Investment and Growth Rate Essay example

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fcnhdgnxbxvcbxcbfdhfdhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhAt present, Vietnam has a population growth rate much higher than it's neighbouring countries. According to the Far-East Economic Review, the annual population growth rate of China is 1.4%, that of South Korea 1.0%, Taiwan 1.1%, Thailand 1.5%. The corresponding time necessary for these countries to double their population is respectively 48, 70, 60 and 46 years. In the meantime, the corresponding indicators of Vietnam are 2.3% and 30 years (1). It means that in order to keep a real growth rate (per capita GDP growth) at about the same level as these countries, Vietnam must gain a GDP growth rate higher than that of those countries for many consecutive years. This development problem is clearly not easy to solve.

2. Investment, savings and growth

A high GDP growth rate obtained in the condition of a low rate of investment in the GDP is a temporary and short-term phenomenon when the Incremental Capital Output Ratio (ICOR) is especially low. This has happened in Vietnam in the past few years. However, the fact that ICOR was low (at the level of 2-2.5) in the period 1991-1993 and is now rising gradually (in 1994 ICOR was approximately 3.0) shows that: a/ Compared with several neighbouring countries, the capital investment effectiveness in Vietnam still remains at a high level (the ICOR in 1980s of China was 4.0, India 4.0, Indonesia 5.4, the Philippines 12.9, Thailand 3.4, South Korea 3.3, and Taiwan 3.0 (2). b/ The favourable conditions of the previous years (the reform having permitted to make use more effectively the resources available, the investment projects prior to the reform with the aid of the former Soviet Union began to be operating at a profit) which permit the maintenance of ICOR at a low level, are now diminishing.
The reality shows that when Vietnam uses effectively the invested capital, it would be difficult to maintain ICOR at a level less than 3.0 Even in the best case (ICOR = 3.0) with a view to securing a GDP growth rate of 9-10% per year, the rate of investment in the GDP should be kept at the level of 27-30%. This is the level of investment that the countries with a rapid economic growth in Asia have attained. However, it is not for Vietnam to realize this rate as the funds accumulated inside the country are too limited and the rate of practical investment is still low in comparison with the potential available.
In practice, Vietnam's rates of domestic savings and investment in the GDP have continually increased in recent years. From a relatively low level (with indicators corresponding to 10.1% and 15% in 1991), these rates have risen to approximately 16.7% and 24% in 1994 (3). This tendency allows a forecast of an increase to the average level of 22% and 30% in the coming years. However, the question is whether it is possible or not to put into effect this capacity and more important still, to maintain these rates for a long period of time. It will greatly depend on the following: a/ Increased rate of domestic savings (including savings from the government and the population). b/ Economic institutions established to allow the population's savings to be directly transferred to investors when required by them. c/ Favourable environment for making investment by both domestic and foreign investors.
According to the most cautious growth scenario of the Development Strategy Institute under the State Planning Committee, until the year 2000, Vietnam's GDP will attain 37,044 million US dollars. This is supposing that the average annual growth rate is 10.24% during the period 1995-2000. By 2010, GDP will have reached 118,493 million US dollars (the average growth rate during the period 2001-2010 is projected to be 9.52% per year). The volume of GDP in 1994 was to the tune of 15,478 million US dollars. The difference between the GDP in 1994 and that in 2000 is to the order of 21,566 million US dollars and between 2000 and 2010 is to the order of
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