Effect of fiscal and monetary policy on private investment in Vietnam
Abstract
This paper aims to identify the effect of fiscal and monetary policy on private investment in Vietnam, a transition economy having robust economic growth. The quantitative analyze process employs the Autoregressive Distributed Lag (ARDL) model with a quarterly database in 2004–2020. The bound test study indicates that there is a long-term cointegration relationship between the policy variables and private investment. In the long run, the estimated result shows that the government expenditure and money supply have positive and significant impacts on private investment, however, the exchange rate has a negative and significant impact on private investment. In the short run, government expenditure also has a significant positive impact on private investment in Vietnam, besides, the lag of the private investment variable has a positive and significant which shows the supporting impact on private investment on itself. The coefficients of the tax revenue are positive and insignificant in the estimated functions. Therefore, the evidence suggests that the government needs to increase its expenditure which helps improve private investment in Vietnam in the future.
Keyword : private investment, fiscal policy, monetary policy, ARDL
How to Cite
Tung, L. T. (2022). Effect of fiscal and monetary policy on private investment in Vietnam. Business: Theory and Practice, 23(2), 427–434. https://doi.org/10.3846/btp.2022.15154
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Kasselaki, M. T., & Tagkalakis, A. O. (2016). Fiscal policy and private investment in Greece. International Economics, 147, 53–106. https://doi.org/10.1016/j.inteco.2016.03.003
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Monadjemi, M. S., & Huh, H. (1998). Private and government investment: A study of three OECD countries. International Economic Journal, 12(2), 94–104. https://doi.org/10.1080/10168739800000015
Ndikumana, L. (2016). Implications of monetary policy for credit and investment in Sub-Saharan African countries. Journal of African Development, 18(2), 1–18. https://doi.org/10.5325/jafrideve.18.2.0001
Omojolaibi, J. A., Okenesi, T.-N. P., & Mesagan, E. P. (2016). Fiscal policy and private investment in selected West African countries. CBN Journal of Applied Statistics, 7(1), 277–309.
Pesaran, M. H., Shin, Y., & Smith, R.J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
Petrevski, G., Bogoev, J., & Tevdovski, D. (2016). Fiscal and monetary policy effects in three South Eastern European economies. Empirical Economics, 50, 415–441. https://doi.org/10.1007/s00181-015-0932-0
Quan, V. L. (2004). Political and economic determinants of private investment. Journal of International Development, 16(4), 589–604. https://doi.org/10.1002/jid.1109
Sims, C. A. (2012). Statistical modeling of monetary policy and its effects. American Economic Review, 102(4), 1187–1205. https://doi.org/10.1257/aer.102.4.1187
Soli, V. O., Harvey, S. K., & Hagan, E. (2008). Fiscal policy, private investment and economic growth: the case of Ghana. Studies in Economics and Finance, 25(2), 112–130. https://doi.org/10.1108/10867370810879438
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Tung, L. T. (2019). Does foreign direct investment really support private investment in an emerging economy? An empirical evidence in Vietnam. Montenegrin Journal of Economics, 15(1), 7–20. https://doi.org/10.14254/1800-5845/2019.15-1.1
Tung, L. T., & Thanh, P. T. (2015). Threshold in the relationship between inflation and economic growth: Empirical evidence in Vietnam. Asian Social Science, 11(10), 105–112. https://doi.org/10.5539/ass.v11n10p105
Yunanto, M., & Medyawati, H. (2014). Monetary and fiscal policy analysis: Which is more effective? Journal of Indonesian Economy and Business, 29(3), 222–236. https://doi.org/10.22146/jieb.6470
Wang, B. (2005). Effects of government expenditure on private investment: Canadian empirical evidence. Empirical Economics, 30(2), 493–504. https://doi.org/10.1007/s00181-005-0245-9
Adams, S. (2009). Foreign direct investment, domestic investment, and economic growth in Sub-Saharan Africa. Journal of Policy Modeling, 31(6), 939–949. https://doi.org/10.1016/j.jpolmod.2009.03.003
Afonso, A., & Jalles, J. T. (2015). How does fiscal policy affect investment? Evidence from a large panel. International Journal of Finance and Economics, 20(4), 310–327. https://doi.org/10.1002/ijfe.1518
Akinlo, T., & Oyeleke, O. J. (2018). Effects of government expenditure on private investment in Nigerian Economy (1980–2016). Emerging Economy Studies, 4(2), 147–156. https://doi.org/10.1177/2394901518795067
Alesina, A., Ardagna, S., Perotti, R., & Schiantarelli, F. (2002). Fiscal policy, profits, and investment. American Economic Review, 92(3), 571–589. https://doi.org/10.1257/00028280260136255
Al-Sadig, A. (2013). The effects of foreign direct investment on private domestic investment: Evidence from developing countries. Empirical Economics, 44, 1267–1275. https://doi.org/10.1007/s00181-012-0569-1
Barker, T., & Üngör, M. (2019). Vietnam: The next Asian Tiger? North American Journal of Economics and Finance, 47, 96–118. https://doi.org/10.1016/j.najef.2018.11.010
Barro, R. J., & Redlick, C. J. (2011). Macroeconomic effects from government purchases and taxes. The Quarterly Journal of Economics, 126(1), 51–102. https://doi.org/10.1093/qje/qjq002
Bernanke, B., & Mihov, I. (1998). Measuring monetary policy. Quarterly Journal of Economics, 113(3), 869–902. https://doi.org/10.1162/003355398555775
Bhandari, R., & Upadhyaya, K. P. (2010). Panel data evidence of the impact of exchange rate uncertainty on private investment in South-East Asia. Applied Economics, 42(1), 57–61. https://doi.org/10.1080/00036840701564400
Blanchard, J. O., & Perotti, R. (2002). An empirical characterization of the dynamic effects of changes in government spending and taxes on output. Quarterly Journal of Economics, 107(4), 1329–1368. https://doi.org/10.1162/003355302320935043
Bora, I., Kirikkaleli, D., Zoaka, J., Bekun, F., & Ekwueme, D. (2020). Investigating monetary policy dynamics in Nigeria: The role of private investment. Management Science Letters, 10(1), 247–254. https://doi.org/10.5267/j.msl.2019.7.037
Brima, S., & Brima, A. S. (2017). Monetary policy effects on private sector investment: Evidence from Sierra Leone. International Journal of Economics and Financial Issues, 7(1), 476–488.
de Castro, F. (2006). The macroeconomic effects of fiscal policy in Spain. Applied Economics, 38(8), 913–924. https://doi.org/10.1080/00036840500369225
Dungey, M., & Fry, R. (2009). The identification of fiscal and monetary policy in a structural VAR. Economic Modelling, 26(6), 1147–1160. https://doi.org/10.1016/j.econmod.2009.05.001
Feldstein, M. S. (2009). Rethinking the role of fiscal policy. American Economic Review, 99(2), 556–559. https://doi.org/10.1257/aer.99.2.556
Forni, L., Monteforte, L., & Sessa, L. (2009). The general equilibrium effects of fiscal policy: Estimates for the Euro area. Journal of Public Economics, 93(3–4), 559–585. https://doi.org/10.1016/j.jpubeco.2008.09.010
Fujii, T., Hiraga, K., & Kozuka, M. (2013). Effects of public investment on sectoral private investment: A factor augmented VAR approach. Journal of the Japanese and International Economics, 27, 35–47. https://doi.org/10.1016/j.jjie.2012.11.003
General Statistics Office. (2021). Data and statistics. https://www.gso.gov.vn/en/homepage/
Hailu, D. B., & Debele, F. (2015). The effect of monetary policy on the private sector investment in Ethiopia: ARDL co-integration approach. Economics, 4(2), 22–33. https://doi.org/10.11648/j.eco.20150402.12
Hamuda, A. M., Šuliková, V., Gazda, V., & Horváth, D. (2013). ARDL Investment model of Tunisia. Theoretical and Applied Economics, 2(579), 57–68.
Heidari, H., & Pourvaladi, S. M. H. (2011). Reinvestigating the relationship between exchange rate uncertainty and private investment in Iran: An application of bounds test approach to level relationship. African Journal of Business Management, 5(15), 186–194.
Jongwanich, J., & Kohpaiboon, A. (2008). Private investment: Trends and determinants in Thailand. World Development, 36(10), 1709–1724. https://doi.org/10.1016/j.worlddev.2008.01.010
Kasselaki, M. T., & Tagkalakis, A. O. (2016). Fiscal policy and private investment in Greece. International Economics, 147, 53–106. https://doi.org/10.1016/j.inteco.2016.03.003
Martin, C., & Milas, C. (2009). Uncertainty and monetary policy rules in the United States. Economic Inquiry, 47(2), 206–215. https://doi.org/10.1111/j.1465-7295.2008.00160.x
Monadjemi, M. S., & Huh, H. (1998). Private and government investment: A study of three OECD countries. International Economic Journal, 12(2), 94–104. https://doi.org/10.1080/10168739800000015
Ndikumana, L. (2016). Implications of monetary policy for credit and investment in Sub-Saharan African countries. Journal of African Development, 18(2), 1–18. https://doi.org/10.5325/jafrideve.18.2.0001
Omojolaibi, J. A., Okenesi, T.-N. P., & Mesagan, E. P. (2016). Fiscal policy and private investment in selected West African countries. CBN Journal of Applied Statistics, 7(1), 277–309.
Pesaran, M. H., Shin, Y., & Smith, R.J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
Petrevski, G., Bogoev, J., & Tevdovski, D. (2016). Fiscal and monetary policy effects in three South Eastern European economies. Empirical Economics, 50, 415–441. https://doi.org/10.1007/s00181-015-0932-0
Quan, V. L. (2004). Political and economic determinants of private investment. Journal of International Development, 16(4), 589–604. https://doi.org/10.1002/jid.1109
Sims, C. A. (2012). Statistical modeling of monetary policy and its effects. American Economic Review, 102(4), 1187–1205. https://doi.org/10.1257/aer.102.4.1187
Soli, V. O., Harvey, S. K., & Hagan, E. (2008). Fiscal policy, private investment and economic growth: the case of Ghana. Studies in Economics and Finance, 25(2), 112–130. https://doi.org/10.1108/10867370810879438
Tung, L. T. (2018). The effect of fiscal deficit on economic growth in an emerging economy: Evidence from Vietnam. Journal of International Studies, 11(3), 191–203. https://doi.org/10.14254/2071-8330.2018/11-3/16
Tung, L. T. (2019). Does foreign direct investment really support private investment in an emerging economy? An empirical evidence in Vietnam. Montenegrin Journal of Economics, 15(1), 7–20. https://doi.org/10.14254/1800-5845/2019.15-1.1
Tung, L. T., & Thanh, P. T. (2015). Threshold in the relationship between inflation and economic growth: Empirical evidence in Vietnam. Asian Social Science, 11(10), 105–112. https://doi.org/10.5539/ass.v11n10p105
Yunanto, M., & Medyawati, H. (2014). Monetary and fiscal policy analysis: Which is more effective? Journal of Indonesian Economy and Business, 29(3), 222–236. https://doi.org/10.22146/jieb.6470
Wang, B. (2005). Effects of government expenditure on private investment: Canadian empirical evidence. Empirical Economics, 30(2), 493–504. https://doi.org/10.1007/s00181-005-0245-9