Balance of payments constrained growth model: The case of Vietnam, 1995 - 2010

Abstract

This study is to examine whether balance of payments in Vietnam constrained economic growth or not; which factors behind balance of payments restrict economic growth; what policy implications are for the balance of payments constrained economic growth in Vietnam? The author examined balance of payments constraints model and economic growth in theoretical framework, the relationship of balance of payments and economic growth, together with empirical studies. In particular, we indicate basic concepts of balance of payments and economic growth as well as role of balance of payments in fostering and constraining growth. Moreover, the balance-of-payments constrained economic growth model has been considered meticulously. Empirical review of some studies has also been indicated to manifest importance of balance-of-payments in economic growth. Many empirical studies related to balance of payment constraints growth around the world, showing the evidence that Balance of Payments constrained growth rate of many nations especially in the case of developing countries. The author has a look the economic growth and balance of payments in case of Vietnam during the 1995-2010. The result shows that economic in Vietnam from 1995-2010 periods contributed by capital inflows from FDI, debt and net transfer with mainly by remittance and also “trade deficit”. Therefore, balance of payments would have constrained the economic growth if trade decifit is not been compensated by capital inflows.