Summary of doctoral thesis: efficiency of public investment in the current period in vietnam

Vietnam’s public investment for development accounts for a modest proportion in the national expenditure state budget, but this rate, when comparing to the same rate of other regional co

TRAINING

BANKING ACADEMY OF VIETNAM

-

DAO THI HO HUONG

EFFICIENCY OF PUBLIC INVESTMENT

IN THE CURRENT PERIOD IN VIETNAM

SUMMARY OF DOCTORAL THESIS

Hanoi, 2021

TRAINING

BANKING ACADEMY OF VIETNAM

-

DAO THI HO HUONG

EFFICIENCY OF PUBLIC INVESTMENT

IN THE CURRENT PERIOD IN VIETNAM

Major: Finance – Banking

Code: 9.34.02.01

SUMMARY OF DOCTORAL THESIS

Academic supervisors:

1 Assoc Prof Dr To Kim Ngoc

2 Assoc Prof Dr Nguyen Thanh Phương

Hanoi, 2021

COMMITMENT

I hereby declare that this is my own research The data and materials used in the thesis have a clear origin and are quoted in accordance with regulations

The author of the thesis

Dao Thi Ho Huong

The author also would like to thank teachers of Banking Academy and Postgraduate Faculty for facilitating learning and researching for the PhD candidate

The author would like offer my sincere gratitude for the generous help of scientists and officers in agencies of finance, science, technology and research institutes on conducting the actual survey

Sincerely thank my family as well as agencies, colleagues and friends, for encouraging the author to complete the thesis

The author of the thesis

Dao Thi Ho Huong

INTRODUCTION

1 Research background

Unstable conditions of the world at the present time such as the financial crisis of

2007 – 2008, COVID-19 pandemic, etc have posed many risks to any countries’ economy Public investment is considered as an indispensable tool to affect the economy Effective public investment will be the driving force for economic growth, especially in the pandemic context These ideas are consistent with the findings of Chakraborty and Dabla – Norris (2011) on effects of public investment on economic growth, or the findings of IMF (2015) on the relation of public investment efficiency and socio-economic development

Vietnam’s public investment for development accounts for a modest proportion in the national expenditure (state budget), but this rate, when comparing to the same rate of other regional countries, is higher, showing too much government intervention in the economy Vietnam’s public investment efficiency in the present is fairly low The study

of Pho Thi Kim Chi et al (2013) showed that the effect of public investment on economic growth in short-term period was much larger in long-term period CIEM (2013) in the study on Public Investment, Public Debt and Budget Sustainability in Vietnam gave an overview of the current situation of public investment, evaluated Vietnam's public investment efficiency in the period 2000-2012 and stated the effect of incomplete legal framework on low public investment efficiency in Vietnam Vu Thanh

Tu Anh (2013) claimed the requirement of a standard process of implementing public investment to achieve public investment efficiency Tran Kim Chung et al (2015) mentioned that instead of investing into a great amount of sectors, Vietnam should make

public investments with a lot of care Therefore, the study of “Efficiency of public

investment in the current period in Vietnam” is absolutely necessary

2 Research objectives

General objectives: On the ground of evaluation of Vietnam’s public investment

in the period of 2007 – 2019 by systematizing theories and summarizing international experiences on managing public investments, the thesis suggests solutions for changing methods for managing Vietnam’s public investment in the coming time

Specific objectives:

To fill the research gap mentioned above and to assess the effectiveness of Vietnam’s public investment between 2007 and 2019, this thesis aims for the following three targets:

- Systematize and clarify theoretical bases toward economic, social and environmental efficiency of public investment

- Assess the effectiveness of Vietnam’s public investment between 2007 and 2019

- Examine lessons of public investment activities from several countries in the world

- Propose solutions and suggest policies to improve the efficiency of public investment in the coming time

3 Research questions

- What are theoretical issues relating to public investment efficiency needed to be systematized and clarified?

- How is the efficiency of Vietnam’s public investment in the period of 2007 - 2019?

- What lessons drawing from public investment activities of various countries in the world for Vietnam?

- What solutions and policy suggestions are needed to improve the efficiency of public investment in the coming time?

4 Object and scope of the research

- Research objects: The theoretical basis of investment and the current state of

public investment from the perspective of state management

- Research scope: The thesis examines thoroughly fundamental aspects of public

investment: (i) Effect of public investment on economic efficiency; (ii) Effect of public investment on social efficiency; (iii) Effect of public investment on environmental efficiency

The thesis collected data in the period of 2007 – 2019 to assess the effectiveness

of Vietnam’s public investment

5 Research methodologies

To achieve the proposed research objectives, the thesis analyzes and implements the following contents:

- Using methods of inheritance, analysis, synthesis and systematization of theories about the efficiency of public investment in economic, social and environmental aspects; and systematizing it into a theoretical basis for indicators evaluating public investment efficiency

- Apply methods of scientific inheritance, analyze the prior experience in public investment of several countries around the world to draw lessons for Vietnam to enhance public investment efficiency

- Evaluate empirically the effect of public investment on Vietnam's economy in the period of 2007 - 2019

6 New contributions of the thesis

On the theoretical aspect:

- The thesis systematized and made the public investment management mechanism clearer, consisting of: (i) Identify clearly sources of investment capital and factors affecting public investment efficiency; (ii) Provide indicators for evaluation of public investment efficiency in terms of economy, society and environment These indicators are developed on the foundation of public investment management theories and international experience (of countries producing excellent public investment performance)

On the practical aspect:

Based on results of analysis and evaluation of the current state of Vietnam’s public investment efficiency on the following contents: (i) Vietnam’s public investment efficiency; (ii) Disadvantages of Vietnam’s public investment, the thesis suggests several policies to implement the Resolution of the 11th National Party Congress

CHAPTER 1 THEORETICAL BASES OF EFFICIENCY OF PUBLIC INVESTMENT

1.1 OVERVIEW OF PUBLIC INVESTMENT

1.1.1 Definition of public investment

Keynes (1936) proposed that public investment is designed as a financial instrument helping governments control economic recessions thanks to the ability of boosting aggregate demand, increasing citizens’ income and restoring the economy

Public investment is the state’s investment in socio-economic infrastructure construction projects and programs serving socio-economic development

1.1.2 Public investment contents

Public investment activities are the State’s investment activities in programs and

projects for constructing socio-economic infrastructure and development

Public investment objects are targeted programs, technical, economic, social,

environmental, defensive and secure projects

Public investment sectors: (i) Socio-economic investment projects; (ii)

Investment projects to serve state agencies, non-business units, political organizations, social-political organizations; (iii) Investment projects to supply public products and services; (iv) Public investment in the form of public-private partnerships

Sources for public investment:

The state budget

National bonds

Local authority bonds

Official development assistance (ODA)

Retained revenues

1.1.3 Roles of public investment

The role of public investment is to provide essential public services through the construction of schools, hospitals, public housing and other social infrastructure Public investment also helps the public and businesses take advantage of economic opportunities through the provision of economic infrastructure hubs such as airports, ports and telecommunications, transportation, manufacturing networks and transmissions of electricity, water…

Firstly, public investment funds promote economic growth and enhance people’s welfare

Secondly, the public investment acts as a significant governance instrument enabling the government to implement cyclical policies in condition of economy recession

Thirdly, the public investment increases the aggregate demand of the society as well as accounts for a substantial proportion of the total investment of the economy

Fourthly, the public investment is used as a “bait investment”, to build up and maintain growth momentum

1.2 EFFICIENCY OF PUBLIC INVESTMENT

1.2.1 Definitions of efficiency of public investment

The concept of investment efficiency, according to Tu Quang Phuong and Pham Van Hung (2013), is generally an economic category showing the comparative relation between economic and social gains of investment and the costs it takes to have those results in a given period of time

Investment efficiency can be classified according to the following aspects:

In field of activity: Economic efficiency, social efficiency, technical efficiency, etc The scope of impact of efficiency: Investment efficiency of projects, of each enterprise, of each industry, locality and the entire national economy

The scope of benefits: Financial efficiency and socio-economic efficiency

The efficiency of public investment can be calculated in terms of absolute efficiency by subtraction costs from results or relative efficiency by a ratio of outcome and cost

Accordingly, the greater the benefit obtained per unit cost or the lower the state must spend per output (economically/ or socially/ or environmentally), the state public investment is considered to be effective

1.2.2 System of indicators of assessing public investment efficiency

1.2.2.2 Public investment efficiency index (PIE-X)

Public investment performance index simplify the way measuring the produced per total public investment funds amount However, for comparison, it is necessary to have a database which is large enough to be able to build the efficiency frontier The method of calculating the PIE-X public investment efficiency index is as follows:

Firstly, the countries/economies have to build an output index of the public investment product called the infrastructure index that each economy has in a certain period of time (possibly is one year)

Secondly, economies must also calculate public investment expenditure on mentioned targets

Thirdly, the data of economies mentioned above are allocated onto a coordinate system where the vertical axis is infrastructure index, and the horizontal axis is the amount of public capital

1.2.2.3 Public investment productivity indicator

Efficiency of implementing public investment can be directly measured by the impact of public investment on infrastructure quality and growth outcome, or indirectly measured by efficiency of intermediate stages of investment process

Two indexes measure directly public investment efficiency:

- Efficiency of public investment is measured by PIE-X index (mentioned above)

on the coverage and quality of public investment services

- Public investment productivity is measured by a ratio of the real average of capital growth to the real average of economic growth

Six indexes measure indirectly efficiency of implement public investment at each investment stage:

Stage 1: Public investment planning

- Public investment level index is the proportion of state investment in public expenditure

- Public investment volatility index is the standard deviation of the growth of total

state investment

Stage 2: Public investment allocation

- Public investment stability index by industry is the average rate of absolute percentage change compared to the same period last year in terms of the allocation of

public investment in sectors of state expenditure according to international standards of the United Nations

- Public investment growth guideline index is measured by the investment amount

in economic sectors (including public and private economic sector) compared with total public investment

Stage 3: Implementing public investment

- The Reliability Index of public investment budgeting is measured by the absolute difference between the anticipated and implemented public investment capital

- Public Investment Integrity Index uses corruption perceptions index

1.2.3 Factors affecting to public investment efficiency

1.2.3.1 Macro factors

a Political system

The political system plays a substantially significant role in determining public investment activities as well as is one of decisive factors in choosing projects, management quality and implement, and investment efficiency

b Macroeconomic indicators

The macroeconomic factors which can affect the efficiency of public investment include the possibility of GDP growth in the project area, inflation, average salary, exchange rate and comparative advantages of the region compared to other places

c Legal framework for public investment

The aim of legal framework is to provide a list of key policy issues for the government supporting various types of public investment and enhancing investment development benefits

d Strategies and plans

Strategies and plans are critical perspectives to drive government decisions and investment decisions of economic sectors

Public investment management efficiency is one of the factors that directly affect public investment When considering investment efficiency, people often consider indicators evaluating economic efficiency, but in reality, the effectiveness of public investment management depends greatly on the stages from initial policy making, the beginning for the appearance of public investment projects, to the stage of project selection, implementation, evaluation and appraisal

b Level of transparency information on public investment capital usage

The countries with an open and transparent public procurement and expenditure management process based on public bidding will prevent the misuse of public investment capital

c Issues of corruption

Corruption leads to the difficulties of controlling public investment spending, unnecessary projects, projects with the scale and capacity which are inconsistent with real needs, projects with technology which does not meet requirements, projects which are invested at unreasonable times and locations or projects with outdated equipment affecting the safety and reducing its life Consequently, corruption can make decision processes of public investment be inaccurate

d Other factors

There are also a number of other factors affecting public investment

INVESTMENT IN SOME COUNTRIES

1.3.1 Public investment experience in various countries around the world

1.3.1.1 Experience in public investment in Korea

In Korea, the CEO's role is still limited on the consideration of completed assets comparing to project plans Investment projects are subject to the audit of the supreme audit organization, including the value for money audit

1.3.1.2 Experience in public investment in Japan

Japanese authorities currently use a variety of methods of cost-benefit analysis to assess the effectiveness of public investment projects, which ensures selection of successful projects, especially in the context of scare public investment resources funding large-scale infrastructure projects

1.3.1.3 Experience in public investment in China

In China, the supervision of public investment projects is carried out through many different levels and stages with the purpose of ensuring public spending for right projects which are effective and in compliance with regulations

1.3.2 Lessons for Vietnam

Some lessons drawn from experiences in public investment management of South Korea, Japan and China for Vietnam to increase the efficiency of public investment are as follows:

- Investment orientation, construction and initial screening

- Select the project and the budget

- Independent evaluation of project appraisal