The Nexus of Economic Growth with Macroeconomic Variables and Corruption: Fresh Evidence from Vietnam

Abstract

Economic growth is the best indicator of whether or not initiatives to reduce poverty and enhance living standards are having the desired effect, specifically in developing countries. Academicians have traditionally considered the growth of Gross Domestic Product (GDP) to be an important question. Poverty rates, rates of development in health, education, and security, and economic growth all suffer when a country's GDP per capita stagnates. Stability in society is aided by a growing economy, another reason of why GDP growth is crucial. Therefore, this study aims to examine the nexus between the economic growth of Vietnam with four selected macroeconomic variables and corruption index over the 24-year period from 1997 to 2020 using annual time series data. The economic growth, as the dependent variable is measured by the GDP growth whilst the four macroeconomic variables, namely Foreign Direct Investment (FDI), Inflation (INF), Exports (EXP), Gross Domestic Investment (GDI) and the Corruption Perception Index (CPI) act as the independent variables (IVs). The descriptive statistics, correlation test and Ordinary Least Squares (OLS) regression based on economic model using the eViews 11 software are applied to analyze the relationships and impacts of IVs on the economic growth. The empirical results indicate that there is no significant relationship between the IVs with the economic growth of Vietnam. However, FDI, EXP and GDI are found to pose positive impacts on the economic growth of the country whilst INF and CPI negatively affect the economic growth. In particular, the findings show FDI, EXP, and GDI support Vietnam economy by 2.67%, 0.08%, and 8.87%, respectively. Apparently, the expansion of the economy is driven by GDI, FDI, and EXP. Increases in domestic investment and FDI are crucial that lead to economic growth in emerging nations. On contrary, high and fluctuating inflation affects economic confidence since businesses are uncertain of future costs and prices. The inflation issue must be tackled by the government to balance the expansion in economy with the cost of living in the country. Despite insignificant negative impact of corruption Vietnam economy, the policy makers must take heed on the ethics and transparency practices specifically in the public sector so that investors have more confidence on the country. For further research, we propose to test the economic growth with other macroeconomic variables such as industrial production index, money supply and foreign exchange rate together with available indices like human development index and global peace index using other methodologies. To be more meaningful, we propose to make comparisons with other countries in the same region or other continents, developing or developed nations.