The impacts of official development assistance on vietnams economic growth from 1993 to 2020

HỌC VIỆN CHÍNH SÁCH VÀ PHÁT TRIỂNVIỆN ĐÀO TẠO QUỐC TẾ SENIOR THESIS THE IMPACT OF OFFICIAL DEVELOPMENT ASSISTANCE ON VIETNAM’S ECONOMIC GROWTH IN THE PERIOD 1993-2020 Hanoi, March.2021..

HỌC VIỆN CHÍNH SÁCH VÀ PHÁT TRIỂN

VIỆN ĐÀO TẠO QUỐC TẾ

SENIOR THESIS THE IMPACT OF OFFICIAL DEVELOPMENT ASSISTANCE ON VIETNAM’S ECONOMIC GROWTH IN THE PERIOD 1993-2020

Hanoi, March.2021

A completed study would not be possible without help As a result, the authorgratefully acknowledges their assistance and encouragement during the course ofconducting this research as a requirement of completing my Bachelor's degree inInternational Economics

First and foremost, I'd like to convey my heartfelt gratitude to advisor, Dr DaoHoang Tuan Throughout the execution of my thesis, he was a constant source ofencouragement and advice His words of encouragement and criticism have reallyenhanced and improved my work The thesis would have been difficult to completewithout his drive and directions

My heartfelt gratitude goes out to my parents for their never-ending love, care,and encouragement throughout my life I'd also like to express my gratitude to mysiblings, brothers, and sisters for their constant support and care

Finally, I want to express my gratitude to all of my friends who helped me during

my stay at the Academy of Policy and Development Their kind assistance, concern,and motivation gave me strength and enabled me to overcome all of my difficulties forthe rest of my life

Student

Le Thi ThuThuy

ACKNOWLEDGEMENT i

CONTENTS ii

LIST OF TABLES, CHARTS, DIAGRAMS iv

LIST OF FIGURE v

INTRODUCTION 1

BEGINNINGS 2

1 Reason for choosing topic 2

2 Research scope 3

3 Research goals and tasks 3

4 Research Methods 3

5 Theme structure 4

THE BODY OF THE STUDY 5

CHAPTER 1: THEORETICAL BASIS OF OFFICIAL DEVELOPMENT ASSISTANCE 5

1.1 Overview of ODA capital 5

1.1.1 The definition of ODA capital 5

1.1.2 The origin of ODA 5

1.1.3 The characteristics of ODA capital 6

1.1.4 The classification of ODA capital 8

1.2 The role of ODA in economic development 11

1.2.1 ODA is an important source of additional capital for development investment

12 1.2.2 Access to advanced scientific and technological achievements and human resource development (technology spill-over) 12

1.2.3 ODA is playing an important role in improving socio-economic indicators 13

1.2.4 ODA helps contract other sources of international investment 14

1.3 International best practice 17

CHAPTER 2: THE SITUATION OF ODA ATTRACTION AND USE AND ITS IMPACTS ON THE VIETNAMESE ECONOMY 23

2.1 The overview of Vietnam's economic development and the influence of ODA on that development 23

2.2 The status of ODA capital mobilization 26

2.2.1 Vietnam's regulations on management of capital attraction and use 26

2.2.2 The process of managing and utilizing ODA 30

2.2.3 The priority areas and donors of funding for Vietnam 34

2.2.4 The current situation of ODA capital mobilization 36

2.3 The current status of capital management and use 37

2.3.1 The situation of capital management and use in the period 1993 -2020 37

2.3.2 Empirical evidence of impact of ODA on economic growth in Vietnam 42

2.4 Some basic successes, reasons for limitations in management and use of capital 51

2.4.1 Basic successes in management and use of ODA 51

2.4.2 Reasons for the limitation 52

CHAPTER 3: SOLUTIONS TO IMPROVE THE EFFICIENCY OF CAPITAL USE IN VIETNAM 54

3.1 The environment in which ODA is attracted to and used 54

3.1.1 In the world 54

3.1.2 In Vietnam 57

3.2 Solutions to improve the efficiency of capital use in Vietnam 59

3.2.1 Improve the legal environment 59

3.2.2 Perfection of the right management method and model; tight project management to prevent loss and waste 61

3.2.3 Carefully prepare, detail the project preparation stages to ensure convenience during the implementation of infrastructure projects 61

3.2.4 Training, fostering and improving management and professional skills for staff working on projects 62

3.2.5 Improve the implementation of programs and projects, promote disbursement . 63 3.2.6 Strengthening the monitoring, supervision and evaluation work 63

THE CONCLUSION 64

REFERRENCES 65

LIST OF TABLES

Table 1 Official foreign support for Korea (Unit: billions of dollars at current prices)18

Table 2 The ODA’s effectiveness in Korea's development period 19

Table 3 Distribution of Korean grants (1945-1961) 20

Table 4: Situation of public debt and ODA debt of Vietnam in the period 2002-200643

LIST OF FIGURE

Figure 1 The ODA allocation ratio for fields from 2006 to 2010 29

Figure 2 The percentage of ODA allocated by sector in the period 2011 - 2015 35

Figure 3 The proportions of ODA loans in ODA capital from 1993 - 2012 36

Figure 4 The ODA signed and disbursed from 2011 to 2015 37

Figure 5 The ODA commitment, signed ODA and ODA disbursement in 1993 -2012 38 Figure 6 The total ODA and Official Aid in Vietnam from 2000- 2017 39

Figure 6 The net official development assistance from 1960 to 2014 55

Figure 7 Top 10 recipients of ODA from DAC countries in the period 2009- 2018 56

Globalization now needs each country to be proactive in internationalintegration, in order to promote its available potentials and make the most ofexternal resources, in line with the general trend of the world economy.International cash flows, particularly ODA, appear to aid developing countries.ODA, in particular, is a critical role in determining developing countries' economicgrowth After more than 30 years of rehabilitation, Vietnam has made significantprogress in the socioeconomic development process

With the given Vietnam's low degree of economic development and limitedability to amass capital outside of domestic capital, official development assistance(ODA) has laid the groundwork for the country to attract foreign resources Donorshave given Vietnam with a significant source of financing throughout the last 20years, assisting with economic reform and international integration Vietnamcurrently has over 50 active international and bilateral donors who give ODA andconcessional loans to the country's main socioeconomic sectors and fields Formany years, this has been a reliable source of foreign currency, helping to improvethe balance of international payments, increase foreign exchange reserves, andstabilize the exchange rate Unfortunately, there are other fundamental restrictions

to attracting and using ODA funds, such as not maximizing capital sources, adelayed payment process that causes business disruption, and so on Theaforementioned flaws have a substantial impact on the country's economicdevelopment

Recognizing the importance of ODA, I undertook the project "The impact ofODA on Vietnam's Economic Growth in the Period 1993-2020" to research andlearn more about the current state of management activities and ODA capital use,evaluate the results achieved and limitations of ODA capital, analyze the impacts ofthis activity on Vietnam's socio-economic development, and makerecommendations

1 Reason for choosing topic

International integration is becoming an unavoidable tendency for countries,and Vietnam is no exception: it is gradually becoming more integrated into theeconomy This is also an opportunity for rich countries to provide assistance.Official development assistance makes a substantial contribution to the achievement

of the country's socio-economic objectives (ODA) Many accomplishments in thedomains of transportation, hunger eradication and poverty reduction,industrialisation and modernization have all benefited greatly from ODA

In recent years, the effect of oda capital has shifted substantially in severalindustries, helping Vietnam's economic growth ODA has aided in the rehabilitationand building of various infrastructure projects, as well as the expansion of socialindicators, job creation, poverty reduction, and improvement, particularly from 1993

to the present make a difference in people's lives

Aside from the achievements, the impact of ODA on Vietnam's economicgrowth has had numerous limits in the past, such as not optimizing the efficiency ofrecruiting and utilising capital As a result of this reality, identifying the weakpoints in the process of attracting and using capital, as well as suggesting measuresfor improvement, is critical for any country It assists the receiving country inestablishing a clear direction and development goals, directing departments andindividuals toward the shared goal of the common economy, and preventing wasteand abuse of aid resources Today's global economy moves at a breakneck pace,requiring each country to be proactive and inventive in order to keep up

As a result, I have decided to write my senior thesis on "The Impacts ofOfficial Development Assistance on Vietnam's Economic Growth from 1993 to2020." It highlights the accomplishments that have been made, as well as thelimitations that still exist in the project's implementation, through an analysis andappraisal of the current condition of attracting and deploying ODA funds, fromwhich to have an overview of ODA use over time this wealth, and so provide waysfor attracting and utilizing this capital in the future

2 Research scope

The main issue of the thesis is "The impact of ODA on Vietnam's economicgrowth in the period 1993-2020", in which the topic focuses on researching toanswer the following questions:

How effective are the activities of attracting and using ODA capital inVietnam?

What is capital optimization strategy planning? Purpose and role of strategicplanning Model/content of Vietnam's strategic planning activities to attract and useODA?

The successes, limitations and causes of difficulties in the process of strategicplanning to optimize aid sources for the country?

The most feasible solutions and proposals for planning development strategies

to attract and use ODA for the country?

3 Research goals and tasks

3.1 General goal

The overall goal of the study is to analyze and propose solutions to positively

"The impact of ODA on Vietnam's economic growth"

attracting and utilising ODA in Vietnam, are combined with Vietnamese decreesand economic strategies to provide answers.

4.2 Data collection methods.

4.2.1 Secondary data collection method.

I used secondary data from both inside and outside the Vietnamese market tofinish the thesis The information contained within the Vietnamese economyincludes references to the establishment and growth of ODA capital, as well as thecurrent state of soliciting and utilizing aid sources Reference books on policies,economic laws, articles on the state of the Vietnamese economy in recent years, andarticles about Vietnam's progress are examples of secondary data outside theVietnamese market on a number of economic and government websites, build andestimate the trend of activities to attract and employ ODA funds

4.2.2 Primary data collection method.

The research paper's primary data is acquired through the use ofquestionnaires For the research topic, students at the academy collect data on thestatus of attraction and the use of gifts from Vietnam in recent years

Observation and data collection methods: Directly follow news items andreports from official forums

4.3 Data Analysis Methods

Since expert interviews are the primary method of data collection, I analyzethe collected data primarily using qualitative methods, combining the principles ofbasic innovative thinking, logical system approach, dialectical materialism, andhistorical materialism with statistics and analysis for the purpose of studying andplacing it in the broader context

5 Theme structure

In addition to the introduction, table of contents, list of tables, figures,acronyms, appendices and conclusion, the thesis consists of 3 main chapters:

Chapter 1: Theoretical basis of official development assistance

Chapter 2: The situation of ODA attraction and use and its impacts on theVietnamese economy

Chapter 3 Solutions to improve the efficiency of capital use in Vietnam

THE BODY OF THE STUDY CHAPTER 1: THEORETICAL BASIS OF OFFICIAL DEVELOPMENT

ASSISTANCE 1.1 Overview of ODA capital

1.1.1 The definition of ODA capital

There have been many diverse perspectives on ODA throughout theinternational economy's evolution Previously, ODA was thought to be a form ofbudget assistance from wealthy countries to developing and impoverished countries.ODA is essentially free with this idea In today's trend of economicinternationalization and globalization, an entirely new perspective on ODA hasemerged According to this viewpoint, ODA is a form of development cooperationbetween developed and developing countries, as well as international organizations.According to this definition, ODA consists of grants and loans to developing andleast-developed nations from governments, international organizations, and non-governmental organizations with favorable terms Official Development Assistance(ODA) is a form of capital transfer (currency, technology, etc.) from industrializedcountries and organizations, international finance (World Bank, IMF, ADB, etc.)organizations of the United Nations system, and non-governmental organizations(NGO) collectively known as foreign donor partners for developing andunderdeveloped countries collectively known as grantee “Official DevelopmentAssistance,” as defined by the Vietnamese government, is a type of developmentcooperation between the Vietnamese government and foreign governments,intergovernmental international organizations, and non-governmental organizations

1.1.2 The origin of ODA

ODA first debuted in the post-World War II era, with the US Marshall Plan toassist Western European countries in reestablishing their post-war economies TheColombian Conference, which took place in 1955, defined the first ideas andprinciples on development cooperation The donor community was developed whenthe Organization for Economic Cooperation and Development (OECD) wasestablished in 1960 and the Development Assistance Committee (DAC) wasestablished in 1961 to coordinate cooperative operations in support of development

cooperation The Organization for Economic Cooperation and Development(OECD) described ODA as “a formal transaction formed for the goal of boostingthe socio-economic development of underdeveloped countries” in 1972 Thetransaction's financial condition is positive, and the grant component is at least25%.” In essence, ODA is the transfer of a portion of a country's national revenuefrom developed to developing countries In a plenary session of the United NationsGeneral Assembly in 1961, the UN called on affluent countries to devote 1% oftheir GNP to assisting poor and undeveloped countries in achieving long-termsocioeconomic development.

The amount of ODA granted to developing nations will be adjusted annuallybased on the economic development results of the world's major donor countries.Each donor country's priorities and orientations differ, and these may shift overtime, but in general, they focus on the following areas: social and administrativeinfrastructure, economic infrastructure, economic assistance, production support,debt relief, food aid, and emergency aid, among other things Official DevelopmentAssistance (ODA) is a type of aid that focuses on supporting the recovery anddevelopment of a country's socioeconomic infrastructure, such as roads, publictransportation, irrigation projects, hospitals, schools, water supply and drainagesystems, environmental sanitation, and so on ODA-funded projects are frequentlyunprofitable or underprofitable, making them less likely to attract privateinvestment

As a result, ODA funding is extremely valuable in supporting theimplementation of public-benefit programs and projects, as well as investment intechnical infrastructure development to attract private capital Combined with theopen-door foreign policy, implementing the economic transformation to a marketeconomy, the Party and State's policy of "expanding international cooperation,taking advantage of the sympathy, support, and help of the people of the world,combining the strength of the nation and the strength of the times" brought aboutimpressive and powerful socio-economic developments in

1.1.3 The characteristics of ODA capital

ODA is non-refundable aid, refundable aid or concessional credit Therefore,

ODA has the following main characteristics:

First, ODA capital is preferential ODA capital has a loan period (long capitalrepayment), a long grace period For example, ODA capital from WB, ADB, JBIChas a repayment period of 40 years and a grace period of 10 years Usually, in ODA,there is a component of grant aid (for free), this is also the difference between aidand commercial lending The donor component is determined based on the loanperiod, the grace period, and the comparison of aid rates with commercial creditrates The preference here is compared with international trade practices Thepreference is also reflected in the fact that ODA is only for developing andunderdeveloped countries, for development purposes There are two most basicconditions for developing and least-developed countries to receive ODA: Firstcondition, low gross domestic product (GDP) per capita The lower the GDP percapita, the larger the ODA non-refundable rate and the greater the ability to borrow

at low interest rates and preferential terms Second condition, the goals of usingODA capital of these countries must be consistent with the policies and prioritydirections considered in the relationship between the ODA grantor and recipient.Usually, ODA-providing countries have their own policies and priorities, focusing

on a few areas of interest or technical and consulting capabilities At the same time,the priority objects of ODA-providing countries may also change from time to time.Therefore, grasping the priority trends and potentials of countries and organizationsproviding ODA is very necessary In essence, ODA is the refundable or non-refundable transfer under certain conditions of a part of gross national product fromdeveloped countries to developing countries Therefore, ODA is very sensitive interms of society and is subject to the influence of public opinion from the supplyingcountry as well as from the receiving country of ODA

Second, ODA is binding ODA may be binding (either partially or binding) to the destination country of the expenditure In addition, each aid donorcountry also has other constraints and sometimes these constraints are very tight forthe receiving country For example, Japan stipulates that Japan's ODA is alldenominated in Japanese Yen ODA capital has a political element: Donor countries

non-in general do not forget to ganon-in benefits for themselves, both exertnon-ing political

influence and exporting consulting goods and services to the recipient country Forexample, Belgium, Germany and Denmark require about 50% of aid to buy goodsand services from their own countries Canada requires up to 65% Overall 22% ofDAC aid must be used to purchase goods and services from donor countries Sinceits inception, aid has always contained two goals that coexist in parallel The firstgoal is to promote sustainable growth and reduce poverty in developing countries.Developed countries themselves see their benefits in supporting and helpingdeveloping countries to open up product consumption and investment markets Aid

is often associated with economic conditions in the long run, donors will benefit interms of security, economy and politics when the economies of poor countriesgrow

Third, ODA is a potential source of debt When receiving and using ODA, due

to its preferential nature, the debt burden usually does not appear Some countries,due to inefficient use of ODA, can create temporary growth, but after a while, theyfall into a debt cycle due to their inability to repay The problem is that ODA is notable to directly invest in production, especially for export, while debt repaymentrelies on exports to collect foreign currency Therefore, while making policy usingODA must coordinate with capital sources to enhance economic strength and exportcapacity

1.1.4 The classification of ODA capital

1.1.4.1 Segmentation by source of capital

Grant aid: The donor provides non-refundable aid for the implementation ofODA programs and projects (the density of funding according to the agreementwith foreign parties) This funding mainly focuses on the following areas:

Firstly, Technical assistance for institutional development, capacity building ofVietnamese agencies, technology transfer through the provision of experts,volunteers, providing equipment, supporting research, basic investigation (overviewreport, planning ) preparation and monitoring of investment implementation (pre-feasibility study, feasibility study ) Secondly, support balance internationalpayment of goods Thirdly, project-based concessional credit for construction,equipment installation or just equipment supply Project content may include

consulting services, staff training programs for Vietnam Finally, program aid tointegrate one or more goals with a set of projects.

ODA loans: include 2 types:

The first is ODA concessional loans (also known as concessional credits)which are ODA loans with a non-refundable element of at least 25% of the loanvalue Foreign parties often specify conditions for preferential loans

The second one is mixed loan ODA which is the ODA includes a combination

of a part of non-refundable ODA (or ODA for concessional loan) and a part ofcommercial credit according to the conditions of an economic cooperation anddevelopment organization (OECD) The source of concessional loans mainlyfocuses on the following areas: investment in socio-economic infrastructure in thetransport, energy, agricultural development, human resource development, naturalresources and environment

Mixed form: Including projects co-financed from different sources ororganizations such as Sweden's Hinh River multi-purpose project (SIDA), NordicDevelopment Fund (NDF) and Nordic Investment Bank (NIB) Mixed credit aims

to integrate one or more goals with a set of projects (projects of Spain, Italy, etc.)

1.1.4.2 Segmentation by method of use

ODA is divided into four categories based on how it is used Firstly, support forthe government's budget in the form of cash or goods is referred to as balance ofpayments support Secondly, ODA is provided for the implementation of a program toachieve one or more objectives using a collection of projects in a specific time frame in

a specific location Thirdly, technical assistance: To assist in the development ofinstitutions, the strengthening of Vietnamese agencies' capacity, and the transfer oftechnology by providing experts, volunteers, and some equipment, as well as receivingtraining for Vietnamese staff on-site or abroad in short courses of less than one year(such as planning, feasibility study reports ) Some technical assistance may berequired Fourly, ODA is granted for the implementation of capital constructionprojects, such as construction and installation, equipment, or simply the provision ofequipment A capital construction project may include consultancy services, on-sitetraining, or deploying

Vietnamese workers abroad The most common type of ODA is project-basedassistance.

1.1.4.3 Segmentation by sponsor perspective

Bilateral assistance is aid provided by governments of nations that havemutually agreed to help each other, usually through a government institution thatadministers aid and economic development cooperation SIDA (Sweden), KFW(Germany), OECF (Japan) are examples of non-government organizations thatprovide assistance Bilateral funding is typically a tie-in (assistance linked to a job

or a firm) process that necessitates the purchase of a percentage of the sponsor'sgoods or services

There are three common types of bilateral funding: To begin with, Grants arefor poor countries and fundamental human necessities like as health care, watersupply, agricultural growth in rural regions, environmental protection, and so on, aswell as emergency relief Technical cooperation, on the other hand, attempts tocreate the human resources required for progress Last but not least, low-interestloans with long payback durations (30-40 years) and generous grace periods (10years)

Governments provide multilateral support through international institutionssuch as the United Nations, the International Monetary Fund (IMF), the WorldBank (WB), the European Development Bank, and the World Bank AsiaDevelopment Bank (ADB) Because the primary goal of multilateral help is topromote the common development and advancement of all humanity, it is lessinfluenced by the sponsoring countries' economic and political agendas thanbilateral assistance

1.1.4.4 Segmentation by type of management and implementation

Classification by type of management and implementation: Depending on thecharacteristics of funds from bilateral, multilateral donors or from non-governmental sources (NGOs), there are currently the following forms ofmanagement and implementation:

Projects and programs under the management of one level: is the most commontype, including programs and projects with a Management Board under the

direct control of the Ministry or the Province.

Programs and projects under the Ministry: including many sub-projectsimplemented in many locations

Projects through 2 levels of management: projects are managed through 2levels of management such as: Ministry - Corporation - Project Management Unit(PMU) or Ministry of Union - PMU

Projects jointly managed by ministries and localities: Projects are managed byministries and localities The Project Management Unit (PMU) manages theimplementation progress, relationships with partners, and disbursement planning,etc., but sub-projects in cities and towns are also managed by provincial agencies tourge the implementation and allocation of reciprocal capital

Programs with the integration and participation of many ministries andlocalities: including integrated programs, implementing many goals The projectmanagement board consists of many branches and localities participating in theprogram implementation in many different areas

1.2 The role of ODA in economic development

The advanced scientific and technological management technique that willaccompany ODA will assist receiving nations in enhancing their management level

as well as applying science and technology to the process of improving laborproductivity and the quality of goods and services

Programs and projects in the domains of social, health, education, hungereradication, and poverty reduction, among others, help to improve the health, livingconditions, and intellectual levels of the people in ODA-receiving countries,boosting their competitiveness Increased investment capital in all sectors of theeconomy, particularly when concentrated on critical regions and areas, will giveweak regions and sectors a boost, allowing less developed countries to catch up todeveloped countries faster

Rana and Dowling's (1990) empirical analysis is based on a model of twogrowth and savings equations with all parameters that can establish the presence of

a bidirectional relationship between investment and growth included

Rana and Dowling (1990) calculated the above model using data from 1965 to

1988 for a collection of developing Asian nations, and the results reveal that

increasing the domestic savings rate to 1% (ODA 0.47 percent) may provide 0.80percent GDP growth A 1% increase in GDP, on the other hand, will boost the saving rate, which is currently 0.05 percent

1.2.1 ODA is an important source of additional capital for development investment.

ODA is a new source of finance for developing nations, allowing them toincrease development investment spending while reducing the load on their nationalbudgets ODA has a long loan period, often 10-30 years, and low interest rates,ranging from 0.25 percent to 2% per year Governments can therefore focus onprograms to create economic infrastructure such as roads, energy, water, irrigation,and educational facilities by merely paying interest in advance and principal in 10-

30 years As a result, ODA is a necessary requirement for developing countries'economic growth According to the World Bank, increasing ODA to 1% of GDPpromotes growth by 0.5 percent in developing countries with good managementprocedures

1.2.2 Access to advanced scientific and technological achievements and human resource development (technology spill-over)

The host country can gain access to modern manufacturing or managementtechnologies through the kind of aid that includes a requirement to use the donor'sgoods or services Donors prioritize human resource development since it plays

such an important role in a country's economic success Training for humanresources can be done both at home and abroad Donors are frequently interested intraining groups of state management officials in order to increase their managementcapacity In the development process, investing in human resources has long-termconsequences.

Despite the fact that donor countries do not wish to transmit high technology,the fact that there is a reasonably high level of technology transfer boosts thedeveloping country's scientific and technological capacity Typically, ODA fundsare used to increase the quality and efficiency of human resources through buildingand upgrading infrastructure, investing in education, and developing trainingprograms

1.2.3 ODA is playing an important role in improving socio-economic

indicators.

ODA is a significant role in influencing a developing country's economicgrowth Facilitating in the acceleration of growth, the reduction of poverty, and theachievement of socioeconomic goals Provided ODA per capita in developingnations grows by 1 percent, the poverty rate falls by 2 percent; that is, if a goodmanagement mechanism is in place, an increase in aid to 1 percent of GDP willresult in a 1 percent reduction in poverty and a 0.9 percent reduction in infantmortality Aid has an impact on growth, which has an impact on the goal ofimproving living standards

ODA has a positive impact upon on socioeconomic development of localitiesand territories, particularly in large cities: this source of capital effectively aids inthe improvement of health, hygiene, and access to clean water, as well asenvironmental protection At the same time, ODA helps to improve ruralinfrastructure, agricultural development, hunger relief, and poverty reduction Aid to developing nations (ODA) aids in the improvement of their economicstructures Economic difficulties are unavoidable for developing countries; as aresult, ODA serves as a source of additional foreign currency and helps developingcountries avoid a negative international balance of payments The transition fromthe state's central economic policy to one that encourages the economy to develop

toward the development of the private sector necessitates a substantial amount ofcapital, therefore governments rely heavily on ODA funding.

1.2.4 ODA helps contract other sources of international investment.

ODA is mostly utilized to construct technical and social infrastructure inunderdeveloped nations This is a sector with high capital requirements but lowprofitability, making it unattractive to foreign direct investors Foreign directinvestors will be interested in countries that have a favorable investment climate inorder to save money As a result, investing ODA funds in infrastructure will provideaid recipients a significant edge in attracting FDI and other foreign aid ODAfunctions as a magnet to attract private investment of around 2 USD for 1 USD incountries with good economic management processes Furthermore, ODA promotesfavorable conditions for domestic investors to concentrate on profitable productionand commercial ventures

ODA and FDI, for example, have a causal link and are interdependent If adeveloping country does not receive sufficient ODA to upgrade its socioeconomicinfrastructure, it will struggle to attract FDI and other forms of loans to expand itsbusiness However, if we solely seek ODA money without also seeking FDI andcredit capital, we will lack the conditions for rapid production and service growthand will be unable to repay ODA loans

1.2.5 Literature review

There has been a lot of research done on the relationship between ODA andeconomic growth in recipient nations The World Bank and the United Nationsclassify ODA recipient countries as territories eligible for financial assistance, andthe OECD maintains a Development Assistance Committee (DAC) list that lists allcountries and territories eligible for ODA Upper-medium-income nations, lower-medium-income countries, and least-developed countries (LDCs) are all examples

of developing countries that receive ODA

Ji et al (2014) and Chung (2016), respectively, looked at 73 and 58 recipientcountries Because urbanization has been highlighted as a key driving force ofeconomic growth, Ji et al (2014) used it as a variable They used data from thedevelopment stages of 1996 to 2012 to conduct a panel data analysis The influence

of ODA on economic growth varies depending on the level of development in therecipient country, according to their research Between 1992 and 2014, Chung(2016) evaluated the influence of Korean ODA on recipient nations' economicgrowth In the third period (2011-2014) the impact of ODA was statisticallysignificant, representing a much higher effect from 2011 to 2014 than in the othertwo periods (1992 to 2000 and 2001 to 2010).

The targeted African countries were Kim and Jang (2012) and Hwang et al.(2016) An empirical studies using data from 51 African countries were carried out

in Kim and Jang (2012) The information covered the 1995-2010 periods SinceICT's importance is rapidly rising, ICT ODA capital inflow was the focus of thisstudy To study the decreased marginal effect of the capital inflow, a quadraticequation has been developed The empirical results demonstrate that while ICTODA supports economic growth in the short term, the growth impact of the ICTODA decreases in the long term In conducting a comparative analysis, Hwang et al.(2016) used pooled regression, panel testing and spatial panel analysis Theempirical model includes population, hygiene, per capita GDP, trade, ODA andgovernance to explain the rate of economic growth Trade openness and ODAinflow have always been statistically significant for all estimates This means thatthe impact of the ODA on the rate of economic growth is strong; it does not depend

in science or technology

Levy (1988) examined the economic growth impact of aid on subsaharanAfricans and found that aid and economic growth have a positive relationship.Burnside and dollar (2000) have suggested the positive impact on aid and economicgrowth in the developing countries of good fiscal, monetary and commercialpolicies Cungu and Swinnen (2003) used 9 years of observations to study theimpact on economic growth of aid POLS and fixed effect They found that the aidand economic growth have a positive effect.

Some researchers have found that foreign aid and economic growth have anegative relationship (Gong and Zou, 2001; Mallik, 2008; Mitra and Hossain, 2013;Mitra et al., 2015) Gong and Zou (2001) found that external assistance reduced theaccumulation of capital and the supply of labor They proposed that foreign aidwould increase citizens' expenditure and that foreign aid could provide citizens withmore leisure time to reduce their supplies of work Mallik (2008) nonethelessconcluded that external aid had a long-term negative impact on economic growth.This leads to a "long-term damage effect on living standards of international aid." Inthe Philippines, Mitra and Hossain (2013) have seen an increase in foreign aid of 1per cent leading to a 0.51 per cent decrease in economic growth Furthermore, theadverse relationship between foreign aid in the short and long term for 13 Asianeconomies has been identified by Mitra et al (2015) They concluded that anincrease in foreign aid of 1% led in Asian economies to economic growth of 0.18%.Other researchers found that there was a negligible relationship between aidand economic growth Mosley et al (1987) concluded that support had no economicgrowth effect Boone's (1996) study results coincided with Mosley et al,respectively (1987) The relationship between foreign aid and economic growth hasbeen found insinuable by Lensink and Morrissey (2000)

In order to examine the impact of foreign aid on economic growth among EastAfrican countries from 1985-2010, the Liew et al (2012) applied the pooledcommon least-square, random effect, and fixed effect models They found thatforeign help and economic growth had a negative relationship The impact of aidand growth in 96 countries was examined in Dreher and Langlotz (2015) using anexclusive instrument from 1974 to 2009 They concluded that the aid did not affect

growth On the other hand, the impact of aid on growth was investigated by Galiani

et al (2016) with a quasi-experiment for 35 countries between 1987 and 2010 Therelationship between aid and economic growth is positive From the above literaturesurvey, one could note that the economic growth impact of foreign aid isinconsistent with differences in the data, econometric technique or applications ofgeographical countries

1.3 International best practice

Korea is often cited by countries as a model of successful use of internationalaid From a poor country devastated by the Korean War 1950-1953, within a shorttime, South Korea has become the 13th largest economic power in the world, thefourth in Asia That is thanks to the efforts of the government, people, and aidsources around the world in the form of subsidies and loans with preferentialinterest rates

The aid is mainly used for infrastructure construction programs such as theSeoul-Busan Expressway, Pohang Stationless Brewery and the Soyang River Dam.The Korea Institute for Science and Technology Development (KAIST), known asthe MIT of Asia (Asian Institute of Technology), was also built from thisinternational aid

Table 1 Official foreign support for Korea (Unit: billions of dollars at current prices)

Sponsor/Recipient 1945-1949

Emergency relief due to

US Army and

the influence of World It's all sponsored

War II and Japanese 0.7 Billion USDKorean

colonialismgovernment

1950-1959 Emergency relief due to

the effects of the Korean

War Recovery and

reconstruction after theRestoration

North Korean War

1960-1979

Economic growth based Combine funding and Japan and US

All are loans, especially OOA loans, except during the AsianFinancial Crisis (1997)which saw mixed loans and financing 33Billion USD (1979-99)

Multilateral Development BankJapan and the United States

Korea has developed a very effective approach for effectively differentiatingthe stages of using ODA money, with each stage having its own set of aims andmagnitude of capital use While Korea used ODA for relief and economic recovery

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Table 2 The ODA’s effectiveness in Korea's development period

ECONOMIC GROWTH RATE

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Table 3 Distribution of Korean grants (1945-1961)

Korea concluded its financial debt settlement from aid loans 22 years ago, andwas moved from the list of aid recipients to the list of aid providers This shift can

be seen in the Economic Development Cooperation Fund The Korean governmentcreated the Bilateral Loan Program in June 1987 (EDCF) Under the generalguidance of the Ministry of Finance, the Export-Import Bank of Korea is in charge

of the fund's management and functioning This is the Korean government's first

According to the "Law on the Korea International Cooperation Agency,"Korea officially became an assistance country on April 1, 1991, when theInternational Cooperation Agency (KOICA) was established The law calls for the

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creation of an International Cooperation Agency to carry out programs aimed atimproving friendly cooperation between Korea and developing nations, increasingbilateral interactions, eradicating hunger, and alleviating poverty enhancingpeople's quality of life in poor countries, promoting sustainable development, andachieving humanitarianism In 1963, Seoul completed an ODA project beforecreating KOICA Korea allowed students from nations qualified for cooperationunder the National Development Agency's aid and capital support plan, as well asstudents from the United States, to train in the country during the time Followingthat, Korea saw phenomenal economic progress, prompting the internationalcommunity to place high expectations on Seoul's participation Korea foundedKOICA, a specialist organization in charge of development cooperation initiatives,

as a result of its economic development and financial affluence KOICA focused onhuman resource exchange programs in the initial phase, such as inviting publicservants from poor countries, sponsoring vocational training, and sending expertsand delegations to share development experiences Medical volunteerism,Taekwondo martial arts, and youth volunteering

Korea was the world's poorest nation in 1950 Korea was thrown back into warafter fleeing Japanese colonial authority Korea would not be able to emerge fromthe ashes of war or perform the "Miracle on the Han River" without the assistance

of the world community In truth, Korea got $1.7 billion in help from the UnitedStates following the war in the 1950s, accounting for about half of the government'sbudget at the time However, a miracle occurred when Korea, which had previouslybeen a recipient country, became the recipient country Seoul became a member ofthe Organization for Economic Cooperation and Development (OECD) in 1996,paving the route to becoming a developed country After 54 years, Korea wasofficially removed from the list of aid recipients in 1999 Korea became a developedcountry in 2009 when it joined the OECD's Development Assistance Committee(DAC) In terms of ODA magnitude, Korea now ranks 15th out of 29 DAC membercountries Korea's ODA scale climbed by an average of 11.9 percent per year withinten years of entering the DAC, placing it top in terms of growth rate

Korea has used ODA quite well and consistently in general We have gained anumber of lessons from Korea's development process, which are as follows: Tobegin, break down the stages of using ODA, from each phase focusing on a specificpurpose and size of appropriate use for the country's development era Second,disbursement is made on schedule and in the proper manner to avoid delays inproject regulation Furthermore, ODA should not be overused; it should only beutilized after careful consideration and particular strategies "ODA can be adelectable piece of cake, but it can also be a sweet trap if the undeveloped coutriesget overly reliant on it " Last but not least, governments should focus their ODA onstrengthening infrastructure and manufacturing sectors, two critical areas that areconsidered as laying the groundwork for long-term economic growth Using ODA

in too many sectors can divert attention away from the country's ability to thrive,resulting in the weight of too many projects and a slew of negative disadvantages

CHAPTER 2: THE SITUATION OF ODA ATTRACTION AND USE AND

ITS IMPACTS ON THE VIETNAMESE ECONOMY 2.1 The overview of Vietnam's economic development and the influence of ODA on that development.

Vietnam's progress during the last 30 years has been spectacular Since 1986,economic and political changes have accelerated economic progress, changingVietnam from one of the world's poorest countries to a lower middle-incomecountry GDP per capita climbed 2.7 times between 2002 and 2018, reaching overUSD 2,700 in 2019, with over 45 million people fleeing poverty The poverty ratefell dramatically from more than 70% to less than 6% ($3.2 per day at purchasingpower parity) Ethnic minorities make up the majority of the remaining poor inVietnam, accounting for 86 percent The Human Capital Index of Vietnam is 0.69

So a baby born today in Vietnam will be 69 percent more productive than a childwith proper education and medical attention The average is higher for East Asia-Pacific and middle income countries While Vietnam's Human Capital Index rosefrom 0.66 to 0.69 between 2010 and 2020, there are still national disparities,particularly with regard to ethnic minorities

As living standards have improved, so has health Between 1993 and 2017, theinfant mortality rate fell from 32.6 to 16.7 percent (per 1,000 live births) Between

1990 and 2016, life expectancy at birth increased from 70.5 to 76.3 years With 87percent of the population covered by health insurance, the population health carecoverage index was 73, which was higher than the regional and global averages.However, the sex ratio at birth remains high and rising (115 in 2018), indicating thatsex discrimination persists Furthermore, Vietnam has one of the fastest agingpopulations in the world, with the age group over 65 expected to increase 2.5 times

by 2050 Many positive changes have occurred in the delivery of basic services overthe last 30 years People's ability to access infrastructure has greatly improved In

2016, 99 percent of the population used electricity to light their homes, up from 14percent in 1993 Access to clean water in rural areas has also increased, from 17percent in 1993 to 70 percent in 2016, while it is over 95 percent in urban areas.However, as a percentage of GDP, Vietnam's infrastructure investment has been

among the lowest in the ASEAN region in recent years This complicates thecontinued development of modern infrastructure services required for the nextphase of growth (In terms of infrastructure quality, Vietnam ranks 89th out of 137countries).

Despite the fact that ODA capital accounts for only about 4% of GDP, itaccounts for a significant portion of the state budget's total investment capital (about15-17 percent on average) This is very important in the context that the Statebudget for our development investment is still very limited, whereas there is verygreat need for the development of socioeconomic infrastructure ODA is a catalystfor development, helping Vietnam implement 10-year strategies for developmentand 5-year plans Specifically:

In the field of agriculture and rural development, ODA programs and projectshave helped to improve and develop agricultural production while also changing theface of rural Vietnam, such as irrigation development programs, ruraltransportation, rural clean water and sanitation, and rural electricity griddevelopment Rural infrastructure development projects have aided in theimprovement of people's lives in remote and isolated locations Ethnic minoritiesare making a significant contribution to poverty reduction in rural areas, particularly

in terms of obtaining public services in the domains of health, education, and so on.Furthermore, ODA programs and initiatives have aided agricultural scientific andtechnology research in order to improve the quality and safety of agricultural goodswhile also increasing their competitiveness

Regarding energy, Vietnam has built a series of projects on hydropower,thermal and renewable energy sources, power grids and distribution stations, and so

on, all of which have contributed to improving production and transmissioncapacity., distribution, and management of the power system, meeting the demandfor high load growth at a rate of 15% -17% /year The transportation industry is theone that receives the most ODA 132 projects with a total ODA capital of more than

17 billion USD were completed and are being implemented in the Transport sectorbetween 1990 and 2013, with 83 projects finished with ODA capital of 5 billionUSD and 49 projects being implemented with ODA capital of roughly 12 billion

USD In this arena, ODA programs and projects have aided Vietnam in developingand improving its national transportation system, as well as regional and provincialtraffic.

In education and training, ODA programs and projects support all levels ofeducation, assisting in the strengthening of teaching and learning capacity, assistingunderprivileged children in attending school, and promoting education for all.Furthermore, technical assistance projects have taught and retrained tens ofthousands of Vietnamese officials at various levels in many sectors of science andtechnology, primarily through grant money Engineering, technology, economicmanagement, banking and finance, and public administration are just a few of thefields covered International specialists from the area and around the world arebrought to Vietnam through ODA programs and projects, and workers in Vietnamhave learnt not just about competence but also about professional working stylesand a sense of responsibility for given tasks

In terms of health, ODA programs and projects have enhanced the quality ofmedical services, established the material and technical foundations for medicalevaluation and treatment, and built antibiotic production facilities and transmissioncenters blood of a nation Furthermore, several national target initiatives onhealth, HIV/AIDS, and infectious disease prevention and control funded by ODAhave had positive results In recent years, ODA financing for the health sector hasaided progress toward achieving the health-related Millennium Development Goals(MDGs)

Many sophisticated management skills and experiences are transferred toagencies, research institutes, ministries, sectors, and localities with the help ofprograms in the sphere of science and technology ODA project in the disciplines ofcomputer technology, biotechnology, materials technology, and constructiontechnology Hi-tech park and center infrastructure development project A goodexample is Vietnam's spaceflight in Hoa Lac Hi-Tech Park in Hanoi, which wasfunded by Japan

In terms of institutional development, Vietnam has gained foreign knowledgeand expertise in order to improve the legal and institutional environment in the

transition to a market economy as a result of obtaining ODA as well asinternational and regional integration, particularly the process of joining the WorldTrade Organization (WTO) Construction Law, Land Law, Commercial Law,Foreign Investment Law, Enterprise Law are just a few of the draft laws and legaldocuments that have been established with ODA's help.

2.2 The status of ODA capital mobilization

2.2.1 Vietnam's regulations on management of capital attraction and use

Right from the first Donor Conference for Vietnam (November 1993), theGovernment of Vietnam declared its position on the issue of ODA management anduse: “What is important is capital sources External must be used effectively TheVietnamese government will be the one to bear the costs of failure if this capital isnot used effectively.”

Before 1993, the management and use of international loans and aid ships ingeneral and ODA in particular were regulated by individual decisions of the PrimeMinister for each program, project and donor Specifically, there is a lack ofsynchronous legal documents that allow the management of the project cycle frommobilization, signing of international treaties on ODA, organization ofimplementation to monitoring and evaluation of project implementation results Theproject has been an impediment to the coordination of funding sources to serve thepriority goals of development

At the donor conference for Vietnam, the Government of Vietnam committed

to developing the legal infrastructure to effectively manage and use internationalloans and grants On August 30, 1993, the Government issued Decree 58/CP onregulations on borrowing and paying foreign debts and on March 15, 1994 theGovernment issued Decree No 20/CP on regulations on management and use offoreign loans use ODA These are the first legal documents of the Government onattracting, managing and using international loans and grants

The birth of Decree 58/CP and Decree 20/CP have contributed to putting themanagement and use of international loans and grants into order and meeting theexpectations of donors These two decrees initially had the effect of promoting theformation of an organizational structure for managing loans and grants, focusing on

one focal point Investment management focal units have been established inministries (Departments of Planning and Investment), provinces and centrally-runcities (Departments of Planning and Investment) Based on the actualimplementation of Decree 58 and Decree 20, listening to the opinions of theinternational donor community, the Government of Vietnam realizes that, besidesthe positive aspects, these two Decrees also reveal the Weaknesses need to besupplemented and perfected Therefore, the Government has directed the concernedagencies to study and complete the two Decrees mentioned above.

On August 5, 1997, the Government issued Decree 87/CP on the regulation onmanagement and use of official development assistance ODA, replacing Decree 20/

CP and on November 7, 1998 the Government also issued Decree No issuedDecree No 90/CP on regulations on borrowing and paying foreign debts to replaceDecree 58/CP Along with the issuance of this Decree, ministries and branches haveissued guiding circulars on the management and use of ODA, such as Circular No.15/1997/TT-BKH dated October 24, 1997 guiding the implementation ofregulations on management and use of ODA, promulgated together with Decree 87/CP…

On May 4, 2001 Decree No 17/2001/ND-CP promulgating regulations onmanagement and use of official development assistance and Decree No.52/1999/ND-CP promulgating regulations The establishment of the constructioninvestment and management mechanism has further completed the legal framework

on the management and use of ODA in Vietnam The objective of these Decrees is

to create a more open and flexible legal environment for international loans andgrants, in order to strengthen the responsibility of expanding the powers ofministries and ministerial-level agencies on the one hand, agencies directly underthe Government, provinces and cities directly under the Central Government in theeffective management and use of international loans and grants, on the other hand,maintaining the centralized management of the Government over this importantresources

On April 26, 2001, the Prime Minister issued Decision No 64/2001/QD-TTg

on management and use of foreign non-governmental aid, replacing Decision No

28/199/QD- TTg on 23/02/1999 On 04/2001/TT-BKH guiding the implementation

of the above Decision The Prime Minister's Decision No 64/2001/QD-TTg hascontributed to bringing the state management of foreign non-governmental aid toorder, which has long been slacked, and at the same time, clarified the responsibility

of the government levels in the process of managing and using this funding TheMinistry of Planning and Investment and the Ministry of Finance have issued Inter-Ministerial Circular No 02/2003/TTLT/BKH-BTC dated March 17, 2003 guidingfinancial planning for programs and projects using official development assistance(ODA)

During the 1990s, many ODA programs were primarily project-based ODAprograms have already been integrated with the Vietnam Development Goals(VDGs), the National Strategy for Comprehensive Poverty Reduction and Growth(CPRGS), and the Five-Year Socio-Economic Development Plan (SEDP) in thenew millennium, as well as assistance harmonization efforts Direct budget support,programmatic initiatives, and operation through national programs and systemshave all become more popular in recent years

The Government of Vietnam has established strategic orientations based oninvestment capital needs and development orientations by industry, field, andterritory as outlined in socio-economic development strategies and plans Thesestrategic orientations include a policy of prioritizing the use of ODA capital for eachperiod First, agriculture and rural development are two of the government's prioritysectors for using ODA in the 2006-2010 timeframe (including agriculture,irrigation, forestry and fisheries combined with hunger eradication and povertyreduction) Second, investing in modernizing the economy's infrastructure Third,social infrastructure development (health, education and training, population anddevelopment, and other disciplines) Fourth, preserve the natural environment andresources Fifth, develop human resources, strengthen institutional capacity, transfertechnology, and boost research and implementation competence According toprevious international ODA agreements, the structure of ODA capital is consistentwith the above-mentioned priority orientations for ODA use, specifically in thefields of transportation, post and telecommunications, water supply and drainage,