The study provides a deeper understanding of the current role of finance in improving economic development in Vietnam between 1981 and 2019. The study employed the autoregressive distributed lag (ARDL) modelling technique. Based on the long run model estimates, trade openness (TOP) and foreign direct investment (FDI) exert positive but insignificant impact of economic development in Vietnam, while gross capital formation (GFKF) is significant at 10%. Also, exchange rate was found to have negatively influenced economic development, while human development was also important to economic development. This study found that human development and external borrowing is seen to positively impact on economic development in Vietnam. It is recommended that external debt ratio at the threshold of 105% of annual GDP is manageable and beneficial; it is important to attract multinational corporations from developed countries; the government should strengthen and encourage the competitiveness of exports to maintain a sustainable balance with imports and improving the high-quality labor in Vietnam.
Top1. Introduction
After the conclusion of World War II, which followed by the collapse of Vietnam’s empire and the plummet of Saigon (Ho Chi Minh City) in 1975, to the reunification in 1976 of the Northern and Southern Vietnam, the economy faced scores of challenges, such as domestics repression and isolation from the global community as a result of existing cold war (American economic sanctions). The economic woes informed the decision of the Vietnam Communist Party in 1986 to commence a series of reforms in their economy through what was known as DOI MOI, which was an economic policy shift by a political movement led by Prime Minister Vo Van Kiet. Ever since the choice of market economy to planned economy and the successive reforms in the 1980s, Vietnam witness substantial economic prosperity (Liesbet & Kunal, 2008).
Southeast Asian nation of Vietnam is long and narrow, covering an area of 330,363 square kilometers, and is bordered by the Gulf of Thailand to the south, the South China Sea to the east, China to the north, Laos, and Cambodia to the west. See Figure 1.
Figure 1. Source: New World Encyclopaedia (2021) On September 2, 1945, Vietnam formally proclaimed its independence from Japan and France. However, until the communist Viet Minh destroyed French forces at Dien Bien Phu in 1954, Vietnam was still governed by France. Tet or the Lunar New Year (movable dates in January or February), Liberation Day to commemorate the fall of Saigon on April 30, Labor Day on May 1, and Independence Day to mark Japan's retreat after losing the Second World War are all recognized holidays in Vietnam. II-September 2nd. (Library of Congress, 2005). It is with a population of 99,005,579 and expected to be 109,605,011 in 2050 with the current GDP of $310 billion. Vietnam currency is called Vietnamese Dong (VND), it has been in use since 3rd May, 1979 and its Central Bank is known as State Bank of Vietnam. Its main natural resources comprise of coal, copper, crude oil, gold, iron, manganese, silver, and zinc, (Worldometer 2022).
In the 1990s, Vietnam achieved both rapid growth and low inflation; hence, the economic restructuring started inducing economy positively. Indeed, the pace with which the economy was able to reduce the rate of inflation and raise the real growth rate was a function of the new economic policies (Busch, 2017). The consistency in the implementation of market driven policies for the Vietnam economy over the years culminated in the current World Bank Group Country Partnership Frame work (CPF) for the country, endorsed in 2017 which guides the Bank Group's engagements in the country from 2018 to 2022 in basically four priority areas of: inclusive private sector driven growth; investment in knowledge creation; environmental sustainability and good governance. The CPF introduced strategic move that direct the Group’s work to: enhance private sector growth across sectors; attain financial sustainability of public services and transfers; lessen poverty among ethnic minorities; strengthen relationships between education and the labour market; promote and stimulate low carbon energy generation (World Bank 2022).