positively affects economic growth, while
inflation is not statistically significant
Su Dinh Thanh (2012) investigated
the relation between budget deficit and
inflation in Vietnam through an empirical
study, a model proposed as following: LP
= F (BC, M2, GDP, TOP) LP represents
the consumer price index; BC is the
budget deficit; M2 is money supply and
TOP is trade openness measured through
total export/GDP target The results
suggest that the budget deficit has no relationship with long-term inflation, but the impact is statistically significant to short-term inflation Money supply has a positive impact on inflation in short and long term But the effect of money supply
on inflation in the short term is smaller than in the long term Trade openness effect is negatively related to inflation in the short and long term Economic growth has a negative impact on inflation in the short and long terms
3 Data and variables
The objective of this paper is to understand the impact of the budget deficit
on Vietnam’s economic growth in the 2007-2017 period with the dependent variables of economic growth The model
is as follows:
GDPt = α + β1X1t + β2X2t + … + βtXnt + µ Where:
GDP is a dependent variable, measured by the annual GDP per capital in US dollars and taken from year-end data
X1, X2, …, Xn are independent variables T: Time series, 11 years data from 2007 to 2017
Figure 2 GDP of Vietnam in the 2007 – 2017 period
Source: https://countryeconomy.com
Trang 6Research using panel data in the period of
2007-2017 in Vietnam, GDP, CPI, FDI
and BD data are taken from the website
https://countryeconomy.com/; Data is
processed by Stata software The study
uses ordinary least squares (OLS) to
conduct analysis
In the model, the variables before analysis
were processed logarithm transformation
to estimate the determination of variation
between 2007 and 2017 The model is as
follows:
GDP= α + β1(BD) + β2(FDI) + β3(CPI) + µ
4 Results and discussions
4.1 Overview of Vietnam’s economic
growth in the 2007-2017 period
After 10 years of becoming a member of WTO (2007-2017), despite being affected
by the global financial crisis and the public debt crisis, Vietnam still maintains an average growth rate of 6,29% per year, except for 2009 at only 5.3% Figure 2 shows that GDP tends to increase steadily over the years, from 77,520m USD in
2007 to 220,376m in 2017 (an increase
of 2.8 times), indicating a relatively high growth rate The high growth rate is due to improving labor productivity and national competitiveness However, it is mainly relying on the inputs (capital, labor) and expanding investment, for example: public investment (through monetary and fiscal policy) and credit expansion through loosen monetary policy
4.2 Budget deficit in Vietnam
Table 2 Matrix of correlation coefficient
Table 3 Regression results of variables in the model
Model 1.01517961 3 33839320 F(3, 7) 3.96
Residual 598673531 7 08552479 Prob > F = 0.0410
Total 1.61385314 10 R-squared = 0.6290
Adj R-squared = 0.4701
Root MSE = 29245
lngdp Coef Std Err t P> | t | [95% Conf Interval]
Trang 7The budget deficit in Vietnam in the
2007-2017 period fluctuated continuously
The proportion of budget deficit in
Vietnam is always above 5.5% of GDP,
except for 2008 when the budget deficit
was at 0.49%, and tends to be unstable
and slowly decreasing According to
international practices, under normal
conditions the budget deficit accounting
for 3% of GDP is considered to be
concerning, while the level of 5.5% of
GDP is serious
4.3 Results of empirical research
The results in Table 3 show the correlation
relationship between dependent variable
and independent variables FDI and CPI
have a negative correlation with GDP,
while the budget deficit (BD) has a
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positive correlation with GDP
Prob (F) value in the model is 0.0410 (<5%) shows that there is a linear relationship between dependent variable GDP and independent variables CPI, FDI and BD Thus, the given linear regression model is appropriate
The R2 coefficient is 0.4701, indicating that the variation of the independent variable has a relatively high effect on the dependent variable with 47.01% level of influence and is statistically significant This also indicates that there are also many other independent variables not included in the model that explain the dependent variable
There is a statistically significant
xem tiếp trang 56
Trang 8giới và trong nước, từ đó xác định chiến lược đúng đắn trong lựa chọn mô hình phân phối ■
nghiệp có ý định triển khai bán lẻ Ebook
nói riêng, các sản phẩm nội dung số khác,
để thành công cần tìm hiểu và đánh giá rõ
xu hướng phát triển Ebook chung trên thế
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relationship between budget deficit and
economic growth (P.value <10%) with a
positive impact coefficient (β = 0.396)
The coefficient means that when the
budget deficit increases by 1 unit, GDP
will increase by 0.396 times Consumer
price index (CPI) and foreign direct
tiếp theo trang 32 investment (FDI) have no statistically significant impact on economic growth.
In conclusion, budget deficit has a positive correlation with economic growth at a statistically significant level, while no significant correlation is found between CPI and FDI with the dependent variable
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