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This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Article
External Debt and Economic Growth in Vietnam: A Nonlinear Relationship
Author(s)
Ha Thi Thieu Dao, Do Hoang Oanh
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DOI:10.17265/1537-1514/2017.01.001
Affiliation(s)
Banking University of Ho Chi Minh City, Ho Chi Minh City, Vietnam
ABSTRACT
Most
countries in the world are engaged in lending and borrowing activities regardless
of their being rich or poor. For Vietnam, external loan is one of the important
financial sources for investment because Vietnam’s savings are still lower than
investment. In the past 10 years, economic growth of Vietnam has slowed down while
compared to areas, external debt still goes up continuously. This situation has
raised the question whether a developing country like Vietnam should continue to
borrow external resources. An empirical evidence to determine the tendency relationship
between external debt and economic growth in Vietnam is necessary to decide the
external debt policy in the future. This study finds out the relationship between
external debt and economic growth in Vietnam between 2000Q1 and 2012Q4. Using OLS
(Ordinary Least Square) method associated with the ECM model (Error Correction Model)
of Johansen-Juselius, the research calculates the threshold of external debt as
well as estimates the relationship between external debt and economic growth in
Vietnam. The findings support the existence of non-linear (inverted U-shaped) relationship
between external debt and economic growth with the threshold level of 28%. In addition,
the study also quantified the effect level of external debt to economic growth if
the government continues to borrow and exceed this threshold.
KEYWORDS
debt overhang, external debt, debt threshold, non-linear external debt
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