Economic growth model of Vietnam: simultaneous equation system

Abstract

The paper discusses how internal and external factors affect economic growth in the economic literature and explores the economic mechanisms through which the macroeconomic variables might impact economic growth directly and indirectly. The simultaneous equation system is employed in order to introduce the key macroeconomic behavior functions using the Vietnamese data for the period 1986 – 2013. The findings are: (1) the major contribution to economic growth is the quantity of investment instead of the quality of investment; (2) the optimal macroeconomic stability has positively affected economic growth; (3) exports have positively impacted on economic growth; (4) the public investment crowds in the private investment generally; and (5) the income, capacity utilization, and the optimal inflation have positively impacted consumption. The paper also shows that the GDP growth rate does not capture well the economic performance of the country because it does not take into account the net factor payment from abroad, natural resource depletion, and the inefficient intra-industry trade.